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HomeMy WebLinkAboutRes 06-33 Issuance of Special Tax Bonds Series 2006A University ParkCITY OF PALM DESERT STAFF REPORT REQUEST: CONSIDERATION OF THE AUTHORIZATION OF ISSUANCE OF SPECIAL TAX BONDS, SERIES 2006A, OF CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT (CFD) NO. 2005-1 (UNIVERSITY PARK) AND APPROVAL OF RELATED DOCUMENTS SUBMITTED BY: DAVE YRIGOYEN, DIRECTOR OF REDEVELOPMENT/HOUSING DATE: MARCH 23, 2006 CONTENTS: RESOLUTION NO. 06-_D_ FORM OF BOND INDENTURE FORM OF BOND PURCHASE AGREEMENT FORM OF ACQUISITION AGREEMENT FORM OF PRELIMINARY OFFICIAL STATEMENT (INCLUDES FORM OF CONTINUING DISCLOSURE AGREEMENT) FIRST AMENDMENT TO COST -SHARING AND BOND PROCEEDS ALLOCATION AGREEMENT AMONG PROPERTY OWNERS Recommendation: It is the staffs recommendation that the City Council adopt the following resolution: Resolution No. 06- 33 , a resolution of the City Council of the City of Palm Desert, acting for itself and as the legislative body of City of Palm Desert Community Facilities District No. 2005-1 (University Park) to authorize the issuance of its special tax bonds, Series 2006A, in a principal amount not to exceed fifty million dollars ($50,000,000) and approving certain documents and taking certain other actions in connection therewith. Executive Summarv: Approval of the attached documents in substantially the form presented is required in order for the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "University Park CFD") to issue the first of two series of special tax bonds (the "Series 2006A Bonds") to finance the public infrastructure to serve the property within the University Park CFD. Also included for the City Council's information and review is a copy of the first amendment to the Cost -Sharing and Bond Proceeds Allocation Agreement ("Allocation Staff Report Authorization of Issuance of Special Tax Bonds, Series 2006A, CFD No. 2005-1 Univ. Park Page 2 of 6 March 23, 2006 Agreement") by and among the 8 property owners within the University Park CFD, which Allocation Agreement was originally entered into as of January 25, 2006 and documents their understanding, and confirms their respective votes in favor, of the rate and method of apportionment of the special taxes to be levied within the University Park CFD. The first amendment sets forth the property owners' agreement to allocate to backbone infrastructure costs certain University Park CFD bond monies which previously would have been available for in -tract improvements and development impact fees, if construction costs for backbone infrastructure are higher than the estimates prepared by RBF Consulting in September 2005. Backaround: At the request by petition dated October 12, 2005 of Desert Wells 237, LLC, a California limited liability company, Albor Properties III, LP, a California limited partnership, Palm Desert Funding Company, LP, a Delaware limited partnership, The University Village Partnership, a California general partnership, and Shaw/Palm Desert 1, LLC, a California limited liability company (collectively, "Developer"), the City Council on January 12, 2006 formed the University Park CFD. The purpose of the University Park CFD is to finance improvements to serve the property within the CFD, such as streets, sewers, water systems, well sites (including site land acquisition), storm drains, traffic signals, parks (including acquisition), utilities, Cook Street pedestrian bridge, and landscaping. Other uses are for various developer impact fees such as the Fringed -Toed Lizard fee, public works drainage, signals, sewer and water fees, CVAG transportation fees, and Art -in -Public Places fees. The boundaries of the University Park CFD coincide with the boundaries of Parcel Map No, 31730, as adjusted, and total acreage of the property within the University Park CFD is approximately 266.877 acres. As stated in the Community Facilities District Report dated December 8, 2005, prepared and filed by MuniFinancial with the City Clerk prior to the opening of the public hearing on the same date, the estimated aggregate cost of the facilities to be financed by the University Park CFD is approximately $57,776,627. The location of facilities to be financed by the University Park CFD generally includes the following streets: • Frank Sinatra Drive: from West of Cook Street to College Drive • Cook Street: from Frank Sinatra Drive to Gerald Ford Drive • Portola Avenue: from College Drive to Gerald Ford Drive • Southern half of Gerald Ford Drive: from Portola Avenue to Cook Street • University Park Drive: from College Drive to Cook Street • Technology Drive: from College Drive to Gerald Ford Drive Pacific Avenue: from College Drive to Gerald Ford Drive G \RDA\Mana Hunt\WPDATA\YRIGOYEN\STFRPTS\032306 CFD 2005-1 UnivPk.D002 Staff Report Authorization of Issuance of Special Tax Bonds, Series 2006A, CFD No. 2005-1 Univ. Park Page 3 of 6 March 23, 2006 • College Drive: from Portola Avenue to Frank Sinatra Drive • In -tract streets On January 12, 2006, following formation of the University Park CFD, a duly noticed and continued public hearing pursuant to the Mello -Roos Community Facilities Act of 1982 (the "Act") was reconvened and concluded, and there was no majority protest filed prior to the conclusion of the public hearing. Subsequently on the same date, this City Council adopted Resolution No. 06-6 to form the University Park CFD. Following University Park CFD formation, also on January 12, 2006, the eight qualified electors within the University Park CFD voted in favor of propositions to incur bonded indebtedness not to exceed $70,000,000 to finance the proposed facilities, to levy the proposed special tax to pay for the facilities (including debt service on the bonds issued to finance the facilities), and to establish an Article XIIIB appropriations limit equal to all the proceeds of the special tax collected annually within the University Park CFD. In accordance with the election, this City Council adopted on February 9, 2006 Ordinance No. 1107 authorizing the levy of the special tax within the University Park CFD, as proposed. Pursuant to the Act, if more than two-thirds of the votes cast at the election are in favor of incurring the bonded indebtedness, the City Council may by resolution provide for the issuance of the bonds by the University Park CFD and the related terms and agreements. If adopted, Resolution No. 06- will authorize the University Park CFD to issue bonds in an aggregate principal amount not to exceed $50,000,000 designated as the "City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A" to finance the proposed public facilities, provided the overall interest rate does not exceed 6.50% per annum and the discount paid to the underwriter for the bonds, exclusive of original issue discount, does not exceed 1.50% of the principal amount of the bonds. The City Council is requested to authorize the issuance of the 2006A Bonds as the first of 2 series in order to maximize execution (i.e., more favorable terms) on the sale of the bonds. As is typical for special tax bonds issued by community facilities districts established under the Act, the 2006A Bonds are considered speculative in nature and will be unrated and uninsured, due to the relationship of these bonds to real estate development. The market for special tax bonds is considered smaller than the market for insured tax allocation bond issues. The investors are expected to be institutional investors (such as mutual funds) and other investors experienced in the investment of below -investment grade bonds, and the underwriters (Stinson Securities, LLC, and Kinsell, Newcomb & De Dios, Inc.) will sell the 2006A Bonds in a public offering to such investors. G.\RDA\Mana Hunt\WPDATA\YRIGOYEMSTFRPTS\032306 CFD 2005-1 UnivPk.DOI� Staff Report Authorization of Issuance of Special Tax Bonds, Series 2006A, CFD No. 2005-1 Univ. Park Page 4 of 6 March 23, 2006 Resolution No. 06- will also authorize certain officers of the City of Palm Desert to execute and deliver the following documents in connection with the issuance of the bonds, in substantially the form as such documents are on file with the City Clerk: (1) Bond Indenture by and between the University Park CFD and Wells Fargo Bank, National Association, as trustee (provides for the terms of the bonds) (2) Bond Purchase Agreement by and among the City (on behalf of the University Park CFD), Stinson Securities, LLC, and Kinsell, Newcomb & De Dios, Inc., as underwriters for the bonds (provides for the sale of the bonds by the University Park CFD to the underwriter) (3) Preliminary Official Statement and final Official Statement for the bonds (offering documents used by the underwriter to market and sell the bonds to investors) (4) Continuing Disclosure Agreement (attached as Appendix F to the Preliminary Official Statement) by and between the City and Wells Fargo Bank, National Association, as dissemination agent (governs the University Park CFD's and dissemination agent's provision of certain financial and special tax -related information on a continuing basis to the bond market) (5) Acquisition Agreement (the "Acquisition Agreement") by and among the City of Palm Desert, the University Park CFD, the Developer, and Sinatra & Cook Project, LLC (another owner of property within the University Park CFD), (provides for the terms and conditions of the Developer's construction of public facilities and the City's payment and acquisition of the facilities from the Developer). The 6 out of 8 property owners who are parties to the Acquisition Agreement covenant not to amend the Allocation Agreement without the City's prior written consent, and to the extent the Acquisition Agreement incorporates provisions of the Allocation Agreement, the Acquisition Agreement only recognizes amendments to the Allocation Agreement which have been consented to by the City in such a manner. The bonds will be repaid from special taxes levied on the parcels within the University Park CFD, in accordance with the rate and method of apportionment approved by the vote of the qualified electors within the University Park CFD and by this City Council. The payment of special taxes is secured by each taxable parcel in the University Park CFD. In the event special taxes become delinquent under circumstances described in the Bond Indenture, this City Council, as legislative body of the University Park CFD, will covenant in the attached resolution and in the Bond Indenture to commence and pursue foreclosure actions regarding delinquent installments of the special taxes. In addition to the reserve account established under the Bond Indenture (which is funded initially from bond proceeds and maintained thereafter at the prescribed amount with GARDAWaria Hunt\WPDATA\YRIGOYEMSTFRPTS\032306 CFD 2005-1 UnivPk DOG Staff Report Authorization of Issuance of Special Tax Bonds, Series 2006A, CFD No. 2005-1 Univ. Park Page 5of6 March 23, 2006 special tax transfers), proceeds from foreclosure sales provide back-up security in the event installments of special taxes are not paid by property owners. The offering documents disclose these sources of repayment of the bonds, together with the many possible risks relating to repayment of the bonds (such as changes in the law, real estate development, natural disasters, etc.). The approved rate and method of apportionment of special taxes was prepared based on the Developer's proposed development plan, with backup tax rates (up to a maximum tax rate) in case certain development thresholds are not met. Projections have been prepared to show that special tax revenues are expected to generate sufficient funds to repay the bonds. These projections have been included in the offering documents for the bonds, together with an explanation of the assumptions used in making the projections and the associated risks. Palm Desert Funding Company, LP ("PDFC"), the master developer responsible for the construction of the backbone infrastructure, was not able to obtain a performance bond to assure completion of all backbone infrastructure if costs exceed the September 22, 2005 estimates prepared by RBF Consulting for the Developer. However, all remaining 7 property owners within the CFD have obligated themselves in the Allocation Agreement to pay to PDFC their proportionate shares of the costs of the backbone infrastructure, including 15% per annum penalty interest commencing if payment is not made within 20 days of PDFC's request for payment. As additional security for the completion of the backbone infrastructure, the property owners have entered into the first amendment to the Allocation Agreement, which makes a mandatory allocation to backbone infrastructure costs certain University Park CFD bond monies which previously would have been available for in -tract improvements and development impact fees, if (and to the extent) at the time of pricing of each series of University Park CFD bonds, construction costs for backbone infrastructure are higher than the RBF estimates. The University Park CFD is projected, with current interest rates, to raise approximately $60 million in construction funds, and the RBF Consulting estimate anticipates approximately $36.6 million will be required to construct the backbone infrastructure. The bids for the first major contract for components of backbone infrastructure have been received and are reasonable in view of the estimate prepared by RBF Consulting and University Park CFD bond proceeds. Finally, pursuant to the terms of the Acquisition Agreement, each construction contract for the construction of facilities financed by University Park CFD must be accompanied by a performance bond and payment bond provided by the general contractor, each naming the City and the University Park CFD (in addition to the contracting Developer) as beneficiaries, so in the event a contractor does not complete the construction of facilities under a particular contract, the City may take action upon the performance bond to complete construction of such facilities. G RDAWana Hunt\WPDATA\YRIGOYEMSTFRPTS1032306 CFD 2005-1 UnivPk DOQ5 Staff Report Authorization of Issuance of Special Tax Bonds, Series 2006A, CFD No. 2005-1 Univ. Park Page 6 of 6 March 23, 2006 The Bond Indenture provides for the bond funds to be invested by the trustee in investments authorized for the investment of bond proceeds by the University Park CFD and City under Government Code Section 53601. The authorized types of investments will be disclosed to investors in the offering document. Future Actions: The Council will be asked at a later date to adopt a resolution to issue the second series of bonds authorized by the qualified electors within the University Park CFD to finance the public improvements to serve the University Park CFD. Staff recommends that the issuance of the Series 2006A Bonds to provide for the construction of regional public improvements as outlined in the report be authorized. Submitted by: `lave Yrig Director of edlopment/Housing DY:RC:mh Approval: A' Carlos L. rga, City Manager Approval: 6121j� Paul S. Gibson, Director of Finance GARDAWana Hunt\WPDATA\YRIGOYEN\STFRPTS\032306 CFD 2005-1 UnivPk DOCK RESOLUTION NO. 06- 33 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT, ACTING FOR ITSELF AND AS THE LEGISLATIVE BODY OF CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) TO AUTHORIZE THE ISSUANCE OF ITS SPECIAL TAX BONDS, SERIES 2006A, IN A PRINCIPAL AMOUNT NOT TO EXCEED FIFTY MILLION DOLLARS ($50,000,000) AND APPROVING CERTAIN DOCUMENTS AND TAKING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH RECITALS: WHEREAS, the City Council of the City of Palm Desert, located in Riverside County, California (the "City Council", and hereinafter sometimes referred to also as the "legislative body of the District"), has heretofore undertaken proceedings and declared the necessity of City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "District") to issue bonds pursuant to the terms and provisions of the Mello - Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California (the "Act'); and WHEREAS, pursuant to Resolution Nos. 06-8 and 06-9 adopted by the legislative body of the District on January 12, 2006, certain bond propositions were submitted to the qualified electors within the District, and were approved by more than two-thirds of the votes cast at the elections held within the District on January 12, 2006; and WHEREAS, based upon Resolution Nos. 06-8 and 06-9 and the elections, the District is now authorized to issue bonds in one or more series, pursuant to the Act, in an aggregate principal amount not to exceed $70,000,000, and WHEREAS, at this time, the legislative body of the District desires to issue a portion of such authorized bonds for the District under the Act to finance certain public facilities which the District is authorized to finance, and the District desires to accomplish the financing of such public facilities to serve the District through the issuance of bonds up to an aggregate principal amount not to exceed $50,000,000 as a series to be designated as the "City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A" (the "Bonds"), and WHEREAS, in order to effect the issuance of the Bonds, the City Council, for itself and as the legislative body of the District, desires to approve the form of a Preliminary Official Statement for the Bonds and to approve the forms of, and authorize the execution and delivery of, a Bond Indenture, a Bond Purchase Agreement, an Acquisition Agreement, and a Continuing Disclosure Agreement for the Bonds, the forms of which are on file with the City Clerk; and 13 6401.103 2`.8 7 3402.4 WHEREAS, although certain forthcoming legislative approvals such certain zoning or specific plan approvals for the proposed development within the District have not yet been issued, the City will derive special benefits from the issuance of Bonds by the District at this time, because the District's financing of the public facilities which it is authorized to finance, by the issuance of Bonds, will enable the improvement of the major streets within the District (including without limitation Gerald Ford Drive, Portola Avenue, Cook Street, and Frank Sinatra Drive) at a significantly earlier time than possible without the assistance of the District's issuance of Bonds, and the improvement of such streets are of a high priority to the City Council; and WHEREAS, the legislative body of the District has determined that it is prudent in the management of its fiscal affairs to issue the Bonds; and WHEREAS, the value of the real property in the District subject to the special tax to pay debt service on the Bonds is not less than three times the principal amount of the Bonds and the principal amount of all other bonds outstanding that are secured by a special tax levied pursuant to the Act or a special assessment levied on property within the District, which fact is required as a precondition to the issuance of the Bonds. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT, ACTING FOR ITSELF AND AS THE LEGISLATIVE BODY OF CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK), DOES HEREBY RESOLVE AS FOLLOWS: 1. Each of the above recitals is true and correct and is adopted by the City Council, acting for itself and as the legislative body of the District. 2. The legislative body of the District hereby finds and determines that, as determined in accordance with Section 53345.8 of the Act and as required by the City of Palm Desert policies adopted on October 13, 2005 pursuant to Section 53312.7 of the Act (the "Mello -Roos Goals and Policies"), the value of the real property in the District subject to the special tax to pay debt service on the Bonds is not less than three times the principal amount of the Bonds and the principal amount of all other bonds outstanding that are secured by a special tax levied pursuant to the Act or a special assessment levied on property within the District. This determination is based on the value of the real property within the District in an appraisal prepared for the District, which appraisal has been made in a manner consistent with the Mello -Roos Goals and Policies. 3. The Mello -Roos Goals and Policies requires that the development proposed within a community facilities district must have received any required legislative approvals such as zoning or specific plan approvals prior to the issuance of public debt, but the Mello -Roos Goals and Policies also provide that such requirement may be waived if the City Council finds that such waiver is reasonable given identified special City benefits to be derived from such waiver. The City Council hereby finds and determines that although certain forthcoming legislative approvals such certain zoning or specific plan approvals for the proposed development within the District have not yet 2 P6401.1032\873402.4 been issued, the City will derive special benefits from the issuance of Bonds by the District at this time, because the District's financing of the public facilities which it is authorized to finance, by the issuance of Bonds, will enable the improvement of the major streets within the District (including without limitation Gerald Ford Drive, Portola Avenue, Cook Street, and Frank Sinatra Drive) at a significantly earlier time than possible without the assistance of the District's issuance of Bonds, and the improvement of such streets are of a high priority to the City Council. The City hereby waives the aforementioned requirement set forth in the Mello -Roos Goals and Policies relating to legislative developmental approvals and finds that such waiver is reasonable in view of the above -described special benefits for road improvements the City will receive due to the District's issuance of the Bonds. 4. The issuance of the Bonds in an aggregate principal amount not to exceed $50,000,000 is hereby authorized, with the exact principal amount of the Bonds to be determined by the official signing the Bond Purchase Agreement in accordance with Section 7 below. The legislative body of the District hereby determines that it is prudent in the management of its fiscal affairs to issue the Bonds. The Bonds shall mature on the dates and pay interest at the rates set forth in the Bond Purchase Agreement to be executed on behalf of the District in accordance with Section 7 hereof. The Bonds shall be governed by the terms and conditions of the Bond Indenture presented at this meeting, on file with the City Clerk and incorporated herein by reference (the "Indenture"). The Indenture shall be executed by the Mayor of the City of Palm Desert (the "Mayor") or the City Manager of the City of Palm Desert (the "City Manager", and together with the Mayor, the "Authorized Officers") in substantially the form presented at this meeting, with such additions thereto and changes therein as may be approved by such officer upon consultation with Richards, Watson & Gershon, A Professional Corporation ("Bond Counsel"). Approval of such changes shall be conclusively evidenced by the execution and delivery of the Indenture by any one of the Authorized Officers. The date or dates, maturity or maturities, pledge or assignment of any revenues of the District to the repayment of the Bonds, the manner of investment of any bond proceeds and other revenues, manner of payment, interest rate or rates, interest payment dates, denominations, form, registration privileges, manner of execution, place of payment, terms of redemption, rebate provisions, and other terms of the Bonds shall be as provided in the Indenture as finally executed and shall be in conformance with any such terms set forth in the Bond Purchase Agreement described in Section 7 below and Official Statement described in Section 9 below and delivered to the purchasers of the Bonds. Capitalized terms used in this Resolution which are not defined herein have the meanings ascribed to them in the Indenture. 5. The Bonds shall be executed on behalf of the District by the manual or facsimile signature of the Mayor and the seal of the District or the City, or a facsimile thereof shall be impressed or imprinted thereon and attested with the manual or facsimile signature of the City Clerk. Wells Fargo Bank, National Association, is hereby appointed to act as trustee for the Bonds. 6. Pursuant to Section 53356.1 of the Act, the legislative body of the District hereby covenants, for the benefit of the Bondowners, to commence and diligently 3 P6401.1032' R73402.4 pursue any foreclosure action regarding delinquent installments of any amount levied as a special tax for the payment of interest or principal of the Bonds, such foreclosure action to be commenced and pursued as more completely set forth in the Indenture. 7. The form of the Bond Purchase Agreement by and among the City (on behalf of the District), Stinson Securities, LLC, and Kinsell, Newcomb and De Dios, Inc. (collectively, the "Underwriter") presented at this meeting, on file with the City Clerk and incorporated herein by reference (the "Bond Purchase Agreement'), is hereby approved, and any one of the Authorized Officers is hereby authorized to execute the Bond Purchase Agreement in substantially the form hereby approved, with such additions thereto and changes therein as may be approved by such officer upon consultation with Bond Counsel. Approval of such additions and changes shall be conclusively evidenced by the execution and delivery of the Bond Purchase Agreement; provided, however, that the Bond Purchase Agreement shall be signed only if the Bonds are purchased by the Underwriter at an overall interest rate that does not exceed 6.50% per annum for the issue as a whole (calculated utilizing the true interest cost method) and the discount paid to the Underwriter (exclusive of original issue discount) does not exceed 1.50% of the principal amount of the Bonds. The legislative body of the District hereby finds and determines, pursuant to Section 53360.4 of the Act, that the sale of the Bonds at negotiated sale to the Underwriter, as contemplated by the Bond Purchase Agreement, will result in a lower overall cost than a public sale. Each of the Authorized Officers is authorized to determine the day on which the Bonds are to be priced in order to attempt to produce the lowest borrowing cost for the District and may reject any terms presented by the Underwriter if determined not to be in the best interest of the District. S. The form of the Acquisition Agreement by and among the City, the District, Desert Wells 237, LLC, a California limited liability company, Albor Properties III, LP, a California limited partnership, Palm Desert Funding Company, LP, a Delaware limited partnership, The University Village Partnership, a California general partnership, Shaw/Palm Desert 1, LLC, a California limited liability company, and Sinatra & Cook Project, LLC, a California limited liability company, presented at this meeting, on file with the City Clerk and incorporated herein by reference (the "Acquisition Agreement'), is hereby approved, and any one of the Authorized Officers is hereby authorized and directed to execute the Acquisition Agreement in substantially the form hereby approved, with such additions therein and changes thereto as the Authorized Officer or Authorized Officers executing the same may approve, with such approval to be conclusively evidenced by the execution and delivery of the Acquisition Agreement. 9. The form of the Preliminary Official Statement presented at this meeting, on file with the City Clerk and incorporated herein by reference (the "Preliminary Official Statement') is hereby approved, and the Underwriter is hereby authorized to distribute the Preliminary Official Statement to prospective purchasers of the Bonds in substantially the form hereby approved, together with such additions thereto and changes therein as are determined necessary by any one of the Authorized Officers to make the Preliminary Official Statement final as of its date for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 of the Securities and Exchange Commission, including, but not limited to, such additions and changes as are necessary 4 P6401. ] 032,1873402.4 to make all information set forth therein accurate and not misleading. Each of the Authorized Officers is hereby authorized to execute a final Official Statement in substantially the form of the Preliminary Official Statement, together with such changes as are determined necessary by the Authorized Officer executing the Official Statement to make such Official Statement complete and accurate as of its date. The Underwriter is further authorized to distribute the final Official Statement for the Bonds and any supplement thereto to the purchasers thereof upon its execution on behalf of the District as described above. 10. The form of the Continuing Disclosure Agreement presented at this meeting, on file with the City Clerk as appended to the Preliminary Official Statement and incorporated herein by reference (the "Continuing Disclosure Agreement'), is hereby approved, and any one of the Authorized Officers is hereby authorized and directed to execute the Continuing Disclosure Agreement in substantially the form hereby approved, with such additions therein and changes thereto as the Authorized Officer or Authorized Officers executing the same deem necessary to cure any defect or ambiguity therein if such change does not materially alter the substance or content thereof, with such approval to be conclusively evidenced by the execution and delivery of the Continuing Disclosure Agreement. 11. All actions heretofore taken by the officers and agents of the City of Palm Desert and the District with respect to the establishment of the District, the issuance and sale of the Bonds, or in connection with or related to any of the agreements or documents referenced herein are hereby approved, confirmed, and ratified. The Mayor, each of the Authorized Officers, and the officers and staff of the City of Palm Desert and the District responsible for the fiscal affairs of the District are hereby authorized and directed to take any actions, and execute and deliver any and all documents as are necessary to accomplish (a) the issuance, sale and delivery of the Bonds in accordance with the provisions of this Resolution, (b) the transactions contemplated by the Indenture, the Bond Purchase Agreement, the Acquisition Agreement, and the Continuing Disclosure Agreement, and (c) the fulfillment of the purposes of the Bonds as described in the Indenture, including, but not limited to, providing certificates as to the accuracy of any information relating to the District which is included in the Official Statement. In the event that the Mayor is unavailable to sign any document authorized for execution herein, any Authorized Officer may sign such document. Any document authorized herein to be signed by the City Clerk may be signed by a duly appointed deputy clerk. 12. This Resolution shall take effect upon its adoption. The City Clerk shall certify to the passage and adoption of this Resolution and enter it into the book of original resolutions. P6401.1032 ,873402.4 PASSED AND ADOPTED this 23rd day of March, 2006, by the following vote to wit: AYES: Councilmembers NOES: Councilmembers ABSENT: Councilmembers ABSTAIN: Councilmembers Jim Ferguson, Mayor of the City of Palm Desert ATTEST: Rachelle D. Klassen, City Clerk of the City of Palm Desert P6401.1032\873402.4 BOND INDENTURE By and Between CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) and WELLS FARGO BANK,NATIONAL ASSOCIATION, as Trustee with reference to $ CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) SPECIAL TAX BONDS SERIES 2006A Dated as of April 1, 2006 P6401.1032\871196.6 RWG DRAFT 3/16/06 Table of Contents Page ARTICLE I DEFINITIONS 2 Section 1.1. Definitions 2 ARTICLE II GENERAL AUTHORIZATION AND BOND TERMS 15 Section 2.1. Amount,Issuance,Purpose and Nature of Bonds and Parity Bonds 15 Section 2.2. Type and Nature of Bonds and Parity Bonds 16 Section 2.3. Equality of Bonds and Parity Bonds and Pledge of Net Taxes 16 Section 2.4. Description of Bonds;Interest Rates 17 Section 2.5. Place and Form of Payment 17 Section 2.6. Form of Bonds and Parity Bonds 18 Section 2.7. Execution and Authentication 18 Section 2.8. Bond Register 19 Section 2.9. Registration of Exchange or Transfer 19 Section 2.10. Mutilated,Lost,Destroyed or Stolen Bonds or Parity Bonds 19 Section 2.11. Validity of Bonds and Parity Bonds 20 Section 2.12. Book-Entry System 20 Section 2.13. Representation Letter 21 Section 2.14. Transfers Outside Book-Entry System 21 Section 2.15. Payments to the Nominee 21 Section 2.16. Initial Depository and Nominee 21 ARTICLE III CREATION OF FUNDS AND APPLICATION OF PROCEEDS 22 Section 3.1. Creation of Funds; Application of Proceeds 22 Section 3.2. Deposits to and Disbursements from Special Tax Fund 24 Section 3.3. Administrative Expenses Account of the Special Tax Fund 24 Section 3.4. Interest Account and Principal Account of the Special Tax Fund 25 Section 3.5. Redemption Account of the Special Tax Fund. 25 Section 3.6. Reserve Account of the Special Tax Fund 27 Section 3.7. Rebate Fund. 28 Section 3.8. Surplus Fund 31 Section 3.9. City Facilities Fund 31 Section 3.10. CVWD Facilities Fund. 33 Section 3.11. Investments. 35 ARTICLE IV REDEMPTION OF BONDS AND PARITY BONDS 36 Section 4.1. Redemption of Bonds. 36 Section 4.2. Selection of Bonds and Parity Bonds for Redemption 38 Section 4.3. Notice of Redemption 38 Section 4.4. Partial Redemption of Bonds or Parity Bonds 39 Section 4.5. Effect of Notice and Availability of Redemption Money 40 ARTICLE V COVENANTS AND WARRANTY 40 Section 5.1. Warranty 40 i P6401.1032\871196.6 Table of Contents (continued) Page Section 5.2. Covenants 40 ARTICLE VI AMENDMENTS TO INDENTURE 44 Section 6.1. Supplemental Indentures or Orders Not Requiring Bondowner Consent 44 Section 6.2. Supplemental Indentures or Orders Requiring Bondowner Consent 45 Section 6.3. Notation of Bonds or Parity Bonds;Delivery of Amended Bonds or Parity Bonds 45 ARTICLE VII TRUSTEE 46 Section 7.1. Trustee 46 Section 7.2. Removal of Trustee 46 Section 7.3. Resignation of Trustee 47 Section 7.4. Liability of Trustee 47 Section 7.5. Merger or Consolidation 48 ARTICLE VILE EVENTS OF DEFAULT;REMEDIES 49 Section 8.1. Events of Default 49 Section 8.2. Remedies of Owners 49 Section 8.3. Application of Revenues and Other Funds After Default 50 Section 8.4. Power of Trustee to Control Proceedings 50 Section 8.5. Appointment of Receivers 51 Section 8.6. Non-Waiver 51 Section 8.7. Limitations on Rights and Remedies of Owners 51 Section 8.8. Termination of Proceedings 52 ARTICLE IX DEFEASANCE AND PARITY BONDS 52 Section 9.1. Defeasance 52 Section 9.2. Conditions for the Issuance of Parity Bonds and Other Additional Indebtedness 53 ARTICLE X MISCELLANEOUS 56 Section 10.1. Cancellation of Bonds and Parity Bonds 56 Section 10.2. Execution of Documents and Proof of Ownership 56 Section 10.3. Unclaimed Moneys 57 Section 10.4. Provisions Constitute Contract 57 Section 10.5. Future Contracts 57 Section 10.6. Further Assurances 57 Section 10.7. Severability 57 Section 10.8. Notices 58 ii P6401.1032\871196.6 Table of Contents (continued) Page EXHIBITS: EXHIBIT A FORM OF SPECIAL TAX BOND, SERIES 2006A A-1 EXHIBIT B FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS (CITY FACILITIES FUND) B-1 EXHIBIT C FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS (CVWD FACILITIES FUND) C-1 EXHIBIT D FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (BACKBONE INFRASTRUCTURE) D-1 EXHIBIT E FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (DEVELOPER SUBACCOUNTS) E-1 EXHIBIT F FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (GERALD FORD(SOUTH)LANDSCAPING SUBACCOUNT) F-1 EXHIBIT G FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (COOK STREET PEDESTRIAN BRIDGE SUBACCOUNT) G-1 EXHIBIT H FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (SURPLUS BACKBONE TO DEVELOPER SUBACCOUNTS) H-1 P6401.1032\871196.6 BOND INDENTURE THIS BOND INDENTURE dated as of April 1,2006,by and between CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK)(the "District")and WELLS FARGO BANK,NATIONAL ASSOCIATION, as trustee(the"Trustee"), governs the terms of the Special Tax Bonds, Series 2006A, of City of Palm Desert Community Facilities District No. 2005-1 (University Park)and any Parity Bonds issued in accordance herewith from time to time. RECITALS: WHEREAS,the City Council of the City of Palm Desert,located in Riverside County, California(hereinafter sometimes referred to as the"legislative body of the District"or the"City"), has heretofore undertaken proceedings and declared the necessity to issue bonds on behalf of the District pursuant to the terms and provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5,Part 1,Division 2,Title 5, of the Government Code of the State of California(the"Act"); and WHEREAS,based upon Resolution Nos. 06-6 and 06-7 adopted by the legislative body of the District on January 12,2006 and an election held January 12,2006 authorizing the levy of a special tax and the issuance of bonds by the District,the District is now authorized to issue bonds for one or more series,pursuant to the Act, in an aggregate principal amount not to exceed$70,000,000; and WHEREAS, the legislative body of the District intends to finance certain public facilities through the issuance of bonds in an aggregate principal amount of$ designated as the"City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A"(the"Series 2006A Bonds"); and WHEREAS,the District has determined that all requirements of the Act for the issuance of the Series 2006A Bonds have been satisfied; NOW, THEREFORE, in order to establish the terms and conditions upon and subject to which the Series 2006A Bonds are to be issued, and in consideration of the premises and of the mutual covenants contained herein and of the purchase and acceptance of the Series 2006A Bonds by the Owners thereof, and for other valuable consideration,the receipt of which is hereby acknowledged,the District does hereby covenant and agree, for the benefit of the Owners of the Series 2006A Bonds and any Parity Bonds(as defined herein)which may be issued hereunder from time to time, as follows: P6401.1032\871196.6 ARTICLE I DEFINITIONS Section 1.1. Definitions. Unless the context otherwise requires,the following terms shall have the following meanings: "Account"means any account created pursuant to this Indenture. "Act"means the Mello-Roos Community Facilities Act of 1982, as amended,being Section 53311 et seq. of the California Government Code. "Acquisition Agreement"means that certain Acquisition Agreement, dated as of 2006,by and among the City,the District,Desert Wells 237,LLC, a California limited liability company, Albor Properties III,LP, a California limited partnership,Palm Desert Funding Company, LP, a Delaware limited partnership,The University Village Partnership, a California general partnership, Shaw/Palm Desert 1,LLC, a California limited liability company, and Sinatra& Cook Project,LLC, a California limited liability company. "Administrative Expenses"means the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys' fees and other costs related thereto, the fees and expenses of the Trustee, any fees and related costs for credit enhancement for the Bonds or any Parity Bonds which are not otherwise paid as Costs of Issuance, any costs related to the District's compliance with state and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and any obligation of the District hereunder. "Administrative Expenses Account"means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Administrative Expenses Cap"means an amount equal to $75,000 per Bond Year, escalating by 2% each Bond Year commencing July 1, 2007. "Alternative Penalty Account"means the account by that name created and established in the Rebate Fund pursuant to Section 3.7 hereof. "Annual Debt Service" means the principal amount of any Outstanding Bonds or Parity Bonds payable in a Bond Year either at maturity or pursuant to a Sinking Fund Payment and any interest payable on any Outstanding Bonds or Parity Bonds in such Bond Year, if the Bonds and any Parity Bonds are retired as scheduled. "Authorized 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: (1) (A) Direct obligations(other than an obligation subject to variation in principal repayment) of the United States of America("United States Treasury Obligations"); (B)obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America; (C)obligations fully and unconditionally 2 P6401.1032\871196.6 guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America; or(D)evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. (2) Federal Housing Administration debentures. (3) The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America: Federal Home Loan Mortgage Corporation(FHLMC) Participation certificates(excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) Senior Debt obligations Farm Credit Banks(formerly: Federal Land Banks,Federal Intermediate Credit Banks and Banks for Cooperatives) Consolidated system-wide bonds and notes - Federal Home Loan Banks(FHL Banks) Consolidated debt obligations - Federal National Mortgage Association(FNMA) Senior debt obligations Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) Student Loan Marketing Association(SLMA) Senior debt obligations(excluded are securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) - Financing Corporation(FICO) Debt obligations 3 P6401.1032\871196.6 - Resolution Funding Corporation(REFCORP) Debt obligations (4) Unsecured certificates of deposit,time deposits, and bankers' acceptances (having maturities of not more than 30 days)of any bank(including the Trustee and any affiliate)the short-term obligations of which are rated"A-1"or better by Standard&Poor's. (5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation(FDIC), in banks (including the Trustee and any affiliate) which have capital and surplus of at least$5 million. (6) Commercial paper(having original maturities of not more than 270 days rated "A-1+"by Standard&Poor's and"Prime-1"by Moody's and issued by an entity meeting the criteria in either clause(A)or(B): (A) the entity(i) is organized and operating in the United States as a general corporation, (ii)has total assets in excess of$500,000,000, and(iii)has debt other than commercial paper, if any,that is rated"A"or higher by Standard&Poor's or Moody's; or (B) the entity(i) is organized within the United States as a special purpose corporation,trust, or limited liability company, (ii)has programwide credit enhancements including,but not limited to, overcollateralization, letters of credit, or surety bond, and(ii)has commercial paper rated"A-1"or higher by Standard& Poor's or"Al"by Moody's. (7) Money market funds rated"AAm" or"AAm-G"by Standard&Poor's, or better(including those of the Trustee or its affiliates). (8) "State Obligations,"which means: (A) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated"A3"by Moody's and"A"by Standard&Poor's, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (B) Direct general short-term obligations of any state agency or subdivision or agency thereof described in(A) above and rated"A-1+"by Standard&Poor's and"Prime-1"by Moody's. (C) Special Revenue Bonds(as defined in the United States Bankruptcy Code)of any state, state agency or subdivision described in(A) above and rated "AA" or better by Standard&Poor's and"Aa"or better by Moody's. 4 P6401.1032\871196.6 (9) Pre-refunded municipal obligations rated"AAA"by S &P and"Aaa"by Moody's meeting the following requirements: (A) the municipal obligations are(1)not subject to redemption prior to maturity or(2)the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (B) the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; (C) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow)has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ("Verification"); (D) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; (E) no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and (F) the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. (10) Repurchase agreements: (A) With(1)any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least"A"by Standard&Poor's and Moody's; or (2)any broker-dealer with"retail customers"or a related affiliate thereof which broker-dealer has, or the parent company(which guarantees the provider)of which has, long-term debt rated at least"A"by Standard&Poor's and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or(3)any other entity rated"A" or better by Standard&Poor's and Moody's,provided that: (a) The market value of the collateral is maintained at levels equal to 104%of the amount of cash transferred by the Trustee to the provider of the repurchase agreement plus accrued interest with the collateral being valued weekly and marked-to-market at one current market price plus accrued interest; (b) The Trustee or a third party acting solely as agent therefor or for the District(the"Holder of the Collateral")has possession of the 5 P6401.1032\871196.6 collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws(other than by means of entries on the transferor's books); (c) The repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof(in the case of bearer securities,this means the Holder of the Collateral is in possession); (d) The repurchase agreement shall provide that if during its term the provider's rating by either Moody's or Standard&Poor's is withdrawn or suspended or falls below"A-"by Standard&Poor's or"A3"by Moody's, as appropriate,the provider must, at the direction of the District or the Trustee, within 10 days of receipt of such direction,repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Trustee. (B) Notwithstanding the above, if a repurchase agreement has a term of 270 days or less(with no evergreen provision), collateral levels need not be as specified in(a) above, so long as such collateral levels are 103%or better and the provider is rated at least"A"by Standard&Poor's and Moody's, respectively. (11) Investment agreements with a domestic or foreign bank or corporation(other than a life or property casualty insurance company)the long-term debt of which or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least"AA"by Standard&Poor's and"Aa"by Moody's;provided that,by the terms of the investment agreement: (A) interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service(or, if the investment agreement is for the City Facilities Fund or the CVWD Facilities Fund, construction draws)on the Bonds; (B) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice; the District and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; (C) the investment agreement shall state that is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof, or, in the case of a bank,that the obligation of the bank to make payments under the agreement ranks pari passu with the obligations of the bank to its other depositors and its other unsecured and unsubordinated creditors; (D) the District and the Trustee receives the opinion of domestic counsel (which opinion shall be addressed to the District and the Trustee)that such investment agreement is legal, valid,binding and enforceable upon the provider in 6 P6401.1032\871196.6 accordance with its terms and of foreign counsel (if applicable)in form and substance acceptable, and addressed to, the District; (E) the investment agreement shall provide that if during its term. (1) the provider's rating by either Standard&Poor's or Moody's falls below"AA-"or"Aa3",respectively,the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (i)collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books)to the District,the Trustee or a third party acting solely as agent therefor(the"Holder of the Collateral") collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to Standard&Poor's and Moody's to maintain an"A"rating in an "A"rated structured financing(with a market value approach);or(ii)repay the principal of and accrued but unpaid interest on the investment; and (2) the provider's rating by either Standard&Poor's or Moody's is withdrawn or suspended or falls below"A-" or"A3", respectively,the provider must, at the direction of the District or the Trustee, within 10 days of receipt of such direction,repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the District or Trustee; and (F) The investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement at the time such collateral is delivered,that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof(in the case of bearer securities,this means the Holder of the Collateral is in possession); and (G) the investment agreement must provide that if during its term (1) the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the District or the Trustee,be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Trustee, as appropriate, and (2) the provider shall become insolvent,not pay its debts as they become due,be declared or petition to be declared bankrupt,etc. ("event of insolvency"),the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or Trustee, as appropriate. (12) The State of California Local Agency Investment Fund;provided that the Trustee may restrict investments in such Fund to the extent necessary to keep moneys available for the purposes of this Indenture. 7 P6401.1032\871196.6 • (13) California Asset Management Program(CAMP). "Authorized Representative of the City" means the City Manager of the City,the Finance Director-Treasurer of the City, or any other person or persons designated by the City Manager or the Finance Director-Treasurer by a written certificate signed by the City Manager or the Finance Director-Treasurer and containing the specimen signature of each such person. "Authorized Representative of the District"means the City Manager of the City,the Finance Director-Treasurer of the City, or any other person or persons designated by the City Manager or the Finance Director-Treasurer by a written certificate signed by the City Manager or the Finance Director-Treasurer and containing the specimen signature of each such person. "Backbone Infrastructure Account" shall mean the account by that name created and established in the City Facilities Fund pursuant to Section 3.1 hereof and/or the account by that name created and established in the CVWD Facilities Fund pursuant to Section 3.1 hereof, as the context may require. "Bond Counsel" means an attorney at law or a firm of attorneys selected by the District of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions duly admitted to the practice of law before the highest court of any state of the United States of America or the District of Columbia. "Bond Register"means the books which the Trustee shall keep or cause to be kept on which the registration and transfer of the Bonds and any Parity Bonds shall be recorded. "Bondowner"or"Owner"means the person or persons in whose name or names any Bond or Parity Bond is registered. "Bonds" means the Series 2006A Bonds. "Bond Year" means the twelve month period commencing on September 2 of each year and ending on September 1 of the following year, except that the first Bond Year for the Bonds or an issue of Parity Bonds shall begin on the Delivery Date and end on the first September 1 which is not more than 12 months after the Delivery Date. "Business Day"means a day which is not a Saturday or Sunday or a day of the year on which banks in New York,New York,Los Angeles, California,or the city where the corporate trust office of the Trustee is located, are not required or authorized to remain closed. "Capitalized Interest Subaccount"means the subaccount by that name created and established in the Interest Account of the Special Tax Fund pursuant to Section 3.1 hereof. "Certificate of an Authorized Representative"means a written certificate executed by an Authorized Representative of the City or District, as applicable. "Certificate of the Special Tax Administrator"means a certificate of an Authorized Representative of the District, or any successor entity appointed by the City,to administer the calculation and collection of the Special Taxes. "City"means the City of Palm Desert, California. 8 P6401.1032\871196.6 "City Facilities Fund"means the fund by that name established pursuant to Section 3.1 hereof. "Code"means the Internal Revenue Code of 1986, as amended,and any Regulations, rulings, judicial decisions, and notices, announcements, and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it. "Continuing Disclosure Agreement"means that certain Continuing Disclosure Agreement dated as of April 1, 2006 between the District and Wells Fargo Bank,National Association, as dissemination agent,together with any amendments thereto. "Cook Street Pedestrian Bridge Subaccount"means the subaccount by that name created and established in the Backbone Infrastructure Account of the City Facilities Fund pursuant to Section 3.1 hereof. "Costs of Issuance"means the costs and expenses incurred in connection with the formation of the District and the issuance and sale of the Bonds or any Parity Bonds, including the acceptance and initial annual fees and expenses of the Trustee, legal fees and expenses,costs of printing the Bonds and Parity Bonds and the preliminary and final official statements for the Bonds and Parity Bonds,fees of financial consultants and all other related fees and expenses, as set forth in a Certificate of an Authorized Representative of the City. "CVWD Facilities Fund"means the account by that name created and established pursuant to Section 3.1 hereof. "Delivery Date"means, with respect to the Bonds and each issue of Parity Bonds, the date on which the bonds of such issue were issued and delivered to the initial purchasers thereof. "Depository"shall mean The Depository Trust Company,New York,New York, and its successors and assigns as securities depository for the Certificates, or any other securities depository acting as Depository under Article II hereof. "Developed Property" shall have the meaning ascribed to such term in the Rate and Method. "Direct Debt for District Property"means that portion or the entirety, as applicable, of the aggregate principal amount of the Outstanding Bonds and Parity Bonds(exclusive of any Escrow Bonds)which is allocable to the property in the District. "District"means City of Palm Desert Community Facilities District No. 2005-1 (University Park) established pursuant to the Act and the Resolution of Formation. "DW 237 Subaccount(City Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the City Facilities Fund pursuant to Section 3.1 hereof. "DW 237 Subaccount(CVWD Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the CVWD Facilities Fund pursuant to Section 3.1 hereof. 9 P6401.1032\871196.6 "Escrow Bonds"means the principal amount of any Parity Bonds deposited in an escrow account established by a Supplemental Indenture which are not secured by a pledge of the Net Taxes while on deposit therein. "Event of Default"means an"event of default"described in Section 8.1 hereof. "Facilities Fund"means the City Facilities Fund and/or the CVWD Facilities Fund, as the context may require. "Federal Securities"means any of the following: (a)non-callable direct obligations of the United States of America("Treasuries"), (b)evidence of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, and (c)pre-refunded municipal obligations rated"AAA"and"Aaa"by Standard&Poor's and Moody's, respectively(or any combination thereof). "Fiscal Year"means the period beginning on July 1 of each year and ending on the next following June 30. "Gerald Ford(South)Landscaping Subaccount" means the subaccount by that name created and established in the Backbone Infrastructure Account of the City Facilities Fund pursuant to Section 3.1 hereof. "Gross Taxes"means the amount of all Special Taxes received by the District, together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of this Indenture for the delinquency of such Special Taxes remaining after the payment of all costs related to such foreclosure actions. "Indenture"means this Bond Indenture,together with any Supplemental Indenture approved pursuant to Article 6 hereof. "Independent Financial Consultant"means a financial consultant or firm of such consultants generally recognized to be well qualified in the financial consulting field, appointed and paid by the District, who, or each of whom: (1) is in fact independent and not under the domination of the District or the City; (2) does not have any substantial interest, direct or indirect, in the District or the City; and (3) is not connected with the District or the City as a member, officer or employee of the District or the City,but who may be regularly retained to make annual or other reports to the District or the City. "Interest Account" means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. 10 P6401.1032\871196.6 "Interest Payment Date"means each March 1 and September 1, commencing September 1, 2006;provided, however, that, if any such day is not a Business Day, interest up to the Interest Payment Date will be paid on the Business Day next succeeding such date. "Investment Agreement"means one or more agreements for the investment of funds of the District complying with the criteria therefor as set forth in Subsection(11)of the definition of Authorized Investments herein. "JCFA"shall mean that certain Joint Community Facilities Agreement dated as of January 12, 2006,by and among the City,the Coachella Valley Water District,Desert Wells 237,LLC, a California limited liability company,Palm Desert Funding Company, LP, a Delaware limited partnership,The University Village Partnership, a California general partnership, Shaw/Palm Desert 1,LLC, a California limited liability company, and Sinatra& Cook Project,LLC, a California limited liability company. "Maximum Annual Debt Service"means the maximum sum obtained for any Bond Year prior to the final maturity of the Bonds and any Parity Bonds by adding the following for each Bond Year: (1) the principal amount of all Outstanding Bonds and Parity Bonds payable in such Bond Year either at maturity or pursuant to a Sinking Fund Payment; and (2) the interest payable on the aggregate principal amount of all Bonds and Parity Bonds Outstanding in such Bond Year if the Bonds and Parity Bonds are retired as scheduled. "Moody's"means Moody's Investors Service, its successors and assigns. "Net Taxes"means Gross Taxes minus amounts set aside to pay Administrative Expenses not to exceed the Administrative Expenses Cap. "Nominee"shall mean the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.16 hereof "Ordinance"means Ordinance No. 1107 adopted by the legislative body of the District on February 9, 2006,providing for the levying of the Special Tax. "Other Facilities Account"shall mean the account by that name created and established in the City Facilities Fund pursuant to Section 3.1 hereof and/or the account by that name created and established in the CVWD Facilities Fund pursuant to Section 3.1 hereof, as the context may require. "Outstanding" or"Outstanding Bonds and Parity Bonds"means all Bonds and Parity Bonds theretofore issued by the District, except: (1) Bonds and Parity Bonds theretofore cancelled or surrendered for cancellation in accordance with Section 10.1 hereof; (2) Bonds and Parity Bonds for payment or redemption of which moneys shall have been theretofore deposited in trust(whether upon or prior to the maturity or the redemption date of such Bonds or Parity Bonds), provided that, if such Bonds or Parity 11 P6401.1032\871196.6 Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in this Indenture or any applicable Supplemental Indenture for Parity Bonds; and (3) Bonds and Parity Bonds which have been surrendered to the Trustee for transfer or exchange pursuant to Section 2.9 hereof or for which a replacement has been issued pursuant to Section 2.10 hereof. "Overlapping Debt"means with respect to any property within the District,the sum of(a)the aggregate amount of all unpaid assessments which are a lien on such property and which are pledged to secure the repayment of bonds,plus (b)a portion of the principal amount of any outstanding bonds of other community facilities districts which are payable at least partially from special taxes to be levied on such property(the"Other CFD Bonds") determined by multiplying the aggregate principal amount of the Other CFD Bonds by a fraction,the numerator of which is the amount of special taxes levied for the Other CFD Bonds on such property and the denominator of which is the total amount of special taxes levied for the Other CFD Bonds on all parcels of property which are subject to the levy of such special taxes, based upon information which is available for the then current Fiscal Year,plus(c)the principal amount of any bonded indebtedness of the District. "PDFC Subaccount(City Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the City Facilities Fund pursuant to Section 3.1 hereof. "PDFC Subaccount(CVWD Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the CVWD Facilities Fund pursuant to Section 3.1 hereof. "Parity Bonds"means all bonds, notes or other similar evidences of indebtedness hereafter issued,payable out of the Net Taxes and which, as provided in this Indenture or any Supplemental Indenture, rank on a parity with the Bonds. "Participants"shall mean those broker-dealers,banks and other financial institutions from time to time for which the Depository holds Bonds or Parity Bonds as securities depository. "Person"means natural persons, firms, corporations, partnerships, associations,trusts,public bodies and other entities. "Prepayments"means any amounts paid by the District to the Trustee and designated by the District as a prepayment of Special Taxes for one or more parcels in the District made in accordance with the Rate and Method. "Principal Account"means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Principal Office of the Trustee"means the corporate trust office of the Trustee located in Los Angeles, California, or such other office or offices as the Trustee may designate from time to time, or the office of any successor Trustee where it principally conducts its business of serving as trustee under indentures pursuant to which municipal or governmental obligations are issued. "Project"means those public facilities described in the Resolution of Formation which are to be acquired or constructed within and outside of the District, including all engineering,planning and 12 P6401.1032\871196.6 design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time. "Project Costs" means the amounts necessary to finance the Project,to create and replenish any necessary reserve funds,to pay the initial and annual costs associated with the Bonds or any Parity Bonds, including, but not limited to, remarketing, credit enhancement,Trustee and other fees and expenses relating to the issuance of the Bonds or any Parity Bonds and the formation of the District, and to pay any other"incidental expenses" of the District,as such term is defined in the Act. "Pro Rata Agency Share"means(i)66.86%with respect to the City Facilities Fund and(ii) 33.14%with respect to the CVWD Facilities Fund. "Rate and Method"means the rate and method of apportionment of Special Taxes attached to the Resolution of Formation, as it may be amended or modified from time to time. "Rating Agency"means Moody's and Standard&Poor's, or both, as the context requires. "Rebate Account"means the account by that name created and established in the Rebate Fund pursuant to Section 3.1 hereof. "Rebate Fund"means the fund by that name established pursuant to Section 3.1 hereof in which there are established the Accounts described in Section 3.1 hereof. "Rebate Regulations" means any final, temporary or proposed Regulations promulgated under Section 148(f)of the Code. "Record Date" means the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day. "Redemption Account"means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Regulations" means the regulations adopted or proposed by the Department of Treasury from time to time with respect to obligations issued pursuant to Section 103 of the Code. "Representation Letter"shall mean the Blanket Letter of Representations from the District and the Paying Agent to the Depository as described in Section 2.13 hereof. "Reserve Account"means the account by that name created and established in the Special Tax Fund pursuant to Section 3.1 hereof. "Reserve Requirement"means that amount as of any date of calculation equal to the lesser of (i) 10%of the initial principal amount of the Bonds and Parity Bonds, if any, (ii)Maximum Annual Debt Service on the then Outstanding Bonds and Parity Bonds, if any; and(iii) 125%of average Annual Debt Service on the then Outstanding Bonds and Parity Bonds, if any. "Resolution of Formation"means Resolution No. 06-6 adopted by the City Council of the City on January 12, 2006,pursuant to which the City formed the District. 13 P6401.1032\871196.6 "S&C Subaccount(City Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the City Facilities Fund pursuant to Section 3.1 hereof. "S&C Subaccount(CVWD Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the CVWD Facilities Fund pursuant to Section 3.1 hereof. "Series 2006A Bonds"means the District's Special Tax Bonds, Series 2006A, issued on their Delivery Date in the aggregate principal amount of$ "Shaw Subaccount(City Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the City Facilities Fund pursuant to Section 3.1 hereof. "Shaw Subaccount(CVWD Facilities)" means the subaccount by that name created and established in the Other Facilities Account of the CVWD Facilities Fund pursuant to Section 3.1 hereof. "Sinking Fund Payment"means the annual payment to be deposited in the Redemption Account to redeem a portion of the Term Bonds in accordance with the schedules set forth in Section 4.1(b)hereof and any annual sinking fund payment schedule to retire any Parity Bonds which are designated as Term bonds. "Six-Month Period"means the period of time beginning on the Delivery Date of each issue of Bonds or Parity Bonds, as applicable, and ending six consecutive months thereafter, and each six-month period thereafter until the latest maturity date of the Bonds and the Parity Bonds(and any obligations that refund an issue of the Bonds or Parity Bonds). "Special Tax Fund" means the fund by that name created and established pursuant to Section 3.1 hereof. "Special Taxes"means the taxes authorized to be levied by the District on property within the District in accordance with the Ordinance,the Resolution of Formation,the Act and the voter approval obtained at the January 12, 2006 election in the District, including any scheduled payments and any Prepayments thereof, the net proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien, and penalties and interest thereon. "Standard&Poor's"means Standard&Poor's Ratings Group, a division of McGraw-Hill, its successors and assigns. "Subaccount"means any subaccount created pursuant to this Indenture. "Supplemental Indenture"means any supplemental indenture amending or supplementing this Indenture. "Surplus Fund" means the fund by that name created and established pursuant to Section 3.1 hereof. 14 P6401.1032\871196.6 "Tax Certificate"means the certificate by that name to be executed by the District on a Delivery Date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. "Tax-Exempt"means, with reference to an Authorized Investment, an Authorized Investment the interest earnings on which are excludable from gross income for federal income tax purposes pursuant to Section 103(a)of the Code, other than one described in Section 57(a)(5)(C)of the Code. "Term Bonds"means the Series 2006A Bonds maturing on September 1, 20_and September 1, 20_. "Trustee"means Wells Fargo Bank,National Association, a national banking association duly organized and existing under the laws of the United States of America, at its corporate trust office in Los Angeles, California, and its successors or assigns, or any other bank or trust company which may at any time be substituted in its place as provided in Sections 7.2 or 7.3 and any successor thereto. "Underwriter"means, collectively, Stinson Securities LLC and Kinsell, Newcomb&De Dios,Inc., with respect to the Bonds. "UV Subaccount(City Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the City Facilities Fund pursuant to Section 3.1 hereof. "UV Subaccount(CVWD Facilities)"means the subaccount by that name created and established in the Other Facilities Account of the CVWD Facilities Fund pursuant to Section 3.1 hereof. "Value of District Property" means for all parcels of property in the District which are subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, either(i)the fair market value, as of the date of the appraisal provided for below of such parcels, including with respect to such parcels the value of the then existing improvements thereon, as estimated by an appraiser,who shall be a State of California certified general real estate appraiser selected and employed by the District, in an appraisal performed within ninety(90)days preceding the date of such determination based upon a methodology of valuation consistent with the City's policy for appraisals,provided that a mass appraisal methodology may be applied when valuing Developed Property; or(ii)the full cash value of any or all of such parcels, including with respect to such parcels the value of the improvements thereon, as set forth on the last equalized assessment roll of the County Assessor of the County of Riverside; or(iii)any combination of clauses(i)and(ii). ARTICLE II GENERAL AUTHORIZATION AND BOND TERMS Section 2.1. Amount,Issuance,Purpose and Nature of Bonds and Parity Bonds. Under and pursuant to the Act,the Bonds in the aggregate principal amount of$ shall be issued for the purpose of financing the Project and paying Costs of Issuance,together with any Parity Bonds authorized by the legislative body in accordance with Section 9.2 hereof,provided that the aggregate principal amount of the Bonds and any Parity Bonds shall not exceed the total 15 P6401.1032\871196.6 indebtedness presently authorized or subsequently authorized by the qualified electors of the District in accordance with the Act. The Bonds and any Parity Bonds shall be and are limited obligations of the District and shall be payable as to the principal thereof and interest thereon and any premiums upon the redemption thereof solely from the Net Taxes and the other amounts in the Special Tax Fund(other than amounts in the Administrative Expenses Account of the Special Tax Fund). Section 2.2. Type and Nature of Bonds and Parity Bonds. Neither the faith and credit nor the taxing power of the City,the State of California or any political subdivision thereof other than the District is pledged to the payment of the Bonds or any Parity Bonds. Except for the Special Taxes,no other taxes are pledged to the payment of the Bonds or any Parity Bonds. The Bonds and any Parity Bonds are not general or special obligations of the City nor general obligations of the District,but are limited obligations of the District payable solely from certain amounts deposited by the District in the Special Tax Fund(exclusive of the Administrative Expenses Account), as more fully described herein. The District's limited obligation to pay the principal of,premium, if any, and interest on the Bonds and any Parity Bonds from amounts in the Special Tax Fund(exclusive of the Administrative Expenses Account) is absolute and unconditional, free of deductions and without any abatement, offset, recoupment, diminution or set-off whatsoever. No Owner of the Bonds or any Parity Bonds may compel the exercise of the taxing power by the District(except as pertains to the Special Taxes)or the City or the forfeiture of any of their property. The principal of and interest on the Bonds and any Parity Bonds and premiums upon the redemption thereof, if any, are not a debt of the City,the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. The Bonds and any Parity Bonds are not a legal or equitable pledge, charge, lien, or encumbrance upon any of the District's property, or upon any of its income, receipts or revenues, except the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account)which are,under the terms of this Indenture and the Act, set aside for the payment of the Bonds, any Parity Bonds and interest thereon and neither the members of the legislative body of the District or the City Council of the City nor any persons executing the Bonds or any Parity Bonds, are liable personally on the Bonds or any Parity Bonds,by reason of their issuance. Notwithstanding anything to the contrary contained in this Indenture,the District shall not be required to advance any money derived from any source of income other than the Net Taxes for the payment of the interest on or the principal of the Bonds or any Parity Bonds, or for the performance of any covenants contained herein. The District may,however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose. Section 2.3. Equality of Bonds and Parity Bonds and Pledge of Net Taxes. Pursuant to the Act and this Indenture,the Bonds and any Parity Bonds shall be equally payable from the Net Taxes and other amounts in the Special Tax Fund(exclusive of the Administrative Expenses Account),without priority for number, date of the Bonds or Parity Bonds, date of sale, date of execution, or date of delivery, and the payment of the interest on and principal of the Bonds and any Parity Bonds and any premiums upon the redemption thereof, shall be exclusively paid from the Net Taxes and other amounts in the Special Tax Fund(exclusive of the Administrative Expenses Account), which are hereby set aside for the payment of the Bonds and any Parity Bonds. Amounts in the Special Tax Fund(other than the Administrative Expenses Account therein)shall constitute a trust fund held for the benefit of the Owners to be applied to the payment of the interest on and principal of the Bonds and any Parity Bonds and so long as any of the Bonds and any Parity Bonds or interest thereon remain Outstanding shall not be used for any other purpose, except as permitted by this Indenture or any Supplemental Indenture. Notwithstanding any provision contained in this 16 P6401.1032\871196.6 Indenture to the contrary,Net Taxes deposited in the Rebate Fund and the Surplus Fund shall no longer be considered to be pledged to the Bonds or any Parity Bonds, and none of the Rebate Fund, the Surplus Fund, the City Facilities Fund,the CVWD Facilities Fund, or the Administrative Expenses Account of the Special Tax Fund shall be construed as a trust fund held for the benefit of the Owners. Nothing in this Indenture or any Supplemental Indenture shall preclude: (a)subject to the limitations contained hereunder,the redemption prior to maturity of any Bonds or Parity Bonds subject to call and redemption and payment of said Bonds or Parity Bonds from proceeds of refunding bonds issued under the Act as the same now exists or as hereafter amended, or under any other law of the State of California; or(b)the issuance, subject to the limitations contained herein, of Parity Bonds which shall be payable from Net Taxes. Section 2.4. Description of Bonds; Interest Rates. The Bonds and any Parity Bonds shall be issued in fully registered form in denominations of$5,000 or any integral multiple thereof. The Bonds and any Parity Bonds of each issue shall be numbered as desired by the Trustee. The Bonds shall be designated"CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) SPECIAL TAX BONDS, SERIES 2006A." The Series 2006A Bonds shall be dated as of their Delivery Date and shall mature and be payable on September 1 in the years and in the aggregate principal amounts and shall be subject to and shall bear interest at the rates set forth in the table below payable on September 1,2006 and each Interest Payment Date thereafter: Maturity Date (September 1) Principal Amount Interest Rate Interest shall be payable on each Bond and Parity Bond from the date established in accordance with Section 2.5 below on each Interest Payment Date thereafter until the principal sum of that Bond or Parity Bond has been paid;provided, however,that if at the maturity date of any Bond or Parity Bond(or if the same is redeemable and shall be duly called for redemption,then at the date fixed for redemption) funds are available for the payment or redemption thereof in full, in accordance with the terms of this Indenture, such Bonds and Parity Bonds shall then cease to bear interest. Interest due on the Bonds and Parity Bonds shall be calculated on the basis of a 360-day year comprised of twelve 30-day months. Section 2.5. Place and Form of Payment. The Bonds and Parity Bonds shall be payable both as to principal and interest, and as to any premiums upon the redemption thereof, in lawful money of the United States of America. The principal of the Bonds and Parity Bonds and any premiums due upon the redemption thereof shall be payable upon presentation and surrender thereof at the Principal Office of the Trustee, or at the designated office of any successor Trustee. Interest on 17 P6401.1032\871196.6 any Bond or Parity Bond shall be payable from the Interest Payment Date next preceding the date of authentication of that Bond or Parity Bond, unless(i) such date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, (ii)the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or(iii)the date of authentication is prior to the close of business on the first Record Date occurring after the issuance of such Bond or Parity Bond, in which event interest shall be payable from the dated date of such Bond or Parity Bond, as applicable; provided, however, that if at the time of authentication of such Bond or Parity Bond, interest is in default, interest on that Bond or Parity Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment on that Bond or Parity Bond, interest on that Bond or Parity Bond shall be payable from its dated date. Interest on any Bond or Parity Bond shall be paid to the person whose name shall appear in the Bond Register as the Owner of such Bond or Parity Bond as of the close of business on the Record Date. Such interest shall be paid by check of the Trustee mailed by first class mail,postage prepaid, to such Bondowner at his or her address as it appears on the Bond Register. In addition,upon a request in writing received by the Trustee on or before the applicable Record Date from an Owner of$1,000,000 or more in principal amount of the Bonds or of any issue of Parity Bonds,payment shall be made on the Interest Payment Date by wire transfer in immediately available funds to an account designated by such Owner. Section 2.6. Form of Bonds and Parity Bonds. The definitive Bonds may be printed from steel engraved or lithographic plates or may be typewritten. The Bonds and the certificate of authentication shall be substantially in the form attached hereto as Exhibit A, which form is hereby approved and adopted as the form of such Bonds and of the certificate of authentication. Each issue of Parity Bonds and the certificate of authentication therefor shall be in the form provided in the Supplemental Indenture for such issue of Parity Bonds. Until definitive Bonds or Parity Bonds, as applicable, shall be prepared,the District may cause to be executed and delivered in lieu of such definitive Bonds or Parity Bonds temporary bonds in typed,printed, lithographed or engraved form and in fully registered form, subject to the same provisions, limitations and conditions as are applicable in the case of definitive Bonds or Parity Bonds, except that they may be in any denominations authorized by the District. Until exchanged for definitive Bonds or Parity Bonds, as applicable, any temporary bond shall be entitled and subject to the same benefits and provisions of this Indenture as definitive Bonds and Parity Bonds. If the District issues temporary Bonds or Parity Bonds, it shall execute and furnish definitive Bonds or Parity Bonds, as applicable,without unnecessary delay and thereupon any temporary Bond or Parity Bond may be surrendered to the Trustee at its office, without expense to the Owner, in exchange for a definitive Bond or Parity Bond of the same issue, maturity, interest rate and principal amount in any authorized denomination. All temporary Bonds or Parity Bonds so surrendered shall be cancelled by the Trustee and shall not be reissued. Section 2.7. Execution and Authentication. The Bonds and Parity Bonds shall be signed on behalf of the District by the manual or facsimile signature of the Mayor of the City and countersigned by the manual or facsimile signature of the City Clerk of the City, or any duly appointed deputy City Clerk, in their capacity as officers of the District, and the seal of the District (or a facsimile thereof) may be impressed, imprinted, engraved or otherwise reproduced thereon, and attested by the signature of the City Clerk of the City Council. In case any one or more of the officers who shall have signed or sealed any of the Bonds or Parity Bonds shall cease to be such • 18 P6401.1032\871196.6 officer before the Bonds or Parity Bonds so signed and sealed have been authenticated and delivered by the Trustee(including new Bonds or Parity Bonds delivered pursuant to the provisions hereof with reference to the transfer and exchange of Bonds or Parity Bonds or to lost, stolen, destroyed or mutilated Bonds or Parity Bonds), such Bonds and Parity Bonds shall nevertheless be valid and may be authenticated and delivered as herein provided, and may be issued as if the person who signed or sealed such Bonds or Parity Bonds had not ceased to hold such office. Only the Bonds as shall bear thereon such certificate of authentication in the form set forth in Exhibit A attached hereto shall be entitled to any right or benefit under this Indenture, and no Bond shall be valid or obligatory for any purpose until such certificate of authentication shall have been duly executed by the Trustee. Section 2.8. Bond Register. The Trustee will keep or cause to be kept, at its office, sufficient books for the registration and transfer of the Bonds and any Parity Bonds which shall upon reasonable prior notice be open to inspection by the District during all regular business hours, and, subject to the limitations set forth in Section 2.9 below, upon presentation for such purpose,the Trustee shall,under such reasonable regulations as it may prescribe, register or transfer or cause to be transferred on said Bond Register,Bonds and any Parity Bonds as herein provided. The District and the Trustee may treat the Owner of any Bond or Parity Bond whose name appears on the Bond Register as the absolute Owner of that Bond or Parity Bond for any and all purposes, and the District and the Trustee shall not be affected by any notice to the contrary. The District and the Trustee may rely on the address of the Bondowner as it appears in the Bond Register for any and all purposes. It shall be the duty of the Bondowner to give written notice to the Trustee of any change in the Bondowner's address so that the Bond Register may be revised accordingly. Section 2.9. Registration of Exchange or Transfer. Subject to the limitations set forth in the following paragraph,the registration of any Bond or Parity Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond or Parity Bond for cancellation at the office of the Trustee, accompanied by delivery of written instrument of transfer in a form acceptable to the Trustee and duly executed by the Bondowner or his or her duly authorized attorney. Bonds or Parity Bonds may be exchanged at the office of the Trustee for a like aggregate principal amount of Bonds or Parity Bonds for other authorized denominations of the same maturity and issue. The Trustee shall not collect from the Owner any charge for any new Bond or Parity Bond issued upon any exchange or transfer,but shall require the Bondowner requesting such exchange or transfer to pay any tax or other governmental charge required to be paid with respect to such exchange or transfer. Whenever any Bonds or Parity Bonds shall be surrendered for registration of transfer or exchange,the District shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds or a new Parity Bond or Parity Bonds, as applicable, of the same issue and maturity, for a like aggregate principal amount;provided that the Trustee shall not be required to register transfers or make exchanges of(i)Bonds or Parity Bonds for a period of fifteen(15)days next preceding any selection of the Bonds or Parity Bonds to be redeemed; or(ii) any Bonds or Parity Bonds chosen for redemption. Section 2.10. Mutilated,Lost,Destroyed or Stolen Bonds or Parity Bonds. If any Bond or Parity Bond shall become mutilated, the District shall execute, and the Trustee shall authenticate 19 P6401.1032\871196.6 and deliver, a new Bond or Parity Bond of like tenor, date, issue and maturity in exchange and substitution for the Bond or Parity Bond so mutilated,but only upon surrender to the Trustee of the Bond or Parity Bond so mutilated. Every mutilated Bond or Parity Bond so surrendered to the Trustee shall be cancelled by the Trustee pursuant to Section 10.1 hereof. If any Bond or Parity Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory to the Trustee and, if any indemnity satisfactory to the Trustee shall be given, the District shall execute and the Trustee shall authenticate and deliver, a new Bond or Parity Bond, as applicable, of like tenor, maturity and issue,numbered and dated as the Trustee shall determine in lieu of and in substitution for the Bond or Parity Bond so lost, destroyed or stolen. Any Bond or Parity Bond issued in lieu of any Bond or Parity Bond alleged to be mutilated, lost, destroyed or stolen, shall be equally and proportionately entitled to the benefits hereof with all other Bonds and Parity Bonds issued hereunder. The Trustee shall not treat both the original Bond or Parity Bond and any replacement Bond or Parity Bond as being Outstanding for the purpose of determining the principal amount of Bonds or Parity Bonds which may be executed, authenticated and delivered hereunder or for the purpose of determining any percentage of Bonds or Parity Bonds Outstanding hereunder,but both the original and replacement Bond or Parity Bond shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of delivering a new Bond or Parity Bond which has been mutilated, lost, destroyed or stolen, and which has matured,the Trustee may make payment with respect to such Bonds or Parity Bonds. Section 2.11. Validity of Bonds and Parity Bonds. The validity of the authorization and issuance of the Bonds and any Parity Bonds shall not be affected in any way by any defect in any proceedings taken by the District for the financing of the Project, or by the invalidity, in whole or in part, of any contracts made by the District in connection therewith, and shall not be dependent upon the completion of the financing of the Project or upon the performance by any Person of his obligation with respect to the Project, and the recital contained in the Bonds or any Parity Bonds that the same are issued pursuant to the Act and other applicable laws of the State shall be conclusive evidence of their validity and of the regularity of their issuance. Section 2.12. Book-Entry System. 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 2.14 hereof, all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. At the election of the District, any Parity Bonds may also be issued as book-entry bonds registered in the name of the Nominee as provided herein, in which case the references in Sections 2.12 through 2.15 to"Bonds"shall be applicable to such Parity Bonds. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee,the District and the Trustee shall have no responsibility or obligation to any such 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 District 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 20 P6401.1032\871196.6 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 District 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 the principal of,premium, if any, and interest on 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 on the Bonds only to or upon the order of the respective Owner, 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 District's obligations with respect to payment of the principal,premium, if any, and interest due on 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 District to make payments of principal,premium, if any, and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the District 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 2.13. Representation Letter. In order to qualify the Bonds and any Parity Bonds which the District elects to register in the name of the Nominee for the Depository's book-entry system, an authorized representative of the Trustee is hereby authorized to execute from time to time and deliver to such Depository the Representation Letter. The execution and delivery of the Representation Letter shall not in any way limit the provisions of Section 5.1 or in any other way impose upon the District 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 all representations made by it in the Representation Letter. In addition to the execution and delivery of the Representation Letter, the Authorized Representatives of the District 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 2.14. Transfers Outside Book-Entry System. In the event(i)the Depository determines not to continue to act as securities depository for the Bonds, or(ii)the District determines that the Depository shall no longer so act, then the District will discontinue the book-entry system with the Depository. If the District 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 2.9 hereof. Section 2.15. 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 2.16. 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. 21 P6401.1032\871196.6 ARTICLE III CREATION OF FUNDS AND APPLICATION OF PROCEEDS Section 3.1. Creation of Funds; Application of Proceeds. (a) There is hereby created and established and shall be maintained by the Trustee the following funds and accounts: (1) The City of Palm Desert Community Facilities District No. 2005-1 Special Tax Fund(the"Special Tax Fund")(in which there shall be established and created an Interest Account(in which there shall be established the Capitalized Interest Subaccount), a Principal Account, a Redemption Account, a Reserve Account, and an Administrative Expenses Account). (2) The City of Palm Desert Community Facilities District No. 2005-1 Rebate Fund(the"Rebate Fund")(in which there shall be established a Rebate Account and an Alternative Penalty Account). (3) The City of Palm Desert Community Facilities District No. 2005-1 City Facilities Fund(the"City Facilities Fund")(in which there shall be established a Costs of Issuance Account, a Backbone Infrastructure Account(in which there shall be established a Gerald Ford(South)Landscaping Subaccount and a Cook Street Pedestrian Bridge Subaccount), and an Other Facilities Account(in which there shall be established a DW 237 Subaccount(City Facilities), a PDFC Subaccount(City Facilities), a UV Subaccount(City Facilities), a Shaw Subaccount(City Facilities), and a S&C Subaccount(City Facilities))). (4) The City of Palm Desert Community Facilities District No. 2005-1 CVWD Facilities Fund(the"CVWD Facilities Fund")(in which there shall be established a Backbone Infrastructure Account and an Other Facilities Account(in which there shall be established a DW 237 Subaccount(CVWD Facilities), a PDFC Subaccount(CVWD Facilities), a UV Subaccount(CVWD Facilities), a Shaw Subaccount(CVWD Facilities), and a S&C Subaccount(CVWD Facilities))). (5) The City of Palm Desert Community Facilities District No. 2005-1 Surplus Fund(the"Surplus Fund"). The amounts on deposit in the foregoing funds, accounts and subaccounts shall be held by the Trustee and the Trustee shall invest and disburse the amounts in such funds, accounts and subaccounts in accordance with the provisions of this Article 3 and shall disburse investment earnings thereon in accordance with the provisions of Section 3.11 hereof. In connection with the issuance of any Parity Bonds, the Trustee, at the direction of an Authorized Representative of the District, may create new funds, accounts or subaccounts, or may create additional accounts and subaccounts within any of the foregoing funds and accounts for the purpose of separately accounting for the proceeds of the Bonds and any Parity Bonds. 22 P6401.1032\871196.6 (b) The proceeds of the sale of the Bonds shall be received by the Trustee on behalf of the District and deposited and transferred as follows: (1) $ shall be deposited in the Costs of Issuance Account of the City Facilities Fund to pay the Costs of Issuance of the Bonds; (2) $ shall be deposited in the Reserve Account of the Special Tax Fund to fund the Reserve Requirement; (3) $ shall be deposited in the Backbone Infrastructure Account of the City Facilities Fund; (4) $1,401,364.58 shall be deposited in the Gerald Ford(South)Landscaping. Subaccount of the Backbone Infrastructure Account of the City Facilities Fund; (5) $1,500,000.00 shall be deposited in the Cook Street Pedestrian Bridge Subaccount of the Backbone Infrastructure Account of the City Facilities Fund; (6) $ shall be deposited in the Backbone Infrastructure Account of the CVWD Facilities Fund; (7) $ shall be deposited in the DW 237 Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund; (8) $ shall be deposited in the PDFC Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund; (9) $ shall be deposited in the UV Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund; (10) $ shall be deposited in the Shaw Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund; (11) $ shall be deposited in the S&C Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund; (12) $ shall be deposited in the DW 237 Subaccount(CVWD • Facilities)of the Other Facilities Account of the CVWD Facilities Fund; (13) $ shall be deposited in the PDFC Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund; (14) $ shall be deposited in the UV Subaccount(CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund; (15) $ shall be deposited in the Shaw Subaccount(CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund; (16) $ shall be deposited in the S&C Subaccount(CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund; and 23 P6401.1032\871196.6 (17) $ shall be deposited in the Capitalized Interest Subaccount of the Interest Account of the Special Tax Fund. The Trustee may, in its discretion, establish a temporary fund or account in its books and records to facilitate such transfers. Section 3.2. Deposits to and Disbursements from Special Tax Fund. (a) To the extent the District receives any Prepayments,the District shall deposit such Prepayments with the Trustee,together with a Certificate of an Authorized Representative designating such Special Taxes as Prepayments and specifying the respective amounts to be deposited in the various funds and accounts hereunder, and the Trustee shall make such deposits as specified in such certificate on the same day as its receipt thereof. Except for any Prepayments to be deposited pursuant to the foregoing,the Trustee shall, on each date on which the Special Taxes are received from the District, deposit the Special Taxes in the Special Tax Fund to be held in trust for the Owners. The Trustee shall transfer the Special Taxes on deposit in the Special Tax Fund on the dates and in the amounts set forth in the following Sections, in the following order of priority,to: (1) the Administrative Expenses Account of the Special Tax Fund; (2) the Interest Account of the Special Tax Fund; (3) the Principal Account of the Special Tax Fund; (4) the Redemption Account of the Special Tax Fund; (5) the Reserve Account of the Special Tax Fund; (6) the Rebate Fund; and (7) the Surplus Fund. (b) At least five(5)Business Days prior to each Interest Payment Date the Trustee shall transfer to the Interest Account,the Principal Account and the Redemption Account, as applicable, from the Special Tax Fund the amounts required for debt service on the Bonds and Parity Bonds on such Interest Payment Date. (c) At maturity of all of the Bonds and Parity Bonds and, after all principal and interest then due on the Bonds and Parity Bonds then Outstanding has been paid or provided for and any amounts owed to the Trustee have been paid in full,moneys in the Special Tax Fund and any accounts therein may be used by the District for any lawful purpose. Section 3.3. Administrative Expenses Account of the Special Tax Fund From time to time,the District may provide the Trustee with a Certificate of an Authorized Representative of the District, requesting the payment of Administrative Expenses as set forth therein. Upon its receipt of any such certificate, the Trustee shall transfer from the Special Tax Fund and deposit in the Administrative Expenses Account of the Special Tax Fund amounts necessary to make timely payment of any such Administrative Expenses as set forth in the Certificate of an Authorized Representative of the District;provided,however,that, except as set forth in the following sentence, the total amount transferred in a Bond Year shall not exceed the Administrative Expenses Cap until 24 P6401.1032\871196.6 such time as there has been deposited(a)to the Interest Account and the Principal Account an amount, together with any amounts already on deposit therein,that is sufficient to pay the interest and principal on all Bonds and Parity Bonds due in such Bond Year, (b)to the Redemption Account an amount,together with any amounts already on deposit therein,that is sufficient to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedules set forth in Section 4.1(b) hereof and to redeem Parity Bonds in accordance with any Sinking Fund Payment schedule in the Supplemental Indenture for such Parity Bonds, and(c)to the Reserve Account an amount, together with any amounts already on deposit therein,that is sufficient to restore the Reserve Account to the Reserve Requirement. Notwithstanding the foregoing, amounts in excess of the Administrative Expenses Cap may be transferred to the Administrative Expenses Account to the extent necessary to collect delinquent Special Taxes. Moneys in the Administrative Expenses Account of the Special Tax Fund may be invested in any Authorized Investments as directed in writing by an Authorized Representative of the District and shall be disbursed as directed in a Certificate of an Authorized Representative. The Trustee shall have no obligation to transfer any amount from the Special Tax Fund for deposit in the Administrative Expenses Account of the Special Tax Fund except upon its receipt of a Certificate of an Authorized Representative of the District pursuant to this section. Section 3.4. Interest Account and Principal Account of the Special Tax Fund. The principal of and interest due on the Bonds and any Parity Bonds until maturity, other than principal due upon redemption, shall be paid by the Trustee from the Principal Account and the Interest Account of the Special Tax Fund,respectively. For the purpose of assuring that the payment of principal of and interest on the Bonds and any Parity Bonds will be made when due and after making the transfer required by Section 3.3, if any, at least five(5)Business Days prior to each March 1 and September 1,the Trustee shall make the following transfers from the Special Tax Fund first to the Interest Account and then to the Principal Account;provided, however,that to the extent that deposits have been made in the Interest Account or the Principal Account from the proceeds of the sale of an issue of the Bonds, any Parity Bonds,or otherwise,the transfer from the Special Tax Fund need not be made; and provided, further,that, if amounts in the Special Tax Fund(exclusive of the Reserve Account)are inadequate to make the foregoing transfers,then any deficiency shall be made up by transfers from the Reserve Account: (a) To the Interest Account, an amount such that the balance in the Interest Account five(5)Business Days prior to each Interest Payment Date shall be equal to the installment of interest due on the Bonds and any Parity Bonds on said Interest Payment Date and any installment of interest due on a previous Interest Payment Date which remains unpaid. Moneys in the Interest Account shall be used for the payment of interest on the Bonds and any Parity Bonds as the same become due. (b) To the Principal Account, an amount such that the balance in the Principal Account five(5)Business Days prior to September 1 of each year, commencing September 1, 2007, shall equal the principal payment due on the Bonds and any Parity Bonds maturing on such September 1 and any principal payment due on a previous September 1 which remains unpaid. Moneys in the Principal Account shall be used for the payment of the principal of such Bonds and any Parity Bonds as the same become due at maturity. Section 3.5. Redemption Account of the Special Tax Fund. (a) With respect to each September 1 on which a Sinking Fund Payment is due and after the deposits have been made to the Administrative Expenses Account, the Interest Account, and the 25 P6401.1032\871196.6 Principal Account of the Special Tax Fund as required by Sections 3.3 and 3.4 hereof,the Trustee shall next transfer into the Redemption Account of the Special Tax Fund from the Special Tax Fund the amount needed to make the balance in the Redemption Account five(5)Business Days prior to each September 1 equal to the Sinking Fund Payment due on any Outstanding Bonds and Parity Bonds on such September 1;provided,however, that, if amounts in the Special Tax Fund are inadequate to make the foregoing transfers,then any deficiency shall be made up by an immediate transfer from the Reserve Account, if funded,pursuant to Section 3.6 below. Moneys so deposited in the Redemption Account shall be used and applied by the Trustee to call and redeem Term Bonds in accordance with the Sinking Fund Payment schedules set forth in Section 4.1(b)hereof, and to redeem Parity Bonds in accordance with any Sinking Fund Payment schedule in the Supplemental Indenture for such Parity Bonds. (b) After making the deposits to the Administrative Expenses Account,the Interest Account and the Principal Account of the Special Tax Fund pursuant to Sections 3.3 and 3.4 above and to the Redemption Account for Sinking Fund Payments then due pursuant to subparagraph(a)of this Section, and in accordance with the District's election to call Bonds for optional redemption as set forth in Section 4.1(a)hereof, or to call Parity Bonds for optional redemption as set forth in any Supplemental Indenture for Parity Bonds,the Trustee shall transfer from the Special Tax Fund and deposit in the Redemption Account moneys available for the purpose and sufficient to pay the principal and the premiums, if any,payable on the Bonds or Parity Bonds called for optional redemption;provided,however,that amounts in the Special Tax Fund(other than the Administrative Expenses Account therein)may be applied to optionally redeem Bonds and Parity Bonds only if immediately following such redemption the amount in the Reserve Account will equal the Reserve Requirement. (c) Prepayments deposited to the Redemption Account shall be applied on the redemption date established pursuant to Section 4.1(c)hereof for the use of such Prepayments to the payment of the principal of,premium, and interest on the Bonds and Parity Bonds to be redeemed with such Prepayments. (d) Moneys set aside in the Redemption Account shall be used solely for the purpose of redeeming Bonds and Parity Bonds and shall be applied on or after the redemption date to the payment of principal of and premium, if any, on the Bonds or Parity Bonds to be redeemed upon presentation and surrender of such Bonds or Parity Bonds and in the case of an optional redemption or an extraordinary redemption from Prepayments to pay the interest thereon;provided, however, that in lieu or partially in lieu of such call and redemption, moneys deposited in the Redemption Account, other than Prepayments, may be used to purchase Outstanding Bonds or Parity Bonds in the manner hereinafter provided. Purchases of Outstanding Bonds or Parity Bonds may be made by the District at public or private sale as and when and at such prices as the District may in its discretion determine but only at prices(including brokerage or other expenses)not more than par plus accrued interest,plus, in the case of moneys set aside for an optional redemption or an extraordinary redemption,the premium applicable at the next following call date according to the premium schedule established pursuant to Section 4.1(a)or 4.1(c)hereof, as applicable, or in the case of Parity Bonds the premium established in any Supplemental Indenture. Any accrued interest payable upon the purchase of Bonds or Parity Bonds may be paid from the amount reserved in the Interest Account of the Special Tax Fund for the payment of interest on the next following Interest Payment Date. 26 P6401.1032\871196.6 Section 3.6. Reserve Account of the Special Tax Fund. There shall be maintained in the Reserve Account of the Special Tax Fund an amount equal to the Reserve Requirement. If funded, the amounts in the Reserve Account shall be applied as follows: (a) Moneys in the Reserve Account shall be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on the Bonds and any Parity Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due and for the purpose of making any required transfer to the Rebate Fund pursuant to Section 3.7 hereof upon written direction from the District. If the amounts in the Interest Account,the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Parity Bonds when due, or amounts in the Special Tax Fund are insufficient to make transfers to the Rebate Fund when required, the Trustee shall withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund or the Rebate Fund, as applicable, moneys necessary for such purposes. (b) Whenever moneys are withdrawn from the Reserve Account, after making the required transfers referred to in Sections 3.3, 3.4 and 3.5 above,the Trustee shall transfer to the Reserve Account from available moneys in the Special Tax Fund,or from any other legally available funds which the District elects to apply to such purpose,the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Account only if the Trustee determines that such amounts will not be needed to make the deposits required to be made to the Administrative Expenses Account,the Interest Account,the Principal Account or the Redemption Account of the Special Tax Fund on or before the next September 1. If amounts in the Special Tax Fund together with any other amounts transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement,then the District shall include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy to the extent of the maximum permitted Special Tax rates. (c) In connection with a redemption of Bonds pursuant to Section 4.1(a) or(c) or Parity Bonds in accordance with any Supplemental Indenture, or a partial defeasance of Bonds or Parity Bonds in accordance with Section 9.1 hereof, amounts in the Reserve Account may be applied to such redemption or partial defeasance so long as the amount on deposit in the Reserve Account following such redemption or partial defeasance equals the Reserve Requirement. The District shall set forth in a Certificate of an Authorized Representative the amount in the Reserve Account to be transferred to the Redemption Account on a redemption date or to be transferred pursuant to Section 9.1(c)to partially defease Bonds, and the Trustee shall make such transfer on the applicable redemption or defeasance date, subject to the limitation in the preceding sentence. (d) To the extent that the Reserve Account is at the Reserve Requirement as of the first day of the final Bond Year for the Bonds in accordance with any Supplemental Indenture or an issue of Parity Bonds, amounts in the Reserve Account may be applied to pay the principal of and interest due on the Bonds and Parity Bonds, as applicable, in the final Bond Year for such issue. Moneys in the Reserve Account in excess of the Reserve Requirement not transferred in accordance with the preceding provisions of this section shall be withdrawn from the Reserve Account on the Business Day before each March 1 and September 1, and the Pro Rata Agency Share of such moneys shall be transferred and deposited into the respective Backbone Infrastructure Accounts of the Facilities 27 P6401.1032\871196.6 Funds, until the receipt of a Certificate of an Authorized Representative stating that all Project Costs required or expected to be funded from the Backbone Infrastructure Accounts pursuant to the Acquisition Agreement and the JCFA have been funded(or that amounts in the Backbone Infrastructure Accounts are sufficient to fund all remaining Project Costs for backbone infrastructure), and thereafter to the Interest Account of the Special Tax Fund;provided, if the Trustee receives such Certificate certifying only as to one of the Backbone Infrastructure Accounts, rather than as to both,thereafter any such moneys in the Reserve Account in excess of the Reserve Requirement not transferred in accordance with the paragraphs(a)through(c)above and the first sentence of this paragraph(d)shall be withdrawn from the Reserve Account on the Business Day before each March 1 and September 1 and shall be transferred and deposited into the Backbone Infrastructure Account of the Facilities Fund not subject to such Certificate, until the receipt of a Certificate of an Authorized Representative stating that all Project Costs required or expected to be funded from such Backbone Infrastructure Account pursuant to the Acquisition Agreement and/or the JCFA, as applicable, have been funded(or that amounts in such Backbone Infrastructure Account are sufficient to fund all remaining Project Costs for backbone infrastructure), and thereafter to the Interest Account of the Special Tax Fund. Section 3.7. Rebate Fund. (a) The Trustee shall establish and maintain a fund separate from any other fund established and maintained hereunder designated as the Rebate Fund and shall establish a separate Rebate Account and Alternative Penalty Account therein. All money at any time deposited in the Rebate Account or the Alternative Penalty Account of the Rebate Fund shall be held by the Trustee in trust, for payment to the United States Treasury. A separate subaccount of the Rebate Account and the Alternative Penalty Account shall be established for the Bonds and each issue of Parity Bonds the interest on which is excluded from gross income for federal income tax purposes. All amounts on deposit in the Rebate Fund with respect to the Bonds or an issue of Parity Bonds shall be governed by this Section 3.7 and the Tax Certificate for such issue, unless the District obtains an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest payments on the Bonds and Parity Bonds will not be adversely affected if such requirements are not satisfied. (1) Rebate Account. The following requirements shall be satisfied with respect to each subaccount of the Rebate Account: (i) Annual Computation. Within 55 days of the end of each Bond Year, the District shall calculate or cause to be calculated the amount of rebatable arbitrage for the Bonds and each issue of Parity Bonds to which this Section 3.7 is applicable, in accordance with Section 148(0(2)of the Code and Section 1.148-3 of the Rebate Regulations(taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage described in the Tax Certificate for each issue(e.g.,the temporary investments exceptions of Section 148(f)(4)(B)and(C)of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii)of the Code(the"1'/2%Penalty")has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b)of the Rebate Regulations(the"Rebatable Arbitrage"). The District shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. 28 P6401.1032\871196.6 (ii) Annual Transfer. Within 55 days of the end of each Bond Year for which Rebatable Arbitrage must be calculated as required by the Tax Certificate for each issue, upon the written direction of an Authorized Representative of the District, an amount shall be deposited to each subaccount of the Rebate Account by the Trustee from any funds • so designated by the District if and to the extent required, so that the balance in the Rebate Account shall equal the amount of Rebatable Arbitrage so calculated by or on behalf of the District in accordance with(i) of this Subsection(a)(1)with respect to the Bonds and each issue of Parity Bonds to which this Section 3.7 is applicable. In the event that immediately following any transfer required by the previous sentence, or the date on which the District determines that no transfer is required for such Bond Year,the amount then on deposit to the credit of the applicable subaccount of the Rebate Account exceeds the amount required to be on deposit therein, upon written instructions from an Authorized Representative of the District,the Trustee shall withdraw the excess from the appropriate subaccount of the Rebate Account and then credit the excess to the Special Tax Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed in writing by an Authorized Representative of the District, to the United States Treasury, out of amounts in each subaccount of the Rebate Account, (X) not later than 60 days after the end of(A)the fifth Bond Year for the Bonds and each issue of Parity Bonds to which this Section 3.7 is applicable, and(B)each applicable fifth Bond Year thereafter, an amount equal to at least 90%of the Rebatable Arbitrage calculated as of the end of such Bond Year for the Bonds and each issue of Parity Bonds, as applicable; and (Y) not later than 60 days after the payment or redemption of all of the Bonds or an issue of Parity Bonds, as applicable, an amount equal to 100%of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f)of the Code. In the event that,prior to the time of any payment required to be made from the Rebate Account, the amount in the Rebate Account is not sufficient to make such payment when such payment is due,the District shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this Subsection(a)(1)shall be made to the Internal Revenue Service Center, Ogden,Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T,or shall be made in such other manner as provided under the Code. (2) Alternative Penalty Account. (i) Six-Month Computation. If the 11/2%Penalty has been elected for the Bonds or an issue of Parity Bonds,within 85 days of each particular Six-Month Period,the District shall determine or cause to be determined whether the 11/2%Penalty is payable(and the amount of such penalty)as of the close of the applicable Six-Month Period. The District shall obtain expert advice in making such determinations. 29 P6401.1032\871196.6 (ii) Six-Month Transfer. Within 85 days of the close of each Six-Month Period,the Trustee, at the written direction of an Authorized Representative of the District, shall deposit an amount in the appropriate subaccounts of the Alternative Penalty Account from any source of funds held by the Trustee pursuant to this Indenture and designated by the District in such written directions or provided to it by the District, if and to the extent required, so that the balance in each subaccount of the Alternative Penalty Account equals the amount of 11/2%Penalty due and payable to the United States Treasury determined as provided in Subsection(a)(2)(i) above. In the event that immediately following any transfer provided for in the previous sentence, or the date on which the District determines that no transfer is required for such Bond Year, the amount then on deposit in a subaccount of the Alternative Penalty Account exceeds the amount required to be on deposit therein to make the payments required by Subsection(iii)below,the Trustee, at the written direction of an Authorized Representative of the District,may withdraw the excess from the applicable subaccount of the Alternative Penalty Account and credit the excess to the Special Tax Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed in writing by an Authorized Representative of the District,to the United States Treasury, out of amounts in a subaccount of the Alternative Penalty Account, not later than 90 days after the close of each Six-Month Period the 1'/2%Penalty, if applicable and payable, computed with respect to the Bonds and any issue of Parity Bonds in accordance with Section 148(f)(4)of the Code. In the event that,prior to the time of any payment required to be made from a subaccount of the Alternative Penalty Account, the amount in such subaccount is not sufficient to make such payment when such payment is due,the District shall calculate the amount of such deficiency and direct the Trustee, in writing,to deposit an amount equal to such deficiency into such subaccount of the Alternative Penalty Account from any funds held by the Trustee pursuant to this Indenture and designated by the District in such written directions prior to the time such payment is due. Each payment required to be made pursuant to this Subsection(a)(2)shall be made to the Internal Revenue Service, Ogden,Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Accounts of the Rebate Fund with respect to the Bonds or an issue of Parity Bonds after redemption and payment of such issue and after making the payments described in Subsection(a)(1)(iii)or(a)(2)(iii)(whichever is applicable), may be withdrawn by the Trustee at the written direction of the District and utilized in any manner by the District. (c) Survival of Defeasance and Final Payment. Notwithstanding anything in this Section or this Indenture to the contrary,the obligation to comply with the requirements of this Section shall survive the defeasance and final payment of the Bonds and any Parity Bonds with respect to which an Account has been created in the Rebate Fund. (d) Amendment Without Consent of Owners. This Section 3.7 may be deleted or amended in any manner without the consent of the Owners,provided that prior to such event there is delivered to the District an opinion of Bond Counsel to the effect that such deletion or amendment will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds and any issue of Parity Bonds issued on a tax-exempt basis. 30 P6401.1032\871196.6 • The Trustee shall not be responsible for calculating rebatable arbitrage or for the adequacy or correctness or any rebate report or rebate calculations. The Trustee shall be deemed conclusively to have complied with the provisions of this Indenture regarding calculation and payment of rebatable arbitrage if it follows the directions of the District and it shall have no independent duty to review or such calculations or enforce the compliance by the District with such rebate requirements. • Section 3.8. Surplus Fund. After making the transfers required by Sections 3.3, 3.4, 3.5, 3.6 and 3.7 hereof, as soon as practicable after each September 1, and in any event prior to each October 1,the Trustee shall transfer all remaining amounts in the Special Tax Fund to the Surplus Fund, unless on or prior to such date, it has received a Certificate of an Authorized Representative directing that certain amounts be retained in the Special Tax Fund because the District has included such amounts as being available in the Special Tax Fund in calculating the amount of the levy of Special Taxes for such Fiscal Year pursuant to Section 5.2(b)hereof. Moneys deposited in the Surplus Fund will be transferred by the Trustee at the direction of an Authorized Representative of the District(i)to the Interest Account,the Principal Account or the Redemption Account of the Special Tax Fund to pay the principal of, including Sinking Fund Payments,premium, if any, and interest on the Bonds and any Parity Bonds when due in the event that moneys in the Special Tax Fund and the Reserve Account of the Special Tax Fund are insufficient therefor, (ii)to the Reserve Account in order to replenish the Reserve Account to the Reserve Requirement, (iii)to the Administrative Expenses Account of the Special Tax Fund to pay Administrative Expenses to the extent that the amounts on deposit in the Administrative Expenses Account of the Special Tax Fund are insufficient to pay Administrative Expenses, (iv)to the Backbone Infrastructure Account of the City Facilities Fund to pay Project Costs required or expected to be funded from such account pursuant to the Acquisition Agreement, (v)to the Backbone Infrastructure Account of the CVWD Facilities Fund to pay Project Costs required or expected to be funded from such account pursuant to the Acquisition Agreement and the JCFA,or(vi)for any other lawful purpose of the District. The amounts in the Surplus Fund are not pledged to the repayment of the Bonds or the Parity Bonds and may be used by the District for any lawful purpose. In the event that the District reasonably expects to use any portion of the moneys in the Surplus Fund to pay debt service on any Outstanding Bonds or Parity Bonds,the District will notify the Trustee in a Certificate of an Authorized Representative and the Trustee will segregate such amount into a separate subaccount and the moneys on deposit in such subaccount of the Surplus Fund shall be invested at the written direction of the District in Authorized Investments the interest on which is excludable from gross income under Section 103 of the Code(other than bonds the interest on which is a tax preference item for purposes of computing the alternative minimum tax of individuals and corporations under the Code)or in Authorized Investments at a yield not in excess of the yield on the issue of Bonds or Parity Bonds to which such amounts are to be applied, unless, in the opinion of Bond Counsel, investment at a higher yield will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes. Section 3.9. City Facilities Fund. (a) The moneys in the Costs of Issuance Account shall be disbursed by the Trustee pursuant to a Certificate of an Authorized Representative of the District, and any balance therein shall be transferred by the Trustee to the Backbone Infrastructure Account of the City Facilities Fund 180 days after the Delivery Date of the Bonds or Parity Bonds, as applicable. 31 P6401.1032\871196.6 (b) The moneys in the following accounts and subaccounts of the City Facilities Fund shall be applied exclusively to pay the Project Costs: (i)the Backbone Infrastructure Account, including without limitation the Gerald Ford(South)Landscaping Subaccount and the Cook Street Pedestrian Bridge Subaccount therein, and(ii)the Other Facilities Account and the subaccounts therein((A)the DW 237 Subaccount(City Facilities), (B)the PDFC Subaccount(City Facilities), (C)the UV Subaccount(City Facilities), (D)the Shaw Subaccount(City Facilities), and(E)the S&C Subaccount(City Facilities)). Amounts for Project Costs shall be disbursed by the Trustee from the such accounts and subaccounts of the City Facilities Fund as specified in a Request for Disbursement of Project Costs(City Facilities Fund), substantially in the form of Exhibit B attached hereto,which must be submitted in connection with each requested disbursement. (c) Upon receipt of a Certificate of an Authorized Representative of the District, substantially in the form of Exhibit D attached hereto, requesting transfer pursuant to Section 3.3.B. of the Acquisition Agreement of all or a specified portion of the amount remaining in the Backbone Infrastructure Account of the City Facilities Fund(excluding the Gerald Ford(South)Landscaping Subaccount and the Cook Street Pedestrian Bridge Subaccount therein)to the Backbone Infrastructure Account of the CVWD Facilities Fund,the Trustee shall transfer all or such specified portion, as applicable, of the moneys remaining on deposit in the Backbone Infrastructure Account of the City Facilities Fund to the Backbone Infrastructure Account of the CVWD Facilities Fund. (d) Upon receipt of a Certificate of an Authorized Representative of the District, substantially in the form of Exhibit E attached hereto, requesting a transfer pursuant to Section 3.3.C. of the Acquisition Agreement of all or a specified portion of the amount remaining in a subaccount of the Other Facilities Account of the City Facilities Fund in one of the following manners,the Trustee shall transfer all or such specified portion, as applicable, as specified in the Certificate: (1) From the DW 237 Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund to the DW 237 Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund. (2) From the PDFC Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund to the PDFC Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund. (3) From the UV Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund to the UV Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund. (4) From the Shaw Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund to the Shaw Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund. (5) From the S&C Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund to the S&C Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund. (e) Upon receipt of a Certificate of an Authorized Representative of the District, substantially in the form of Exhibit F attached hereto, requesting a transfer pursuant to Section 3.3.D. • 32 P6401.1032\871196.6 of the Acquisition Agreement of all or a specified portion of the amount remaining in the Gerald Ford(South)Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund to the Backbone Facilities Account of the City Facilities Fund or the Backbone Facilities Account of the CVWD Facilities Fund,the Trustee shall transfer all or such specified portion to the Backbone Facilities Account specified in the Certificate. (f) Upon receipt of a Certificate of an Authorized Representative of the District, substantially in the form of Exhibit G attached hereto, requesting a transfer of all or a specified portion of the amount remaining in the Cook Street Pedestrian Bridge Subaccount of the Backbone Infrastructure Account of the City Facilities Fund to the Backbone Facilities Account of the City Facilities Fund or the Backbone Facilities Account of the CVWD Facilities Fund,the Trustee shall transfer all or such specified portion to the Backbone Facilities Account specified in the Certificate. (g) Upon receipt of a Certificate of an Authorized Representative of the District, substantially in the form of Exhibit H attached hereto, requesting a transfer pursuant to Section 3.3.E. of the Acquisition Agreement of all of the amount remaining in the Backbone Infrastructure Account of the City Facilities Fund(excluding the Gerald Ford(South)Landscaping Subaccount and the Cook Street Pedestrian Bridge Subaccount therein)in specified percentages to(i)the subaccounts within the Other Facilities Account of the City Facilities Fund, (ii)the subaccounts within the Other Facilities Account of the CVWD Facilities Fund, or(iii)a combination of the subaccounts described in the foregoing clauses(i)and(ii),the Trustee shall transfer all of such monies as specified in the Certificate. (h) Upon receipt of a Certificate of an Authorized Representative of the District stating that all or a specified portion of the amount remaining in any account(or subaccount therein)within the City Facilities Fund is no longer needed to pay Project Costs,the Trustee shall transfer all or such specified portion, as applicable, of the moneys remaining on deposit in such specified account(or subaccount therein)within the City Facilities Fund to the Principal Account or Redemption Account to the Special Tax Fund or to the Surplus Fund, as directed in the Certificate,provided that in connection with any direction to transfer amounts to the Surplus Fund there shall have been delivered to the Trustee with such Certificate an opinion of Bond Counsel to the effect that such transfer to the Surplus Fund will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes. Section 3.10. CVWD Facilities Fund. (a) The moneys in the following accounts and subaccounts of the CVWD Facilities Fund shall be applied exclusively to pay the Project Costs: (i)the Backbone Infrastructure Account and (ii)the Other Facilities Account and the subaccounts therein((A)the DW 237 Subaccount(CVWD Facilities), (B)the PDFC Subaccount(CVWD Facilities), (C)the UV Subaccount(CVWD Facilities), (D)the Shaw Subaccount(CVWD Facilities), and(E)the S&C Subaccount(CVWD Facilities)). Amounts for Project Costs shall be disbursed by the Trustee from the such accounts and subaccounts of the CVWD Facilities Fund as specified in a Request for Disbursement of Project Costs(CVWD Facilities Fund),substantially in the form of Exhibit C attached hereto, which must be submitted in connection with each requested disbursement. (b) Upon receipt of a Certificate of an Authorized Representative of the District substantially in the form of Exhibit D attached hereto requesting transfer pursuant to Section 3.3.B. 33 P6401.1032\871196.6 of the Acquisition Agreement of all or a specified portion of the amount remaining in the Backbone Infrastructure Account of the CVWD Facilities Fund to the Backbone Infrastructure Account of the City Facilities Fund,the Trustee shall transfer all or such specified portion, as applicable, of the moneys remaining on deposit in the Backbone Infrastructure Account of the CVWD Facilities Fund to the Backbone Infrastructure Account of the City Facilities Fund. (c) Upon receipt of a Certificate of an Authorized Representative of the District substantially in the form of Exhibit E attached hereto requesting a transfer pursuant to Section 3.3.C. of the Acquisition Agreement of all or a specified portion of the amount remaining in a subaccount of the Other Facilities Account of the CVWD Facilities Fund in one of the following manners,the Trustee shall transfer all or such specified portion, as applicable, as specified in the Certificate: (1) From the DW 237 Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund to the DW 237 Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund. (2) From the PDFC Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund to the PDFC Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund. (3) From the UV Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund to the UV Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund. (4) From the Shaw Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund to the Shaw Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund. (5) From the S&C Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund to the S&C Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund. (d) Upon receipt of a Certificate of an Authorized Representative of the District, substantially in the form of Exhibit H attached hereto, requesting a transfer pursuant to Section 3.3.E. of the Acquisition Agreement of all of the amount remaining in the Backbone Infrastructure Account of the CVWD Facilities Fund in specified percentages to(i)the subaccounts within the Other Facilities Account of the City Facilities Fund, (ii)the subaccounts within the Other Facilities Account of the CVWD Facilities Fund, or(iii)a combination of the subaccounts described in the foregoing clauses(i)and(ii), the Trustee shall transfer all of such monies as specified in the Certificate. (e) Upon receipt of a Certificate of an Authorized Representative of the District stating that all or a specified portion of the amount remaining in any account(or subaccount therein)within the CVWD Facilities Fund is no longer needed to pay Project Costs,the Trustee shall transfer all or such specified portion, as applicable, of the moneys remaining on deposit in such specified account (or subaccount therein)within the CVWD Facilities Fund to the Principal Account or Redemption Account to the Special Tax Fund or to the Surplus Fund, as directed in the Certificate,provided that in connection with any direction to transfer amounts to the Surplus Fund there shall have been delivered to the Trustee with such Certificate an opinion of Bond Counsel to the effect that such 34 P6401.1032\871196.6 transfer to the Surplus Fund will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes. Section 3.11. Investments. Moneys held in any of the Funds, Accounts, and Subaccounts under this Indenture shall be invested at the written direction of the District in accordance with the limitations set forth below only in Authorized Investments which shall be deemed at all times to be a part of such Funds, Accounts and Subaccounts. Any loss resulting from such Authorized Investments shall be credited or charged to the Fund, Account or Subaccount from which such investment was made, and any investment earnings on a Fund,Account or Subaccount shall be applied as follows: (i) investment earnings on all amounts deposited in the City Facilities Fund,the CVWD Facilities Fund, the Special Tax Fund, the Surplus Fund and the Rebate Fund and each Account and Subaccount therein(other than the Reserve Account of the Special Tax Fund)shall be deposited in those respective Funds, Accounts, and Subaccounts, and(ii) investment earnings on all amounts deposited in the Reserve Account shall be deposited therein to be applied as set forth in Section 3.6. Moneys in the Funds,Accounts, and Subaccounts held under this Indenture may be invested by the Trustee as directed in writing by the District,from time to time, in Authorized Investments subject to the following restrictions: (a) Moneys in the Facilities Funds shall be invested in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available without penalty, as close as practicable to the date the District estimates the moneys represented by the particular investment will be needed for withdrawal from the corresponding Facilities Fund. Notwithstanding anything herein to the contrary, amounts in any Facilities Fund three years after the Delivery Date for the Bonds and the proceeds of each issue of Parity Bonds issued on a tax-exempt basis which are remaining on deposit in any Facilities Fund on the date which is three years following the date of issuance of such issue of Parity Bonds shall be invested only in Authorized Investments the interest on which is excluded from gross income under Section 103 of the Code(other than bonds the interest on which is a tax preference item for purposes of computing the alternative minimum tax of individuals and corporations under the Code)or in Authorized Investments at a yield not in excess of the yield on the issue of Bonds or Parity Bonds from which such proceeds were derived, unless in the opinion of Bond Counsel such restriction is not necessary to prevent interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes from being included in gross income for federal income tax purposes. (b) Moneys in the Interest Account,the Principal Account and the Redemption Account of the Special Tax Fund shall be invested only in Authorized Investments which will by their terms mature, or in the case of an Investment Agreement are available for withdrawal without penalty, on such dates so as to ensure the payment of principal of,premium, if any, and interest on the Bonds and any Parity Bonds as the same become due. (c) Moneys in the Reserve Account of the Special Tax Fund may be invested only in Authorized Investments which,taken together, have a weighted average maturity not in excess of five years;provided that such amounts may be invested in an Investment Agreement to the later of the final maturity of the Bonds or any Parity Bonds so long as such amounts may be withdrawn at any time,without penalty, for application in accordance with Section 3.6 hereof; and provided that no such Authorized Investment of amounts in the Reserve Account allocable to the Bonds or an issue of Parity Bonds shall mature later than the respective final maturity date of the Bonds or the issue of Parity Bonds, as applicable. 35 P6401.1032\871196.6 (d) Moneys in the Rebate Fund shall be invested only in Authorized Investments of the type described in clause(1)of the definition thereof which by their terms will mature, as nearly as practicable, on the dates such amounts are needed to be paid to the United States Government pursuant to Section 3.7 hereof or in Authorized Investments of the type described in clause(7) of the definition thereof. (e) In the absence of written investment directions from the District,the Trustee shall invest solely in Authorized Investments specified in clause(7)of the definition thereof. The Trustee shall sell, or present for redemption, any Authorized Investment whenever it may be necessary to do so in order to provide moneys to meet any payment or transfer to such Funds and Accounts or from such Funds and Accounts. For the purpose of determining at any given time the balance in any such Funds and Accounts, any such investments constituting a part of such Funds and Accounts shall be valued at their cost, except that amounts in the Reserve Account shall be valued at the market value thereof at least semiannually on or before each Interest Payment Date. In making any valuations hereunder, the Trustee may utilize such computerized securities pricing services as may be available to it, including, without limitation, those available through its regular accounting system, and conclusively rely thereon. Notwithstanding anything herein to the contrary, the Trustee shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the provisions of this Indenture. The Trustee or an affiliate may act as principal or agent in the making or disposing of any investment and shall be entitled to its customary fee for such investment. The Trustee may sell at the best market price obtainable, or present for redemption, any Authorized Investment so purchased whenever it shall be necessary to provide moneys to meet any required payment,transfer, withdrawal or disbursement from the fund or account to which such Authorized Investment is credited, and, subject to the provisions of Section 7.4,the Trustee shall not be liable or responsible for any loss resulting from such investment. For investment purposes,the Trustee may commingle the funds and accounts established hereunder,but shall account for each separately. The District acknowledges that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur,the District specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the District periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. ARTICLE IV REDEMPTION OF BONDS AND PARITY BONDS Section 4.1. Redemption of Bonds. (a) Optional Redemption. The Bonds maturing on or after September 1, 20_may be redeemed, at the option of the District, from any source of funds on any Interest Payment Date on or after September 1, 20 in whole, or in part from such maturities as are selected by the District and by lot within a maturity, at the following redemption prices expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: 36 P6401.1032\871196.6 Redemption Dates Redemption Prices September 1, 20_and March 1,20_ September 1, 20_and March 1, 20 September 1, 20_and thereafter In the event the District elects to redeem Bonds as provided above,the District shall give written notice to the Trustee of its election to so redeem, the redemption date and the principal amount of the Bonds of each maturity to be redeemed. The notice to the Trustee shall be given at least forty-five(45)but no more than ninety(90)days prior to the redemption date, or by such later date as is acceptable to the Trustee, in its sole discretion. (b) Mandatory Sinking Fund Redemption. (i) The Term Bonds maturing on September 1,20_and September 1,20_shall be called before maturity and redeemed,from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 20_and September 1,20_respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at a redemption price for each redeemed Term Bond equal to the principal amount thereof,plus accrued interest to the redemption date,without premium, as follows: BONDS MATURING SEPTEMBER 1, 20_ Redemption Date (September 1) Principal Amount (maturity) BONDS MATURING SEPTEMBER 1,20_ Redemption Date (September 1) Principal Amount (maturity) (ii) Purchase of Term Bonds in Lieu of Redemption. If during the Fiscal Year immediately preceding one of the redemption dates specified above the District purchases Term Bonds, at least forty-five(45)days prior to the redemption date the District shall notify the Trustee as to the principal amount purchased and the amount of Term Bonds so purchased shall be credited at 37 P6401.1032\871196.6 the time of purchase,to the extent of the full principal amount thereof,to reduce such upcoming Sinking Fund Payment for the applicable maturity of the Term Bonds so purchased. All Term Bonds purchased pursuant to this subsection shall be cancelled pursuant to Section 10.1 hereof. In the event of a partial optional redemption or extraordinary redemption of the Term Bonds, each of the remaining Sinking Fund Payments for such Term Bonds, as described above, will be reduced, as nearly as practicable, on a pro rata basis, in integral multiples of$5,000. (c) Extraordinary Redemption. The Bonds are subject to extraordinary redemption as a whole, or in part on a pro rata basis among maturities, on any Interest Payment Date, and shall be redeemed by the Trustee, from Prepayments deposited to the Redemption Account pursuant to Section 3.2,plus amounts transferred from the Reserve Account pursuant to Section 3.6(c), at the following redemption prices, expressed as a percentage of the principal amount to be redeemed,together with accrued interest to the redemption date: Redemption Dates Redemption Prices Interest Payment Dates through March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and thereafter The District shall give written notice to the Trustee of its intention to redeem Bonds pursuant to this subsection, the redemption date, and the principal amount of the Bonds of each maturity to be redeemed at least forty-five(45)but no more than ninety(90) days prior to the redemption date, or by such later date as is acceptable to the Trustee, in its sole discretion. (d) The redemption provisions for Parity Bonds shall be set forth in a Supplemental Indenture. Section 4.2. Selection of Bonds and Parity Bonds for Redemption. If less than all of the Bonds or Parity Bonds Outstanding are to be redeemed,the portion of any Bond or Parity Bond of a denomination of more than$5,000 to be redeemed shall be in the principal amount of$5,000 or an integral multiple thereof. In selecting portions of such Bonds or Parity Bonds for redemption,the Trustee shall treat such Bonds or Parity Bonds, as applicable, as representing that number of Bonds or Parity Bonds of$5,000 denominations which is obtained by dividing the principal amount of such Bonds or Parity Bonds to be redeemed in part by$5,000. The procedure for the selection of Parity Bonds for redemption may be modified as set forth in the Supplemental Indenture for such Parity Bonds. The Trustee shall promptly notify the District in writing of the Bonds or Parity Bonds, or portions thereof, selected for redemption. Section 4.3. Notice of Redemption. When Bonds or Parity Bonds are due for redemption under Section 4.1 above or under another redemption provision set forth in a Supplemental Indenture relating to any Parity Bonds,the Trustee shall give notice, in the name of the District, of the redemption of such Bonds or Parity Bonds;provided, however,that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds or Parity Bonds to be redeemed. Such notice of redemption shall(a) specify the CUSIP numbers(if any),the bond 38 P6401.1032\871196.6 numbers and the maturity date or dates of the Bonds or Parity Bonds selected for redemption, except that where all of the Bonds or all of an issue of Parity Bonds are subject to redemption, or all the Bonds or Parity Bonds of one maturity, are to be redeemed, the bond numbers of such issue need not be specified; (b)state the date fixed for redemption and surrender of the Bonds or Parity Bonds to be redeemed; (c)state the redemption price; (d)state the place or places where the Bonds or Parity Bonds are to be redeemed; (e) in the case of Bonds or Parity Bonds to be redeemed only in part, state the portion of such Bond or Parity Bond which is to be redeemed; (f)state the date of issue of the Bonds or Parity Bonds as originally issued; (g)state the rate of interest borne by each Bond or Parity Bond being redeemed; and(h)state any other descriptive information needed to identify accurately the Bonds or Parity Bonds being redeemed as shall be specified by the Trustee. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond, Parity Bond or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least thirty(30)days but no more than forty-five (45)days prior to the redemption date, the Trustee shall mail a copy of such notice,by first class mail,postage prepaid,to the respective Owners thereof at their addresses appearing on the Bond Register, and to the original purchaser of the Bonds or Parity Bonds, as applicable. The actual receipt by the Owner of any Bond or Parity Bond or the original purchaser of any Bond or Parity Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds or Parity Bonds, or the cessation of interest on the redemption date. A certificate by the Trustee that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption. In addition to the foregoing notice, further notice shall be given by the Trustee as set out below,but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed. Each further notice of redemption shall be sent not later than the date that notice of redemption is mailed to the Bondowners pursuant to the first paragraph of this Section by registered or certified mail or overnight delivery service to the Depository and to any other registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds and Parity Bonds as determined by Trustee and to one or more national information services that the Trustee determines are then in the business of disseminating notice of redemption of obligations such as the Bonds and Parity Bonds: Upon the payment of the redemption price of any Bonds and Parity Bonds being redeemed, each check or other transfer of funds issued for such purpose shall to the extent practicable bear the CUSIP number identifying,by issue and maturity, the Bonds and Parity Bonds being redeemed with the proceeds of such check or other transfer. Section 4.4. Partial Redemption of Bonds or Parity Bonds. Upon surrender of any Bond or Parity Bond to be redeemed in part only, the District shall execute and the Trustee shall authenticate and deliver to the Bondowner, at the expense of the District, a new Bond or Bonds or a new Parity Bond or Parity Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered, with the same interest rate and the same maturity 39 P6401.1032\871196.6 or, in the case of surrender of a Parity Bond, a new Parity Bond or Parity Bonds subject to the foregoing limitations. Section 4.5. Effect of Notice and Availability of Redemption Money. Notice of redemption having been duly given, as provided in Section 4.3 hereof, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption: (a) the Bonds and Parity Bonds,or portions thereof,designated for redemption shall, on the date fixed for redemption,become due and payable at the redemption price thereof as provided in this Indenture or in any Supplemental Indenture with respect to any Parity Bonds, anything in this Indenture or in the Bonds or the Parity Bonds to the contrary notwithstanding; • (b) upon presentation and surrender thereof at the office of the Trustee,the redemption price of such Bonds and Parity Bonds shall be paid to the Owners thereof; (c) as of the redemption date the Bonds or the Parity Bonds,or portions thereof so designated for redemption shall be deemed to be no longer Outstanding and such Bonds or Parity Bonds, or portions thereof, shall cease to bear further interest; and (d) as of the date fixed for redemption no Owner of any of the Bonds,Parity Bonds or portions thereof so designated for redemption shall be entitled to any of the benefits of this Indenture or any Supplemental Indenture, or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. ARTICLE V COVENANTS AND WARRANTY Section 5.1. Warranty. The District shall preserve and protect the security pledged hereunder to the Bonds and any Parity Bonds against all claims and demands of all persons. Section 5.2. Covenants. So long as any of the Bonds or Parity Bonds issued hereunder are Outstanding and unpaid,the District makes the following covenants with the Bondowners under the provisions of the Act and this Indenture(to be performed by the District or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and Parity Bonds and tend to make them more marketable;provided,however,that said covenants do not require the District to expend any funds or moneys other than the Special Taxes and other amounts deposited to the Special Tax Fund: (a) Punctual Payment; Against Encumbrances. The District covenants that it will receive all Special Taxes in trust for the Owners and will instruct the Treasurer to deposit all Special Taxes with the Trustee immediately upon their apportionment to the District, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by this Indenture. All such Special Taxes shall be disbursed, allocated and applied solely to the uses and purposes set forth herein, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the District. 40 P6401.1032\871196.6 The District covenants that it will duly and punctually pay or cause to be paid the principal of and interest on every Bond and Parity Bond issued hereunder,together with the premium, if any, thereon on the date, at the place and in the manner set forth in the Bonds and the Parity Bonds and in accordance with this Indenture to the extent that Net Taxes and other amounts pledged hereunder are available therefor, and that the payments into the Funds and Accounts created hereunder will be made, all in strict conformity with the terms of the Bonds, any Parity Bonds, and this Indenture, and that it will faithfully observe and perform all of the conditions, covenants and requirements of this Indenture and all Supplemental Indentures and of the Bonds and any Parity Bonds issued hereunder. The District will not mortgage or otherwise encumber,pledge or place any charge upon any of the Net Taxes except as provided in this Indenture, and will not issue any obligation or security having a lien or charge upon the Net Taxes superior to or on a parity with the Bonds, other than Parity Bonds. Nothing herein shall prevent the District from issuing or incurring indebtedness which is payable from a pledge of Net Taxes which is subordinate in all respects to the pledge of Net Taxes to repay the Bonds and the Parity Bonds. (b) Levy of Special Tax. Beginning in Fiscal Year 2006-07 and so long as any Bonds or Parity Bonds issued under this Indenture are Outstanding,but subject to the Rate and Method,the legislative body of the District covenants to levy the Special Tax in an amount equal to the Special Tax Requirement(as defined in the Rate and Method),which includes,but is not limited to, amounts sufficient,together with other amounts on deposit in the Special Tax Fund and available for such purpose,to pay(1)the principal of and interest on the Bonds and any Parity Bonds when due, (2)the Administrative Expenses, and(3)any amounts required to replenish the Reserve Account of the Special Tax Fund to the Reserve Requirement. The District further covenants that it will take no actions that would discontinue or cause the discontinuance of the Special Tax levy or the District's authority to levy the Special Tax for so long as the Bonds and any Parity Bonds are Outstanding. (c) Commence Foreclosure Proceedings. The District covenants for the benefit of the Owners of the Bonds and any Parity Bonds that it(i)will commence judicial foreclosure proceedings against parcels with delinquent Special Taxes in excess of$10,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes were due; and(ii)will commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied and the amount on deposit in the Reserve Account is at less than the Reserve Requirement, and(iii)will diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid. The District covenants that it will deposit the net proceeds of any foreclosure in the Special Tax Fund and will apply such proceeds remaining after the payment of Administrative Expenses to make current payments of principal and interest on the Bonds and any Parity Bonds,to bring the amount on deposit in the Reserve Account up to the Reserve Requirement and to pay any delinquent installments of principal or interest due on the Bonds and any Parity Bonds. Notwithstanding the foregoing,the District may elect(but is not obligated)to advance the amount of any particular delinquency(excluding penalties and interest)and deposit such amount to the Special Tax Fund. Upon a deposit of such money in the Special Tax Fund,the District will not need to initiate a foreclosure action as provided above;provided, however,the District may reimburse itself for such advance when the Special Tax on such property is paid in the amount of 41 P6401.1032\871196.6 such advance plus interest on such amount at a rate equal to the yield on the Outstanding Bonds. Interest and penalties paid in excess of the amount advanced by the District shall be deposited in the Special Tax Fund. (d) Books and Accounts. The District will keep proper books of records and accounts, separate from all other records and accounts of the District, in which complete and correct entries shall be made of all transactions relating to the Project,the levy of the Special Tax and the deposits to the Special Tax Fund. Such books of records and accounts shall at all times during business hours be subject to the inspection of the Trustee or of the Owners of not less than 10%of the principal amount of the Bonds or the Owners of not less than 10%of any issue of Parity Bonds then Outstanding or their representatives authorized in writing. (e) Federal Tax Covenants. Notwithstanding any other provision of this Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of interest on the Bonds and any Parity Bonds issued on a tax-exempt basis for federal income tax purposes will not be adversely affected for federal income tax purposes,the District covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows: (1) Private Activity. The District will take no action or refrain from taking any action or make any use of the proceeds of the Bonds or any Parity Bonds or of any other moneys or property which would cause the Bonds or any Parity Bonds issued on a tax- exempt basis for federal income tax purposes to be"private activity bonds"within the meaning of Section 141 of the Code; (2) Arbitrage. The District will make no use of the proceeds of the Bonds or any Parity Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be"arbitrage bonds"within the meaning of Section 148 of the Code; (3) Federal Guaranty. The District will make no use of the proceeds of the Bonds or any Parity Bonds or take or omit to take any action that would cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be"federally guaranteed"within the meaning of Section 149(b)of the Code; (4) Information Reporting. The District will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e)of the Code; (5) Hedge Bonds. The District will make no use of the proceeds of the Bonds or any Parity Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the Bonds or any Parity Bonds issued on a tax-exempt basis for federal income tax purposes to be considered"hedge bonds" within the meaning of Section 149(g)of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g)of the Code to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds and any applicable Parity Bonds; 42 P6401.1032\871196.6 (6) Miscellaneous. The District will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed on the Delivery Date by the District in connection with the Bonds and any issue of Parity Bonds and will comply with the covenants and requirements stated therein and incorporated by reference herein; and (7) Other Tax Exempt Issues. The District will not use proceeds of other tax exempt securities to redeem any Bonds or Parity Bonds without first obtaining the written opinion of Bond Counsel that doing so will not impair the exclusion from gross income for federal income tax purposes of interest on the Bonds and any Parity Bonds issued on a tax- exempt basis. (f) Reduction of Maximum Special Taxes. The District hereby finds and determines that, historically, delinquencies in the payment of special taxes authorized pursuant to the Act in community facilities districts in Southern California have from time to time been at levels requiring the levy of special taxes at the maximum authorized rates in order to make timely payment of principal of and interest on the outstanding indebtedness of such community facilities districts. For this reason,the District hereby determines that a reduction in the maximum Special Tax rates authorized to be levied on parcels in the District below the levels provided in this Section 5.2(f) would interfere with the timely retirement of the Bonds and Parity Bonds. The District determines it to be necessary in order to preserve the security for the Bonds and Parity Bonds to covenant, and,to the maximum extent that the law permits it to do so,the District hereby does covenant,that it shall not initiate proceedings to reduce the maximum Special Tax rates for the District, unless, in connection therewith, (i)the District receives a certificate from one or more Independent Financial Consultants which, when taken together, certify that,on the basis of the parcels of land and improvements existing in the District as of the July 1 preceding the reduction, the maximum amount of the Special Tax which may be levied on then existing Developed Property in each Bond Year for any Bonds and Parity Bonds Outstanding will equal at least the sum of the estimated Administrative Expenses and 110%of the gross debt service in each Bond Year on all Bonds and Parity Bonds to remain Outstanding after the reduction is approved, (ii)the District finds that any reduction made under such conditions will not adversely affect the interests of the Owners of the Bonds and Parity Bonds, and(iii)the District is not delinquent in the payment of the principal of or interest on the Bonds or any Parity Bonds. For purposes of estimating Administrative Expenses for the foregoing calculation,the Independent Financial Consultants shall compute the Administrative Expenses for the current Fiscal Year and escalate that amount by two percent(2%)in each subsequent Fiscal Year. (g) Covenants to Defend. The District covenants that, in the event that any initiative is adopted by the qualified electors in the District which purports to reduce the maximum Special Tax below the levels specified in Section 5.2(f)above or to limit the power of the District to levy the Special Taxes for the purposes set forth in Section 5.2(b) above, it will commence and pursue legal action in order to preserve its ability to comply with such covenants. (h) Limitation on Right to Tender Bonds. The District hereby covenants that it will not adopt any policy pursuant to Section 53341.1 of the Act permitting the tender of Bonds or Parity Bonds in full payment or partial payment of any Special Taxes unless the District shall have first received a certificate from an Independent Financial Consultant that the acceptance of such a tender will not result in the District having insufficient Special Tax revenues to pay the principal of and interest on the Bonds and Parity Bonds when due. 43 P6401.1032\871196.6 (i) Continuing Disclosure. The District covenants to comply with the terms of the Continuing Disclosure Agreement and with the terms of any agreement executed by the District with respect to any Parity Bonds to assist the Underwriter in complying with Rule 15(c)2-12 adopted by the Securities and Exchange Commission. (j) Further Assurances. The District shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Resolution and for the better assuring and confirming unto the Owners of the Bonds and any Parity Bonds of the rights and benefits provided in this Resolution. ARTICLE VI AMENDMENTS TO INDENTURE Section 6.1. Supplemental Indentures or Orders Not Requiring Bondowner Consent. The District may from time to time, and at any time, without notice to or consent of any of the Bondowners, adopt Supplemental Indentures for any of the following purposes: (a) to cure any ambiguity,to correct or supplement any provisions herein which may be inconsistent with any other provision herein, or to make any other provision with respect to matters or questions arising under this Indenture or in any additional resolution or order,provided that such action is not materially adverse to the interests of the Bondowners; (b) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in this Indenture, other covenants, agreements, limitations and restrictions to be observed by the District which are not contrary to or inconsistent with this Indenture as theretofore in effect or which further secure Bond or Parity Bond payments; (c) to provide for the issuance of any Parity Bonds, and to provide the terms and conditions under which such Parity Bonds may be issued, subject to and in accordance with the provisions of this Indenture; (d) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, or to comply with the Code or regulations issued thereunder, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds or any Parity Bonds then Outstanding; (e) to modify, alter or amend the Rate and Method in any manner so long as such changes do not reduce the maximum Special Taxes that may be levied in each year on property within the District to an amount which is less than the sum of the estimated Administrative Expenses and 110%of the principal and interest due in each corresponding future Bond Year with respect to the Bonds and Parity Bonds Outstanding as of the date of such amendment; or (f) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Bondowners. 44 P6401.1032\871196.6 Section 6.2. Supplemental Indentures or Orders Requiring Bondowner Consent. Exclusive of the Supplemental Indentures described in Section 6.1, the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds Outstanding shall have the right to consent to and approve the adoption by the District of such Supplemental Indentures as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture;provided, however,that nothing herein shall permit, or be construed as permitting, (a)an extension of the maturity date of the principal, or the payment date of interest on, any Bond or Parity Bond, (b) a reduction in the principal amount of, or redemption premium on, any Bond or Parity Bond or the rate of interest thereon, (c)a preference or priority of any Bond or Parity Bond over any other Bond or Parity Bond, or(d) a reduction in the aggregate principal amount of the Bonds and Parity Bonds the Owners of which are required to consent to such Supplemental Indenture, without the consent of the Owners of all Bonds and Parity Bonds then Outstanding. If at any time the District shall desire to adopt a Supplemental Indenture, which pursuant to the terms of this Section shall require the consent of the Bondowners,the District shall so notify the Trustee and shall deliver to the Trustee a copy of the proposed Supplemental Indenture. The Trustee shall, at the expense of the District, cause notice of the proposed Supplemental Indenture to be mailed,by first class mail,postage prepaid,to all Bondowners at their addresses as they appear in the Bond Register. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the office of the Trustee for inspection by all Bondowners. The failure of any Bondowners to receive such notice shall not affect the validity of such Supplemental Indenture when consented to and approved by the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds Outstanding as required by this Section. Whenever at any time within one year after the date of the first mailing of such notice, the Trustee shall receive an instrument or instruments purporting to be executed by the Owners of not less than a majority in aggregate principal amount of the Bonds and Parity Bonds Outstanding, which instrument or instruments shall refer to the proposed Supplemental Indenture described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy referred to in such notice as on file with the Trustee, such proposed Supplemental Indenture,when duly adopted by the District, shall thereafter become a part of the proceedings for the issuance of the Bonds and any Parity Bonds. In determining whether the Owners of a majority of the aggregate principal amount of the Bonds and Parity Bonds have consented to the adoption of any Supplemental Indenture,Bonds or Parity Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any Supplemental Indenture and the receipt of consent to any such Supplemental Indenture from the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds and Parity Bonds in instances where such consent is required pursuant to the provisions of this section, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the District and all Owners of Outstanding Bonds and Parity Bonds shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments. Section 6.3. Notation of Bonds or Parity Bonds; Delivery of Amended Bonds or Parity Bonds. After the effective date of any action taken as hereinabove provided,the District may determine that the Bonds or any Parity Bonds may bear a notation,by endorsement in form approved 45 P6401.1032\871196.6 by the District, as to such action, and in that case upon demand of the Owner of any Outstanding Bond or Parity Bond at such effective date and presentation of his Bond or Parity Bond for the purpose at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation as to such action shall be made on such Bonds or Parity Bonds. If the District shall so determine, new Bonds or Parity Bonds so modified as, in the opinion of the District, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Outstanding Bond or Parity Bond at such effective date such new Bonds or Parity Bonds shall be exchanged at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, without cost to each Owner of Outstanding Bonds or Parity Bonds, upon surrender of such Outstanding Bonds or Parity Bonds. ARTICLE VII TRUSTEE Section 7.1. Trustee. Wells Fargo Bank,National Association, shall be the Trustee for the Bonds and any Parity Bonds unless and until another Trustee is appointed by the District hereunder. The District may, at any time, appoint a successor Trustee satisfying the requirements of Section 7.2 below for the purpose of receiving all money which the District is required to deposit with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture. The Trustee is hereby authorized to and shall mail by first class mail, postage prepaid, or wire transfer in accordance with Section 2.5 above, interest payments to the Bondowners,to select Bonds and Parity Bonds for redemption, and to maintain the Bond Register. The Trustee is hereby authorized to pay the principal of and premium, if any, on the Bonds and Parity Bonds when the same are duly presented to it for payment at maturity or on call and redemption,to provide for the registration of transfer and exchange of Bonds and Parity Bonds presented to it for such purposes,to provide for the cancellation of Bonds and Parity Bonds all as provided in this Indenture, and to provide for the authentication of Bonds and Parity Bonds, and shall perform all other duties assigned to or imposed on it as provided in this Indenture. The Trustee shall keep accurate records of all funds administered by it and all Bonds and Parity Bonds paid, discharged and cancelled by it. The Trustee is hereby authorized to redeem the Bonds and Parity Bonds when duly presented for payment at maturity, or on redemption prior to maturity. The Trustee shall cancel all Bonds and Parity Bonds upon payment thereof in accordance with the provisions of Section 10.1 hereof. The District shall from time to time, subject to any agreement between the District and the Trustee then in force, pay to the Trustee compensation for its services, reimburse the Trustee for all its advances and expenditures, including,but not limited to, advances to and fees and expenses of independent accountants or counsel employed by it in the exercise and performance of its powers and duties hereunder, and indemnify and save the Trustee, its officers, directors, employees and agents, harmless against costs, claims, expenses and liabilities, including,without limitation, fees and expenses of its attorneys, not arising from its own negligence or willful misconduct which it may incur in the exercise and performance of its powers and duties hereunder. The foregoing obligation of the District to indemnify the Trustee shall survive the removal or resignation of the Trustee or the discharge of the Bonds. Section 7.2. Removal of Trustee. The District may at any time at its sole discretion remove the Trustee initially appointed, and any successor thereto, by delivering to the Trustee a 46 P6401.1032\871196.6 written notice of its decision to remove the Trustee and may appoint a successor or successors thereto;provided that any such successor shall be a bank or trust company having a combined capital (exclusive of borrowed capital)and surplus of at least$100,000,000, and subject to supervision or examination by federal or state authority. Any removal shall become effective only upon acceptance of appointment by the successor Trustee. If any bank or trust company appointed as a successor 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 purposes of this section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Any removal of the Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee and notice being sent by the successor Trustee to the Bondowners of the successor Trustee's identity and address. Section 7.3. Resignation of Trustee. The Trustee may at any time resign by giving written notice to the District and by giving to the Owners notice of such resignation, which notice shall be mailed to the Owners at their addresses appearing in the registration books in the office of the Trustee. Upon receiving such notice of resignation, the District shall promptly appoint a successor Trustee satisfying the criteria in Section 7.2 above by an instrument in writing. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. Section 7.4. Liability of Trustee. The recitals of fact and all promises, covenants and agreements contained herein and in the Bonds and any Parity Bonds shall be taken as statements, promises, covenants and agreements of the District, and the Trustee assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of this Indenture,the Bonds or any Parity Bonds, and shall incur no responsibility in respect thereof, other than in connection with its duties or obligations specifically set forth herein, in the Bonds and any Parity Bonds, or in the certificate of authentication assigned to or imposed upon the Trustee. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds or any Parity Bonds for value. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall be responsible for the performance of the duties of the Trustee expressly set forth in this Indenture, and no implied duties or obligations shall be read into this Indenture against the Trustee. The Trustee shall have no responsibility for,and makes no representations 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 Bonds. Before taking any action under Article VIII hereof the Trustee may require indemnity satisfactory to the Trustee be furnished from any expenses and to protect it against any liability it may incur hereunder. The Trustee shall not be liable for any action taken or not taken by it in accordance with the direction of the Owners of at least twenty-five percent(25%)(or other percentage provided for herein) in aggregate principal amount of Outstanding Bonds relating to the exercise of any right, power or remedy available to the Trustee. 47 P6401.1032\871196.6 The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty. The Trustee may become the owner or pledgee of Bonds with the same rights it would have if it were not Trustee. The Trustee shall be protected in acting upon any notice,resolution, request, consent, order, certificate, report,Bond,Parity Bond, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel to the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered hereunder in good faith and in accordance therewith. The Trustee shall not be bound to recognize any person as the Owner of a Bond or Parity Bond unless and until such Bond or Parity Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed. Whenever in the administration of its duties under this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter(unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Trustee, be deemed to be conclusively proved and established by a written certificate of the District, and such certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions of this Indenture upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. The Trustee shall have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it hereunder, or as to the correctness of any amounts received,but its liability shall be limited to the proper accounting for such funds as it shall actually receive. No provision in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers. The Trustee shall not be deemed to have knowledge of any default or event of default until an officer at the Trustee's corporate trust office responsible for the administration of its duties hereunder shall have actual knowledge thereof or the Trustee shall have received written notice thereof at its corporate trust office. Section 7.5. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, shall be the successor to the Trustee without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. 48 P6401.1032\871196.6 ARTICLE VIII EVENTS OF DEFAULT; REMEDIES Section 8.1. Events of Default. Any one or more of the following events shall constitute an"event of default": (a) default in the due and punctual payment of the principal of or redemption premium, if any,on any Bond or Parity Bond when and as the same shall become due and payable,whether at maturity as therein expressed,by declaration or otherwise; (b) default in the due and punctual payment of the interest on any Bond or Parity Bond when and as the same shall become due and payable; or (c) except as described in(a)or(b), default shall be made by the District in the observance of any of the agreements, conditions or covenants on its part contained in this Indenture,the Bonds or any Parity Bonds, and such default shall have continued for a period of thirty(30)days after the District shall have been given notice in writing of such default by the Trustee or the Owners of twenty-five percent(25%), in aggregate principal amount of the Outstanding Bonds and Parity Bonds. The Trustee agrees to give notice to the Owners as soon as practicable upon the occurrence of an Event of Default under(a)or(b) above and within thirty(30)days of the Trustee's knowledge of an event of default under(c) above. Section 8.2. Remedies of Owners. Upon the occurrence 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,premium, if any, and interest on the Outstanding Bonds and Parity Bonds, and to enforce any rights of the Trustee under or with respect to this Indenture, including: (a) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members,officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in this Indenture; (b) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or (c) By a suit in equity to require the District and its members, officers and employees to account as the trustee of an express trust. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of at least twenty-five percent(25%)in aggregate principal amount of Outstanding Bonds and Parity Bonds and if indemnified to its satisfaction,the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article 8, as the Trustee,being advised by counsel, shall deem most expedient in the interests of the Owners of the Bonds and Parity Bonds. 49 P6401.1032\871196.6 No remedy herein conferred upon or reserved to the Trustee or to the Owners 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 Act or any other law. Section 8.3. 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 relating to the Bonds and Parity Bonds shall be applied by the Trustee in the following order upon presentation of the several Bonds and Parity Bonds: First,to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out the provisions of this Article 8, including reasonable compensation to its agents, attorneys and counsel, and to the payment of all other outstanding fees and expenses of the Trustee; and Second,to the payment of the whole amount of interest on and principal of the Bonds and Parity Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds and Parity 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: (a) first to the payment of all installments of interest on the Bonds and Parity Bonds then due and unpaid on a pro rata basis based on the total amount then due and owing, (b) second,to the payment of all installments of principal, including Sinking Fund Payments, of the Bonds and Parity Bonds then due and unpaid on a pro rata basis based on the total amount then due and owing, and (c) third,to the payment of interest on overdue installments of principal and interest on the Bonds and Parity Bonds on a pro rata basis based on the total amount then due and owing. Section 8.4. Power of Trustee to Control Proceedings. 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 twenty-five percent(25%)in aggregate principal amount of the Bonds and Parity Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds and Parity Bonds, 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 and Parity Bonds hereunder opposing such discontinuance,withdrawal, compromise, settlement or other such litigation. Any suit, action or proceeding which any Owner of Bonds or Parity Bonds 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 of Bonds and Parity Bonds similarly situated and the Trustee is hereby appointed(and the 50 P6401.1032\871196.6 successive respective Owners of the Bonds and Parity Bonds issued 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 of the Bonds and Parity Bonds for the purposes of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds and Parity Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact. Section 8.5. 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 of the Bonds and Parity Bonds under this Indenture,the Trustee shall be entitled, as a matter of right,to the appointment of a receiver or receivers of the Net Taxes and other amounts pledged hereunder,pending such proceedings, with such powers as the court making such appointment(s)shall confer. Section 8.6. Non-Waiver. Nothing in this Article 8 or in any other provision of this Indenture,or in the Bonds or the Parity Bonds, shall affect or impair the obligation of the District, which is absolute and unconditional,to pay the interest on and principal of the Bonds and Parity Bonds to the respective Owners of the Bonds and Parity Bonds at the respective dates of maturity, as herein provided, out of the Net Taxes 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 of any of the Bonds or Parity Bonds 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 or the Owners by the Act or by this Article 8 may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Owners, as the case may be. Section 8.7. Limitations on Rights and Remedies of Owners. No Owner of any Bond or Parity Bond issued hereunder 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(a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b)the Owners of a majority in aggregate principal amount of all the Bonds and Parity 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; (c)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(d)the Trustee shall have refused or omitted to comply with such request for a period of sixty(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 Bonds and Parity Bonds of any remedy hereunder; it being understood and intended that no one or more Owners of Bonds and Parity Bonds shall have any right in any manner whatever by his or their 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 of the Outstanding Bonds and Parity Bonds. 51 P6401.1032\871196.6 The right of any Owner of any Bond and Parity Bond to receive payment of the principal of and interest and premium(if any)on such Bond and Parity 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 8.8. 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 District,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 DEFEASANCE AND PARITY BONDS Section 9.1. Defeasance. If the District shall pay or cause to be paid,or there shall otherwise be paid,to the Owner of an Outstanding Bond or Parity Bond the interest due thereon and the principal thereof, at the times and in the manner stipulated in this Indenture or any Supplemental Indenture,then the Owner of such Bond or Parity Bond shall cease to be entitled to the pledge of Net Taxes, and,other than as set forth below, all covenants, agreements and other obligations of the District to the Owner of such Bond or Parity Bond under this Indenture and any Supplemental Indenture relating to such Parity Bond shall thereupon cease,terminate and become void and be discharged and satisfied. In the event of a defeasance of all Outstanding Bonds and Parity Bonds pursuant to this Section,the Trustee shall execute and deliver to the District all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the District's general fund all money or securities held by it pursuant to this Indenture which are not required for the payment of the principal of,premium, if any, and interest due on such Bonds and Parity Bonds. Any Outstanding Bond or Parity Bond shall be deemed to have been paid within the meaning expressed in the first paragraph of this Section if such Bond or Parity Bond is paid in any one or more of the following ways: (a) by paying or causing to be paid the principal of,premium, if any, and interest on such Bond or Parity Bond, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund(exclusive of the Administrative Expenses Account)and available for such purpose, is fully sufficient to pay the principal of,premium, if any, and interest on such Bond or Parity Bond, as and when the same shall become due and payable; or (c) by depositing with the Trustee or another escrow bank appointed by the District, in trust,Federal Securities, in which the District may lawfully invest its money, in such amount as will be sufficient,together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund(exclusive of the Administrative Expenses Account) 52 P6401.1032\871196.6 and available for such purpose, together with the interest to accrue thereon,to pay and discharge the principal of,premium, if any, and interest on such Bond or Parity Bond, as and when the same shall become due and payable. If paid as provided above,then, at the election of the District, and notwithstanding that any Outstanding Bonds and Parity Bonds shall not have been surrendered for payment, all obligations of the District under this Indenture and any Supplemental Indenture with respect to such Bond or Parity Bond shall cease and terminate, except for the obligation of the Trustee to pay or cause to be paid to the Owners of any such Bond or Parity Bond not so surrendered and paid, all sums due thereon and except for the covenants of the District contained in Section 5.2(e)or any covenants in a Supplemental Indenture relating to compliance with the Code. Notice of such election shall be filed with the Trustee not less than ten(10) days prior to the proposed defeasance date, or such shorter period of time as may be acceptable to the Trustee. In connection with a defeasance under(b)or(c) above, there shall be provided to the District a verification report from an independent nationally recognized certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Trustee or the escrow bank to pay and discharge the principal of, premium, if any, and interest on all Outstanding Bonds and Parity Bonds to be defeased in accordance with this Section, as and when the same shall become due and payable, and an opinion of Bond Counsel(which may rely upon the opinion of the certified public accountant)to the effect that the Bonds or Parity Bonds being defeased have been legally defeased in accordance with this Indenture and any applicable Supplemental Indenture. Upon a defeasance,the Trustee,upon request of the District, shall release the rights of the Owners of such Bonds and Parity Bonds which have been defeased under this Indenture and any Supplemental Indenture and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance hereunder of all Outstanding Bonds and Parity Bonds,the Trustee shall pay over or deliver to the District any funds held by the Trustee at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of or interest on the Bonds and Parity Bonds when due. The Trustee shall, at the written direction of the District, mail, first class,postage prepaid, a notice to the Bondowners whose Bonds or Parity Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred. Section 9.2. Conditions for the Issuance of Parity Bonds and Other Additional Indebtedness. The District may at any time after the issuance and delivery of the Bonds hereunder issue Parity Bonds payable from the Net Taxes and other amounts deposited in the Special Tax Fund (other than in the Administrative Expenses Account therein) and secured by a lien and charge upon such amounts equal to the lien and charge securing the Outstanding Bonds and any other Parity Bonds theretofore issued hereunder or under any Supplemental Indenture;provided, however,Parity Bonds may only be issued for the purpose of refunding all or a portion of the Bonds or any Parity Bonds then Outstanding, or for financing the Project Costs or other purposes of the District in a principal amount not to exceed 1$70 million minus par amount of Series 2006A]. Parity Bonds issued are subject to the following additional specific conditions, which are hereby made conditions precedent to the issuance of any such Parity Bonds: (a) The District shall be in compliance with all covenants set forth in this Indenture and any Supplemental Indenture then in effect and a certificate of the District to that effect shall have been filed with the Trustee;provided, however,that Parity Bonds may be issued notwithstanding that 53 P6401.1032\871196.6 the District is not in compliance with all such covenants so long as immediately following the issuance of such Parity Bonds the District will be in compliance with all such covenants. (b) The issuance of such Parity Bonds shall have been duly authorized pursuant to the Act and all applicable laws, and the issuance of such Parity Bonds shall have been provided for by a Supplemental Indenture duly adopted by the District which shall specify the following: (1) the purpose for which such Parity Bonds are to be issued and the fund or funds into which the proceeds thereof are to be deposited, including, if applicable, a provision requiring the proceeds of such Parity Bonds to be applied solely for the purpose of refunding any Outstanding Bonds or Parity Bonds, including payment of all costs and the funding of all reserves incidental to or connected with such refunding; (2) the authorized principal amount of such Parity Bonds; (3) the date and the maturity date or dates of such Parity Bonds;provided that (i)each maturity date shall fall on an September 1, (ii) all such Parity Bonds of like maturity shall be identical in all respects, except as to number, and(iii)fixed serial maturities or Sinking Fund Payments, or any combination thereof, shall be established to provide for the retirement of all such Parity Bonds on or before their respective maturity dates; (4) the description of the Parity Bonds,the place of payment thereof and the procedure for execution and authentication; (5) the denominations and method of numbering of such Parity Bonds; (6) the amount and due date of each mandatory Sinking Fund Payment, if any, for such Parity Bonds; (7) the amount, if any,to be deposited from the proceeds of such Parity Bonds in the Reserve Account of the Special Tax Fund to increase the amount therein to the Reserve Requirement; (8) the form of such Parity Bonds; and (9) such other provisions as are necessary or appropriate and not inconsistent with this Indenture. (c) The District shall have received the following documents or money or securities, all of such documents dated or certified, as the case may be, as of the date of delivery of such Parity Bonds by the Trustee(unless the Trustee shall accept any of such documents bearing a prior date): (1) a certified copy of the Supplemental Indenture authorizing the issuance of such Parity Bonds; (2) a written request of the District as to the delivery of such Parity Bonds; (3) an opinion of Bond Counsel and/or general counsel to the District to the effect that(a)the District has the right and power under the Act to adopt this Indenture and the Supplemental Indentures relating to such Parity Bonds, and this Indenture and all such 54 P6401.1032\871196.6 Supplemental Indentures have been duly and lawfully adopted by the District, are in full force and effect and are valid and binding upon the District and enforceable in accordance with their terms(except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors' rights); (b)this Indenture creates the valid pledge which it purports to create of the Net Taxes and other amounts as provided in this Indenture, subject to the application thereof to the purposes and on the conditions permitted by this Indenture; and(c)such Parity Bonds are valid and binding limited obligations of the District, enforceable in accordance with their terms(except as enforcement may be limited by bankruptcy, insolvency,reorganization and other similar laws relating to the enforcement of creditors' rights) and the terms of this Indenture and all Supplemental Indentures thereto and entitled to the benefits of this Indenture and all such Supplemental Indentures, and such Parity Bonds have been duly and validly authorized and issued in accordance with the Act(or other applicable laws)and this Indenture and all such Supplemental Indentures; and a further opinion of Bond Counsel to the effect that, assuming compliance by the District with certain tax covenants,the issuance of the Parity Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds and any Parity Bonds theretofore issued on a tax-exempt basis,or the exemption from State of California personal income taxation of interest on any Outstanding Bonds and Parity Bonds theretofore issued; (4) a certificate of the District containing such statements as may be reasonably necessary to show compliance with the requirements of this Indenture; (5) where the entire principal amount of the Parity Bonds are issued to refund the Bonds or other Parity Bonds, a certificate of an Independent Financial Consultant certifying that in each Bond Year the Annual Debt Service on the Bonds and Parity Bonds to remain Outstanding following the issuance of the Parity Bonds proposed to be issued is less than the Annual Debt Service on the Bonds and Parity Bonds Outstanding prior to the issuance of such Parity Bonds; (6) where the Parity Bonds are being issued other than to refund the Bonds or other Parity Bonds, a Certificate of the Special Tax Administrator certifying that(i)the Maximum Special Taxes that may be levied in each Fiscal Year is not less than 110%of the Annual Debt Service in the Bond Year that begins in such Fiscal Year plus Administrative Expenses; and(ii)the Value of District Property is not less than three(3)times the sum of Direct Debt for District Property plus Overlapping Debt allocable to all property in the District subject to the Special Tax. For purposes of the foregoing Certificate of Special Tax Administrator, all calculations shall consider the Parity Bonds proposed to be issued to be Outstanding. If all or any portion of the Parity Bonds are issued as Escrow Bonds, each time that amounts are to be released from the escrow account established under a Supplemental Indenture, as a condition of such release, the Trustee shall have received a Certificate of the Special Tax Administrator certifying that(x) following such release,the requirements of(i) and(ii)above will be satisfied, and(y)the amount of Special Taxes levied in such Fiscal Year and to be levied in the following Fiscal Year,together with amounts on deposit in the Interest Account, will be sufficient to pay the principal of and interest on all Outstanding Bonds and Parity Bonds(other than the remaining Escrow Bonds). For purposes of any Escrow Bonds release test,there will be allocated to the property in the District the largest principal amount of Bonds that results in a Value of District Property at least three(3)times 55 P6401.1032\871196.6 the sum of Direct Debt for District Property plus Overlapping Debt allocable to all property in the District subject to the Special Tax. (7) such further documents, money and securities as are required by the provisions of this Indenture and the Supplemental Indenture providing for the issuance of such Parity Bonds. ARTICLE X MISCELLANEOUS Section 10.1. Cancellation of Bonds and Parity Bonds. All Bonds and Parity Bonds surrendered to the Trustee for payment upon maturity or for redemption shall be upon payment therefor, and any Bond or Parity Bond purchased by the District as authorized herein and delivered to the Trustee for such purpose shall be, cancelled forthwith and shall not be reissued. The Trustee shall destroy such Bonds and Parity Bonds, as provided by law, and, upon request of the District, furnish to the District a certificate of such destruction. Section 10.2. Execution of Documents and Proof of Ownership. Any request, direction, consent,revocation of consent, or other instrument in writing required or permitted by this Indenture to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor may be signed or executed by such Owners in person or by their attorneys appointed by an instrument in writing for that purpose, or by the bank,trust company or other depository for such Bonds. Proof of the execution of any such instrument,or of any instrument appointing any such attorney, and of the ownership of Bonds or Parity Bonds shall be sufficient for the purposes of this Indenture(except as otherwise herein provided), if made in the following manner: (a) The fact and date of the execution by any Owner or his or her attorney of any such instrument and of any instrument appointing any such attorney, may be proved by a signature guarantee of any bank or trust company located within the United States of America. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such signature guarantee shall also constitute sufficient proof of his authority. (b) As to any Bond or Parity Bond,the person in whose name the same shall be registered in the Bond Register shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of any such Bond or Parity Bond, and the interest thereon, shall be made only to or upon the order of the registered Owner thereof or his or her legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond or Parity Bond and the interest thereon to the extent of the sum or sums to be paid. Neither the District nor the Trustee shall be affected by any notice to the contrary. Nothing contained in this Indenture shall be construed as limiting the Trustee or the District to such proof, it being intended that the Trustee or the District may accept any other evidence of the matters herein stated which the Trustee or the District may deem sufficient. Any request or consent of the Owner of any Bond or Parity Bond shall bind every future Owner of the same Bond or Parity Bond in respect of anything done or suffered to be done by the Trustee or the District in pursuance of such request or consent. 56 P6401.1032\871196.6 Section 10.3. Unclaimed Moneys. Anything in this Indenture to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of the Outstanding Bonds and Parity Bonds which remain unclaimed for two(2)years after the date when such Outstanding Bonds or Parity Bonds have become due and payable, if such money was held by the Trustee at such date, or for two(2)years after the date of deposit of such money if deposited with the Trustee after the date when such Outstanding Bonds or Parity Bonds become due and payable, shall be repaid by the Trustee to the District, 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 District for the payment of such Outstanding Bonds or Parity Bonds;provided, however, that,before being required to make any such payment to the District,the Trustee, at the expense of the District, shall cause to be mailed by first-class mail,postage prepaid,to the registered Owners of such Outstanding Bonds or Parity Bonds at their addresses as they appear on the registration books of the Trustee a notice that said money remains unclaimed and that, after a date named in said notice, which date shall not be less than thirty(30)days after the date of the mailing of such notice,the balance of such money then unclaimed will be returned to the District. Section 10.4. Provisions Constitute Contract. The provisions of this Indenture shall constitute a contract between the District and the Bondowners and the provisions hereof shall be construed in accordance with the laws of the State of California. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and, should said suit, action or proceeding be abandoned, or be determined adversely to the Bondowners or the Trustee,then the District,the Trustee and the Bondowners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. After the issuance and delivery of the Bonds this Indenture shall be irrepealable,but shall be subject to modifications to the extent and in the manner provided in this Indenture,but to no greater extent and in no other manner. Section 10.5. Future Contracts. Nothing herein contained shall be deemed to restrict or prohibit the District from making contracts or creating bonded or other indebtedness payable from a pledge of the Net Taxes which is subordinate to the pledge hereunder,or which is payable from the general fund of the District or from taxes or any source other than the Net Taxes and other amounts pledged hereunder. Section 10.6. Further Assurances. The District 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 or any Parity Bonds the rights and benefits provided in this Indenture. Section 10.7. Severability. If any covenant, agreement or provision,or any portion thereof, contained in this Indenture, or the application thereof to any person or circumstance, is held to be unconstitutional, invalid or unenforceable, the remainder of this Indenture and the application of any such covenant, agreement or provision, or portion thereof,to other persons or circumstances, shall be deemed severable and shall not be affected thereby, and this Indenture,the Bonds and any Parity Bonds issued pursuant hereto shall remain valid and the Bondowners shall retain all valid rights and benefits accorded to them under the laws of the State of California. 57 P6401.1032\871196.6 Section 10.8. Notices. Any notices required to be given to the District with respect to the Bonds or this Indenture shall be mailed, first class,postage prepaid, or personally delivered to the Finance Director-Treasurer of the City of Palm Desert, 73-510 Fred Waring Drive,Palm Desert, California 92260, and all notices to the Trustee in its capacity as Trustee shall be mailed, first class, postage prepaid, or personally delivered to the Trustee,Wells Fargo Bank,National Association, 707 Wilshire Blvd., 17th Floor,Los Angeles, California 90071, Attention: (Remainder of Page Intentionally Left Blank) 58 P6401.1032\871196.6 IN WITNESS WHEREOF, CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK)has caused this Bond Indenture to be signed by the Mayor of the City of Palm Desert, acting as the legislative body of the District and attested thereto by the Deputy City Clerk of the City of Palm Desert, and Wells Fargo Bank,National Association, in token of its acceptance of the trust created hereunder, has caused this Bond Indenture to be signed in its corporate name by its officer identified below, all as of the day and year first above written. CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Mayor of the City of Palm Desert, California ATTEST: Deputy City Clerk of the City of Palm Desert, California WELLS FARGO BANK,NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Officer 59 P6401.1032\871196.6 EXHIBIT A FORM OF SPECIAL TAX BOND,SERIES 2006A Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation("DTC"),to the District or the Trustee for registration of transfer, exchange,or payment, and any Bond 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. R- $ UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO.2005-1 (UNIVERSITY PARK) SPECIAL TAX BOND,SERIES 2006A INTEREST RATE MATURITY DATE DATED DATE CUSIP September 1, April , 2005 REGISTERED OWNER: CEDE&CO. PRINCIPAL AMOUNT: DOLLARS CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK)(the"District")which was formed by the City of Palm Desert(the"City") and is situated in the County of Riverside, State of California,FOR VALUE RECEIVED,hereby promises to pay, solely from certain amounts held under the Indenture(as hereinafter defined),to the Registered Owner named above, or registered assigns, on the Maturity Date set forth above, unless redeemed prior thereto as hereinafter provided,the Principal Amount set forth above, and to pay interest on such Principal Amount from the Interest Payment Date(as hereinafter defined) next preceding the date of authentication hereof, unless(i)the date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, (ii)the date of authentication is after a Record Date(as hereinafter defined)but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment A-1 P6401.1032\871196.6 Date immediately succeeding the date of authentication, or(iii)the date of authentication is prior to the close of business on the first Record Date in which event interest shall be payable from the Dated Date set forth above. Notwithstanding the foregoing, if at the time of authentication of this Bond interest is in default, interest on this Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment, interest on this Bond shall be payable from the Dated Date set forth above. Interest will be paid semiannually on March 1 and September 1 (each, an"Interest Payment Date"), commencing September 1,2006, at the Interest Rate set forth above,until the Principal Amount hereof is paid or made available for payment. The principal of and premium, if any, on this Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of this Bond at the Principal Office of the Trustee(as such term is defined in the Bond Indenture), initially Wells Fargo Bank,National Association(the"Trustee"). Interest on this Bond shall be paid by check of the Trustee mailed by first class mail,postage prepaid, or in certain circumstances described in the Indenture by wire transfer to an account within the United States of America,to the Registered Owner hereof as of the close of business on the fifteenth day of the month preceding the month in which the Interest Payment Date occurs (the"Record Date")at such Registered Owner's address as it appears on the registration books maintained by the Trustee. This Bond is one of a duly authorized issue of"City of Palm Desert Community Facilities District No. 2005-1 (University Park)Special Tax Bonds, Series 2006A"(the"Bonds") issued in the aggregate principal amount of$ pursuant to the Mello-Roos Community Facilities Act of 1982, as amended,being Sections 53311,et seq., of the California Government Code(the"Act") for the purpose of financing certain public facilities, funding certain capitalized interest and a reserve account, and paying certain costs related to the issuance of the Bonds. The issuance of the Bonds and the terms and conditions thereof are provided for by a resolution adopted by the City Council of the City acting in its capacity as the legislative body of the District(the"Legislative Body")on ,2006 and a Bond Indenture dated as of April 1, 2006,by and between the District and the Trustee executed in connection therewith(the"Indenture"), and this reference incorporates the Indenture herein, and by acceptance hereof the Registered Owner of this Bond assents to said terms and conditions. The Indenture is executed under and this Bond is issued under, and both are to be construed in accordance with,the laws of the State of California. Pursuant to the Act and the Indenture,the principal of,premium, if any, and interest on this Bond are payable solely from the portion of the annual special taxes authorized under the Act to be levied and collected within the District(the"Special Taxes")and certain other amounts pledged to the repayment of the Bonds as set forth in the Indenture. Any amounts for the payment hereof shall be limited to the Special Taxes pledged and collected or foreclosure proceeds received following a default in payment of the Special Taxes and other amounts deposited to the Special Tax Fund(other than the Administrative Expenses Account therein)established under the Indenture, except to the extent that other provision for payment has been made by the Legislative Body, as may be permitted by law. The District has covenanted for the benefit of the owners of the Bonds that under certain circumstances described in the Indenture it will commence and diligently pursue to completion foreclosure proceedings in the event of delinquencies of Special Tax installments levied for payment of principal and interest on the Bonds. The Bonds maturing on or after September 1, 20_may be redeemed, at the option of the District, from any source of funds on any Interest Payment Date on or after September 1, 20_, in A-2 P6401.1032\871196.6 whole, or in part from such maturities as are selected by the District and by lot within a maturity, at the following redemption prices expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Prices September 1, 20_and March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and thereafter The Bonds maturing on September 1, 20 and September 1, 20_ (the"Term Bonds")shall be called before maturity and redeemed, from Sinking Fund Payments deposited into the Redemption Account, on September 1, 20_and September 1, 20_, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth in the Bond Indenture at a redemption price equal to the principal amount thereof,plus accrued interest to the redemption date, without premium. The Bonds are subject to extraordinary redemption as a whole, or in part on a pro rata basis among maturities, on any Interest Payment Date,and shall be redeemed by the Trustee, from Prepayments of Special Taxes deposited to the Redemption Account,plus amounts transferred from the Reserve Account in connection with such transfers, at the following redemption prices expressed as a percentage of the principal amount to be redeemed,together with accrued interest to the redemption date: Redemption Dates Redemption Prices Interest Payment Dates through March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and March 1, 20_ September 1,20_and thereafter Notice of redemption with respect to the Bonds to be redeemed shall be mailed to the registered owners thereof not less than thirty(30)nor more than forty-five(45)days prior to the redemption date by first class mail,postage prepaid,to the addresses set forth in the registration books. Neither a failure of the Registered Owner hereof to receive such notice nor any defect therein will affect the validity of the proceedings for redemption. All Bonds or portions thereof so called for redemption will cease to accrue interest on the specified redemption date,provided that funds for the redemption are on deposit with the Trustee on the redemption date. Thereafter,the registered owners of such Bonds shall have no rights except to receive payment of the redemption price upon the surrender of the Bonds. This Bond shall be registered in the name of the Registered Owner hereof, as to both principal and interest, and the District and the Trustee may treat the Registered Owner hereof as the absolute owner for all purposes and shall not be affected by any notice to the contrary. The Bonds are issuable only in fully registered form in the denomination of$5,000 or any integral multiple thereof and may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same issue and maturity, all as more fully set forth in the Indenture. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Trustee,but only in the manner, subject to A-3 P6401.1032\871196.6 the limitations and upon payment of the charges provided in the Indenture, upon surrender and cancellation of this Bond. Upon such transfer, a new registered Bond of authorized denomination or denominations for the same aggregate principal amount of the same issue and maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register transfers or make exchanges of(i)any Bonds for a period of fifteen(15)days next preceding any selection of the Bonds to be redeemed, or(ii) any Bonds chosen for redemption. The rights and obligations of the District and of the registered owners of the Bonds may be amended at any time, and in certain cases without notice to or the consent of the registered owners,to the extent and upon the terms provided in the Indenture. THE BONDS DO NOT CONSTITUTE OBLIGATIONS OF THE CITY OF PALM DESERT OR OF THE DISTRICT FOR WHICH THE CITY OF PALM DESERT OR THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED, GENERAL OR SPECIAL TAXES, OTHER THAN THE SPECIAL TAXES REFERENCED HEREIN. THE BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE FROM THE PORTION OF THE SPECIAL TAXES AND OTHER AMOUNTS PLEDGED UNDER THE INDENTURE BUT ARE NOT A DEBT OF THE CITY OF PALM DESERT, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION. This Bond shall not become valid or obligatory for any purpose until the certificate of authentication and registration hereon endorsed shall have been dated and signed by the Trustee. IT IS HEREBY CERTIFIED,RECITED AND DECLARED that all acts, conditions and things required by law to exist,happen and be 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 law, and that the amount of this Bond,together with all other indebtedness of the District, does not exceed any debt limit prescribed by the laws or Constitution of the State of California. A-4 P6401.1032\871196.6 IN WITNESS WHEREOF, City of Palm Desert Community Facilities District No. 2005-1 (University Park)has caused this Bond to be dated as of , 2006,to be signed on behalf of the District by the Mayor of the City by his manual signature and attested by the manual signature of the City Clerk of the City. CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) Mayor of the City of Palm Desert, California ATTEST: City Clerk of the City of Palm Desert, California A-5 P6401.1032\871196.6 • [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION AND REGISTRATION] This is one of the Bonds described in the within-mentioned Indenture which has been registered on the Bond registration books. Dated: WELLS FARGO BANK,NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Signatory [FORM OF ASSIGNMENT] For value received the undersigned hereby sell(s), assign(s)and transfer(s)unto (Name, Address, and Tax Identification or Social Security Number of Assignee) the within-mentioned Bond and hereby irrevocably constitute(s)and appoint(s) attorney, to transfer the same on the Registration Books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature must be guaranteed by a Note: The signature(s)on this Assignment member of an institution which is a participant must correspond with the name(s)as in the Securities Transfer Agent Medallion written on the face of the within Bond in Program(STAMP)or other similar program. every particular without alteration or enlargement or any change whatsoever. A-6 P6401.1032\871196.6 EXHIBIT B FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS (CITY FACILITIES FUND) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to pay from the following account or subaccount of the City of Palm Desert Community Facilities District No. 2005- 1 (University Park)City Facilities Fund, established by the Bond Indenture between the Trustee and City of Palm Desert Community Facilities District No. 2005-1 (University Park), dated as of April 1, 2006,the amount specified and to the payee named below for payment of the Project Costs set forth in Attachment No. 1 hereto: Account/Subaccount(circle one): • [Backbone Infrastructure Account] • [Gerald Ford(South)Landscaping Subaccount of the Backbone Infrastructure Account] • [Cook Street Pedestrian Bridge Subaccount of the Backbone Infrastructure Account] • [DW 237 Subaccount(City Facilities)of the Other Facilities Account] • [PDFC Subaccount(City Facilities)of the Other Facilities Account] • [UV Subaccount(City Facilities)of the Other Facilities Account] • [Shaw Subaccount(City Facilities)of the Other Facilities Account] • [S&C Subaccount(City Facilities)of the Other Facilities Account] Payee: Address: Purpose: Amount: $ The amount is due and payable under purchase order, contract or other authorization and has not formed the basis of any prior request for payment. The conditions for the release of this amount from the City of Palm Desert Community Facilities District No. 2005-1 (University Park)City Facilities Fund, including those conditions in Section 3.9(b)of the Indenture have been satisfied, and sufficient moneys remain in the City of Palm Desert Community Facilities District No. 2005-1 (University Park)City Facilities Fund to pay all remaining costs of acquisition, construction and financing of the portion of the Project to be financed with such amounts. B-1 P6401.1032\871196.6 There has not been filed with nor served upon the District notice of any lien, right to lien or attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified above which has not been released or will not be released simultaneously with the payment of such amount, other than materialmen's or mechanic's liens accruing by mere operation of law. Dated: _ CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative B-2 P6401.1032\871196.6 ATTACHMENT NO. 1 (CITY FACILITIES FUND) [Insert Description of Project Costs.] B-A-1 P6401.1032\871196.6 EXHIBIT C FORM OF REQUISITION FOR DISBURSEMENT OF PROJECT COSTS (CVWD FACILITIES FUND) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to pay from the following account or subaccount of the City of Palm Desert Community Facilities District No. 2005- 1 (University Park) CVWD Facilities Fund, established by the Bond Indenture between the Trustee and City of Palm Desert Community Facilities District No. 2005-1 (University Park),dated as of April 1, 2006,the amount specified and to the payee named below for payment of the Project Costs , set forth in Attachment No. 1 hereto: Account/Subaccount(circle one): • [Backbone Infrastructure Account] • [DW 237 Subaccount(CVWD Facilities)of the Other Facilities Account] • [PDFC Subaccount(CVWD Facilities)of the Other Facilities Account] • [UV Subaccount(CVWD Facilities)of the Other Facilities Account] • [Shaw Subaccount(CVWD Facilities)of the Other Facilities Account] • [S&C Subaccount(CVWD Facilities)of the Other Facilities Account] Payee: Address: Purpose: Amount: $ The amount is due and payable under purchase order, contract or other authorization and has not formed the basis of any prior request for payment. The conditions for the release of this amount from the City of Palm Desert Community Facilities District No. 2005-1 (University Park)CVWD Facilities Fund, including those conditions in Section 3.10(a)of the Indenture have been satisfied, and sufficient moneys remain in the City of Palm Desert Community Facilities District No. 2005-1 (University Park) CVWD Facilities Fund to pay all remaining costs of acquisition, construction and financing of the portion of the Project to be financed with such amounts. C-1 P6401.1032\871196.6 There has not been filed with nor served upon the District notice of any lien, right to lien or attachment upon, or stop notice or claim affecting the right to receive payment of the amount specified above which has not been released or will not be released simultaneously with the payment of such amount, other than materialmen's or mechanic's liens accruing by mere operation of law. Dated: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative C-2 P6401.1032\871196.6 ATTACHMENT NO. 1 (CVWD FACILITIES FUND) [Insert Description of Project Costs.] C-A-1 EXHIBIT D FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (BACKBONE INFRASTRUCTURE) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO.2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to transfer monies between the accounts of the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"), established by the Bond Indenture dated as of April 1, 2006 between the Trustee and the District as follows: TRANSFER AMOUNT: $ of the monies (specify dollar amount or "all') FROM: the Backbone Infrastructure Account of the (specify City Facilities Fund or CVWD Facilities Fund) (but excluding from such transfer any monies on deposit in the Gerald Ford (South)Landscaping Subaccount or Cook Street Pedestrian Bridge Subaccount therein) TO: the Backbone Infrastructure Account of the (specify City Facilities Fund or CVWD Facilities Fund) The conditions for the transfer of this amount, including those conditions in Section 3.9(c)or 3.10(b)of the Indenture, as applicable, have been satisfied. The written request of the Developer for such transfer of monies is attached as Attachment No. 1 hereto. Dated: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative D-1 ATTACHMENT NO. 1 FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (BACKBONE INFRASTRUCTURE) [Attach Developer's REQUEST FOR TRANSFER OF MONIES—Backbone Infrastructure.] D-A-1 EXHIBIT E FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (IN-TRACT DEVELOPER SUBACCOUNTS) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO.2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to transfer monies between the accounts of the City of Palm Desert Community Facilities District No. 2005-1 (University Park)(the"District"), established by the Bond Indenture dated as of April 1, 2006 between the Trustee and the District as follows: TRANSFER AMOUNT: $ of the monies (specify dollar amount or "all') FROM: [(circle one.)DW 237/PDFC/UV/SHAW/S&C ] Subaccount of the Other Facilities Account of the (specify City Facilities Fund or CVWD Facilities Fund) TO: [(circle one:)DW 237/PDFC/UV/SHAW/S&C] Subaccount of the Other Facilities Account of the (specify City Facilities Fund or CVWD Facilities Fund) "NOTE: TRANSFERS MAY ONLY BE MADE BETWEEN ACCOUNTS BEARING THE SAME ACCOUNT NAME. E G. A"DW 237"SUBACCOUNT MAY ONLY TRANSFER TO ANOTHER"DW 237"SUBACCOUNT. The conditions for the transfer of this amount, including those conditions in Section 3.9(d)or 3.10(c)of the Indenture, as applicable,have been satisfied. The written request of the Developer for such transfer of monies is attached as Attachment No. 1 hereto. Dated: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative E-1 ATTACHMENT NO. 1 FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (DEVELOPER SUBACCOUNTS) [Attach Developer's REQUEST FOR TRANSFER OF MONIES—Developer Subaccounts. E-A-1 EXHIBIT F FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (GERALD FORD(SOUTH)LANDSCAPING SUBACCOUNT) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO.2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to transfer monies between the accounts of the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"), established by the Bond Indenture dated as of April 1,2006 between the Trustee and the District as follows: TRANSFER AMOUNT: $ of the monies (specify dollar amount or "all') FROM: Gerald Ford(South)Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund TO : Backbone Infrastructure Account of the • (specify City Facilities Fund or CVWD Facilities Fund) The conditions for the transfer of this amount, including those conditions in Section 3.9(e) have been satisfied. The written request of the Developer for such transfer of monies is attached as Attachment No. 1 hereto. Dated: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative F-1 ATTACHMENT NO. 1 FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (GERALD FORD(SOUTH)LANDSCAPING SUBACCOUNT) [Attach Developer's REQUEST FOR TRANSFER OF MONIES—Gerald Ford (South)Landscaping Subaccount.] F-A-1 EXHIBIT G FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (COOK STREET PEDESTRIAN BRIDGE SUBACCOUNT) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO.2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to transfer monies between the accounts of the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"),established by the Bond Indenture dated as of April 1, 2006 between the Trustee and the District as follows: TRANSFER AMOUNT: $ of the monies (specify dollar amount or "all") FROM: Cook Street Pedestrian Bridge Subaccount of the Backbone Infrastructure Account of the City Facilities Fund TO : Backbone Infrastructure Account of the • (specify City Facilities Fund or CVWD Facilities Fund) The conditions for the transfer of this amount, including those conditions in Section 3.9(f) have been satisfied. The written request of the Developer for such transfer of monies is attached as Attachment No. 1 hereto. Dated: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative G-1 EXHIBIT H FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (SURPLUS BACKBONE TO DEVELOPER SUBACCOUNTS) CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO.2005-1 (UNIVERSITY PARK) Wells Fargo Bank,National Association, as Trustee, is hereby requested to transfer monies between the accounts of the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"), established by the Bond Indenture dated as of April 1, 2006 between the Trustee and the District as follows: TRANSFER AMOUNT: All of the monies, in the percentages specified below, FROM: the Backbone Infrastructure Account of the (specify City Facilities Fund or CVWD Facilities Fund) (but excluding from such transfer any monies on deposit in the Gerald Ford (South)Landscaping Subaccount or Cook Street Pedestrian Bridge Subaccount therein) TO: the following subaccounts, in the following specified percentages, which total 100%: • 56.217%to the [Check one:] DW 237 Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund DW 237 Subaccount(CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund • 28.862%to the [Check one:] PDFC Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund PDFC Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund H-1 • 3.758%to the [Check one:] UV Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund UV Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund • 2.654%to the [Check one:] Shaw Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund Shaw Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund • 8.509%to the [Check one:] S&C Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund S&C Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund The conditions for the transfer of this amount, including those conditions in Section 3.9(g)or 3.10(d)of the Indenture, as applicable, have been satisfied. The written request of the Developer for such transfer of monies is attached as Attachment No. 1 hereto. Dated: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Authorized Representative H-1 ATTACHMENT NO. 1 FORM OF CERTIFICATE OF THE DISTRICT REQUESTING TRANSFER OF MONIES FOR PROJECT COSTS (SURPLUS BACKBONE TO DEVELOPER SUBACCOUNTS) [Attach Developer's REQUEST FOR TRANSFER OF MONIES—Surplus Backbone to Developer Subaccounts.] H-A-1 Jones Hall Draft 2/27/06 CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS SERIES 2006A BOND PURCHASE AGREEMENT , 2006 City of Palm Desert Community Facilities District No. 2005-1 73-510 Fred Waring Drive Palm Desert, California 92260-2578 Ladies and Gentlemen: The undersigned Stinson Securities, LLC on behalf of itself and Kinsell Newcomb & DeDios, Inc. (together the "Underwriter") offers to enter into this Purchase Agreement (this "Purchase Agreement") with the City of Palm Desert (the "City") on behalf of City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "District"), which upon acceptance will be binding upon the Underwriter, the City and the District. The agreement of the Underwriter to purchase the Bonds (as hereinafter defined) is contingent upon the City satisfying all of the obligations imposed upon it under this Purchase Agreement. This offer is made subject to the City's acceptance by the execution of this Purchase Agreement and its delivery to the Underwriter on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the City at any time prior to the acceptance hereof by the City. All capitalized terms used herein, which are not otherwise defined, shall have the meaning provided for such terms in the Indenture (as hereinafter defined). Section 1. Purchase, Sale and Delivery of the Bonds. (a) Subject to the terms and conditions, and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter hereby agrees to purchase from the City, and the City hereby agrees to sell to the Underwriter, all (but not less than all) of the $ aggregate principal amount of the City of Palm Desert Community Facilities District No. 2005-1 (University Park), Special Tax Bonds, Series 2006A (the "Bonds"), dated the Closing Date (as hereinafter defined), bearing interest at the rates and maturing on the dates and in the principal amounts set forth in Exhibit A hereto. The purchase price for the Bonds shall be $ (representing the principal of amount of the Bonds, plus an aggregate original issue premium of $ , less an underwriter's discount of $ ). The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from the Special Taxes as provided in the Indenture, dated as of April 1, 2006, (the "Indenture"), between the City and Wells Fargo Bank, National Association, as fiscal agent (the "Trustee"), the Official Statement (as hereinafter -1- defined), and the Mello-Roos Community Facilities Act of 1982, constituting Section 53311 et seq. of the California Government Code (the "Act"). (b) Pursuant to the authorization of the City, the Underwriter has distributed copies of the Preliminary Official Statement, dated , 2006, relating to the Bonds, which, together with the cover page and appendices thereto, is herein called the "Preliminary Official Statement." By its acceptance of this Purchase Agreement, the City hereby ratifies the use by the Underwriter of the Preliminary Official Statement; and the City agrees to execute a final official statement relating to the Bonds (the "Official Statement") which will consist of the Preliminary Official Statement with such changes as may be made thereto, with the approval of Richards, Watson & Gershon, A Professional Corporation, the City's Bond Counsel (herein called "Bond Counsel") and the Underwriter, and to provide copies thereof to the Underwriter as set forth in Section 2(n) hereof. The City hereby authorizes the Underwriter to use and promptly distribute, in connection with the offer and sale of the Bonds, the Preliminary Official Statement, the Official Statement and any supplement or amendment thereto. The City further authorizes the Underwriter to use and distribute, in connection with the Purchase Agreement and all information contained herein, and all other documents, certificates and statements furnished by or on behalf of the City or the District to the Underwriter in connection with the transactions contemplated by this Purchase Agreement. (c) Except as the Underwriter and the City may otherwise agree, at 8:00 A.M. California time, on , 2006 (the "Closing Date"), the City will deliver to the Underwriter, at the offices of Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, or at such other location as may be mutually agreed upon by the Underwriter and the City, the documents hereinafter mentioned and the City will deliver to the Underwriter at the offices of The Depository Trust Company ("DTC") in New York, New York, the Bonds, in definitive form (all Bonds bearing CUSIP numbers), duly executed by the City and authenticated by the Trustee in the manner provided for in the Indenture and the Act, and the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in paragraph (a) of this Section in immediately available funds (such delivery and payment being herein referred to as the "Closing"). The Bonds shall be made available to the Underwriter for inspection not later than two Business Days prior to the Closing Date. The Bonds shall be in fully registered book-entry form (which may be typewritten) and shall be registered in the name of Cede &Co., as nominee of DTC. Section 2. Representations, Warranties and Agreements of the City. The City represents, warrants to, covenants and agrees with, the Underwriter that: (a) The District is a community facilities district duly organized and validly existing under the Constitution and laws of the State of California, and the City, acting on behalf of the District, has, and at the Closing Date will have, full legal right, power (i) to enter into, execute and deliver under this Purchase Agreement, the Indenture, the Continuing Disclosure Agreement, dated as of the date of Closing (the "Issuer Continuing Disclosure Agreement"), by and among the City, the Trustee and MuniFinancial, as dissemination agent (the "Dissemination Agent"), and the Official Statement and (ii) to carry out, give effect to and consummate the transactions contemplated hereby and thereby. (b) The City has complied, and will at the Closing Date be in compliance, in all respects with the Indenture, the Issuer Continuing Disclosure Agreement, the Act and this Purchase Agreement. 9 (c) The City Council has duly and validly: (i) made all the necessary findings and determinations required under the Act in connection with the formation of the District and the issuance of the Bonds, (ii) approved and authorized the execution and delivery of the Indenture, the Bonds, the Issuer Continuing Disclosure Agreement, this Purchase Agreement and the Official Statement and approved the distribution of the Preliminary Official Statement, and (ii) authorized and approved the performance by the City of its obligations contained in, and the taking of any and all action as may be necessary to carry out, give effect to and consummate the transactions contemplated by, each of such documents. (d) Except as described in the Preliminary Official Statement, neither the City nor the District is, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, and the performance by the City on behalf of the District of its obligations under the Indenture, the Bonds, the Issuer Continuing Disclosure Agreement and this Purchase Agreement and any other instruments contemplated by any of such 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 of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City on behalf of the District of its obligations under the Indenture, the Bonds, the Issuer Continuing Disclosure Agreement or this Purchase Agreement. (e) Except as may be required under the "blue sky" or other securities laws of any jurisdiction, all 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, or the absence of which would materially adversely affect the performance by the City on behalf of the District of its obligations hereunder or under the Indenture, the Bonds or the Issuer Continuing Disclosure Agreement have been or will be obtained at the Closing Date and are or will be at the Closing Date in full force and effect. (f) The Indenture creates a valid pledge of, first lien upon and security interest in, the Special Tax Revenues and the amounts in the Special Tax Fund, the Bond Fund and the Reserve Account established pursuant to the Indenture, on the terms and conditions set forth in the Indenture. (g) As of the date hereof the information in the Preliminary Official Statement is true, correct and complete in all material respects and does not and, on the Closing Date the information in the Official Statement 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 the statements therein, in the light of the circumstances under which they were made, not misleading. (h) If after the date of this Purchase Agreement and until ninety (90) days after the End of the Underwriting Period (as hereinafter defined), any event shall occur, of which the City has notice, as a result of which it may be necessary to supplement the Official Statement in order to make the statements therein, in the light of the circumstances existing at such time, not misleading, the City shall forthwith notify the Underwriter of any such event of which it has knowledge and, if in the opinion of the Underwriter and the City Manager on behalf of the District, such event requires an amendment or supplement to the Official Statement, the City will at its own expense amend or supplement the Official Statement in a form and manner jointly approved by the City and the Underwriter so that the statements therein as so amended or supplemented will not be misleading in the light or the circumstances existing at such time and the City will promptly furnish to the Underwriter a reasonable number of copies of such amendment or supplement. As used herein the term "End of the Underwriting Period" means the later of such time as (i) the City on behalf of the District delivers the Bonds to the Underwriter, or (ii) the Underwriter do not retain an unsold balance of the Bonds for sale to the public. Unless the Underwriter give notice to the contrary, the End of the Underwriting Period shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the City at or prior to the Closing Date, and shall specify a date (other than the Closing Date)to be deemed the "End of the Underwriting Period." (i) Except as disclosed in the Preliminary Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency or public board or body to which the City or the District is a party and has been served with a summons or other notice thereof, is pending, or to the knowledge of the City threatened, in any way affecting the existence of the District, the existence of the City or the titles of its officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indenture, the collection or application of the Special Taxes pledged or to be pledged to pay the principal of, and interest on, the Bonds, or the pledge thereof, or the collection or application of the Special Taxes pledged or to be pledged to pay the principal of, and interest on, the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Indenture, the Bonds, the Issuer Continuing Disclosure Agreement or this Purchase Agreement, any action of the City or the District contemplated by any of such documents, or in any way contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or the powers of the City or the District with respect to the Indenture, the Bonds, the Issuer Continuing Disclosure Agreement or this Purchase Agreement or any action of the City or the District contemplated by any of such documents, or which contests the exclusion from gross income for federal income tax purposes of interest paid on the Bonds or the exemption of interest paid on the Bonds from State of California personal income taxation. (j) The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter to qualify the 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 of America as the Underwriter may designate; provided, however, that neither the City nor the District shall be required to register as a dealer or broker of securities or to consent to service of process or qualify to do business in any jurisdiction where it is not now so subject. It is understood that such "blue sky" registration is the sole responsibility of the Underwriter. (k) Any certificate signed by any authorized officer or employee of the City authorized to do so shall be deemed a representation and warranty by the City on behalf of the District as to the statements made therein. (I) The City on behalf of the District will apply the proceeds of the Bonds in accordance with the Indenture. a (m) Until such time as moneys have been set aside in an amount sufficient to pay all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the City on behalf of the District will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture. (n) The Preliminary Official Statement heretofore delivered to the Underwriter has been deemed final by the City as of its date, except for the omission of such information as is permitted to be omitted in accordance with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12"). The City hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the City shall cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with Rule 15c2-12 and the applicable rules of the Municipal Securities Rulemaking Board. (o) Except as disclosed in the Official Statement, to the best of the City's knowledge, no other public debt secured by a tax or assessment levied by the City on the land in the District is in the process of being authorized and no assessment districts or community facilities district have been or are in the process of being formed by the city which include any portion of the land within the District. The execution and delivery of this Purchase Agreement by the City on behalf of the District shall constitute a representation to the Underwriter that the representations and warranties contained in the Section 2 are true as of the date hereof. Section 3. Conditions to the Obligation of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the City contained herein, to the accuracy in all material respects of the statements of the officer and other officials of the City made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the City on behalf of the District of its obligations to be performed hereunder at or prior to the Closing Date and to the following conditions: (a) At the Closing Date, the Indenture, the Issuer Continuing Disclosure Agreement, the Continuing Disclosure Agreement (Developer), by and among and MuniFinancial, as dissemination agent and dated as of the date of Closing (the "Developer Continuing Disclosure Agreement," and together with the Issuer Continuing Disclosure Agreement, the "Continuing Disclosure Agreements") and this Purchase Agreement shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds, and with the transactions contemplated thereby, by this Purchase Agreement, all such actions as, in the opinion of Bond Counsel, shall be necessary and appropriate. (b) At the Closing Date, except as was described in the Preliminary Official Statement, neither the City nor the District shall be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable c court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, and the performance by the City on behalf of the District of its obligations under the Bonds, the Indenture, the Issuer Continuing Disclosure Agreement and this Purchase Agreement, and any other instruments contemplated by any of such 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 of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the District is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City on behalf of the District of its obligations under the Bonds, Indenture, the Issuer Continuing Disclosure Agreement and this Purchase Agreement. (c) At the Closing Date, except as may be required under the "blue sky" or other securities laws of any jurisdiction, all 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, or the absence of which would materially adversely affect, the performance by the City on behalf of the District of its obligations hereunder, and the Indenture, the Bonds or the Issuer Continuing Disclosure Agreement will have been obtained and will be in full force and effect. (d) The information contained in the Official Statement is, as of the Closing Date and as of the date of any supplement or amendment thereto pursuant to Section 2(h) hereof, true, correct and complete in all material respects and does not, as of the Closing Date or as of the date of any supplement or amendment thereto pursuant to Section 2(h) hereof, contain any untrue statement of a material fact or 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. (e) Between the date hereof and the Closing Date, the market price or marketability, at the initial offering prices set forth on the inside cover page of the Official Statement, of the Bonds shall not have been materially adversely affected (evidenced by a written notice to the City terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following: (1) Legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or recommended to the Congress by the President of the United States, the Department of the Treasury, the Internal Revenue Service, or any member of Congress, or favorably reported for passage to either House of Congress by any committee of such House to which such legislation had been referred for consideration, or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department of the United States of America or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon such interest as would be received by any owners of the Bonds; (2) Legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice 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 obligations of the general character of the Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securities laws as amended and then in effect; (3) A general suspension of trading in securities on the New York Stock Exchange, or a general banking moratorium declared by Federal, State of New York or State of California officials authorized to do so; (4) The introduction, proposal or enactment of any amendment to the Federal or California Constitution or any action by any Federal or California court, legislative body, regulatory body or any other governmental body materially adversely affecting the tax status of the District, its property, income, securities (or interest thereon), the validity or enforceability of the Special Taxes, as contemplated by the Indenture and the Official Statement; (5) Any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Preliminary Official Statement or in the Official Statement, or has the effect that the Preliminary Official Statement or the Official Statement contains any untrue statement of a material fact or omits 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; or (6) There shall have occurred any outbreak of hostilities or other local, national or international calamity or crisis or the escalating of any hostilities, calamity or crisis, the effect of which on the financial markets of the United States of America, in the reasonable judgment of the Underwriter, is such as to materially and adversely affect (A) the market price or the marketability of the Bonds, or (B) the ability of the Underwriter to enforce contracts for the sale of the Bonds. (f) At or prior to the Closing Date, the Underwriter shall have received two counterpart originals or certified copies of the following documents, in each case satisfactory in form and substance to the Underwriter: (1) The resolution authorizing the sale of the Bonds adopted on 2006 by the City Council, acting in its capacity as legislative body of the District (the "Resolution"), together with a certificate of the City Clerk, dated as of the Closing Date, to the effect that such resolution is a true, correct and complete copy of the resolution duly adopted by the City; (2) The Official Statement, executed on behalf of the District by an authorized signatory of the City; (3) The Indenture duly executed and delivered by the City and the Trustee; (4) The Continuing Disclosure Agreements, duly authorized and executed by the City, the Developer and MuniFinancial as applicable; (5) An unqualified opinion, dated the Closing Date and addressed to the City, of Bond Counsel, to the effect that the Bonds are the valid, legal and binding obligations of the City and that the interest thereon is excluded from gross income for federal income tax purposes and exempt from personal income taxes of the State of California in substantially the form included as Appendix C to the Official Statement, together with an unqualified opinion of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the City may be relied upon by the Underwriter to the same extent as if such opinion was addressed to the Underwriter; (6) A supplemental opinion or opinions, dated the Closing Date and addressed to the City and the Underwriter, of Bond Counsel, to the effect that (i) this Purchase Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding agreement of the City and the District, each enforceable in accordance with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization insolvency or other similar laws affecting creditors' rights generally or by the exercise of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases; (ii) the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; (iii) the Bonds, the Indenture and the Continuing Disclosure Agreements conform as to form and tenor to the descriptions thereof contained in the Official Statement, and the statements contained in the Official Statement on the cover and under the captions "INTRODUCTION," "THE BONDS," "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS," "CONTINUING DISCLOSURE" and "TAX MATTERS" and in Appendices C, E and F to the Official Statement insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture, the Continuing Disclosure Agreements, Bond Counsel's final opinion and the Act, are accurate in all material respects; (iv) the Indenture has been duly adopted by the City Council, acting as the legislative body of the District and creates a valid pledge of the Special Taxes and the amounts on deposit in certain funds and accounts established under the Indenture, as and to the extent provided in such Indenture; and (v) the Special Taxes and the levy thereof have been duly and validly authorized in accordance with the provisions of the Act and, when levied, the Special Tax will be a valid and binding lien upon the property against which it is levied, enforceable by the City in accordance with the provisions of the Indenture and the Act except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditor's rights; (7) the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Disclosure Counsel, dated the Closing Date, addressed to the District 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, 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; (8) A certificate of the City, dated the Closing Date and signed by the City Finance Director or City Manager or an authorized designee to the effect that (i) the representations and warranties of the City contained herein 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, except that all references herein to the Preliminary Official Statement shall be deemed to be references to the Official Statement; (ii) to the best knowledge of such officer, no event has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; and (ii) the City has complied with all the agreements and satisfied all the conditions on its part to be satisfied under this Purchase Agreement, the Indenture, the Issuer Continuing Disclosure Agreement and the Official Statement at or prior to the Closing Date; (9) An opinion, dated the Closing Date and addressed to the City and the Underwriter, of the City Attorney, to the effect that (i) the District is a community facilities district duly organized and validly existing under the Act; (ii) the Official Statement and the distribution thereof have been duly authorized by the City; (iii) the forms of the Indenture, the Issuer Continuing Disclosure Agreement and this Purchase Agreement have been duly approved at a meeting of the City Council, acting as the legislative body of the District, 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; (iv) the City on behalf of the District has duly and validly executed and delivered on behalf of the District this Purchase Agreement, the Indenture, the Bonds and the Issuer Continuing Disclosure Agreement, and each such document constitutes the legal, valid and binding obligation of the District enforceable against the District in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (v) other than as disclosed in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body to which the City or the District is a party and has been served with a summons or other notice thereof, is pending or, to such counsel's knowledge, threatened, in any way affecting the existence of the District, the existence of the City or the titles of its officers to their respective offices, or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indenture, the collection or application of the Special Taxes to pay the principal of, and interest on, the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture, this Purchase Agreement, the Issuer Continuing Disclosure Agreement, or any action of the City or the District contemplated by any of such documents or in any way contesting the completeness or accuracy of the Official Statement or the powers of the City or the District with respect to the Bonds, the Indenture, this Purchase Agreement, the Issuer Continuing Disclosure Agreement, of any action on the part of the City or the District contemplated by any of such documents, or in any way seeking to enjoin or restrain the City from approving the development of any of the property within District, or which challenges the exclusion of the interest paid on the Bonds from federal income tax purposes and the exemption of interest paid on the Bonds a from State of California personal income taxation; (vi) the statements in the Official Statement under the heading "NO LITIGATION" are as of the date of the Official Statement and as of the date of the opinion, true and correct in all material respects and do not, as of the date of the Official Statement and as of the date of the opinion, contain any untrue statement of a material fact or 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; and (vii) the City is duly organized and validly existing as a political subdivision under the Constitution and laws of the State of California with full legal right, power and authority to form the District; (10) A transcript of all proceedings relating to the authorization, issuance, sale and delivery of the Bonds, including certified copies of the Indenture and all resolutions relating thereto; (11) Certified copies of excerpts from the Bylaws of Wells Fargo Bank, National Association, as Trustee, authorizing the execution and delivery of certain documents by certain officers of Wells Fargo Bank, National Association, which resolution authorizes the execution of the Indenture; (12) A certificate of Wells Fargo Bank, National Association, addressed to the Underwriter and the City dated the Closing Date, to the effect that (i) Wells Fargo Bank, National Association is authorized to carry out corporate trust powers, and has full power and to perform its duties under the Indenture; (ii) Wells Fargo Bank, National Association is duly authorized to execute and deliver the Indenture, to accept the obligations created by the Indenture, and to authenticate the Bonds pursuant to the terms of the Indenture; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over Wells Fargo Bank, National Association that has not been obtained is or will be required for the authentication of the Bonds, of the consummation by it of the other transactions contemplated to be performed by it in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Indenture; and (v) to the best of its knowledge, compliance with the terms of the Indenture will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, fiscal agent agreement, bond, note, resolution or any other agreement or instrument to which Wells Fargo Bank, National Association is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over Wells Fargo Bank, National Association or any of its activities or properties; (13) Certificates dated the Closing Date from [Developer], the Special Tax Consultant and the Appraiser substantially in the form of Exhibits B, D and E hereto, respectively; (14) An opinion, dated the Closing Date, of counsel to the Developer, addressed to the City and the Underwriter, substantially in the form of Exhibit C hereto. (15) A copy of the Appraisal; (16) A tax certificate of the City on behalf of the District in form and substance acceptable to Bond Counsel and the Underwriter; (17) Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date In hereof and as of the Closing Date, of the material representations and warranties of the City contained herein, and of the statements and information contained in the Official Statement and the due performance or satisfaction by the City at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the City in connection with the transactions contemplated hereby, the Indenture and Continuing Disclosure Agreements and the Official Statement. If the City shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and none of the City, the District nor the Underwriter shall be under any further obligation hereunder, except that the respective obligations of the Underwriter, the City and the District set forth in Section 4 hereof shall continue in full force and effect. Section 4. Expenses. (a) Whether or not the Underwriter accepts delivery of and pays for the Bonds as set forth herein, it shall be under no obligation to pay, and the City shall pay out of the proceeds of the Bonds or any other legally available funds of the City, all expenses incidental to the performance of the City's obligations hereunder, including but not limited to the cost of printing, engraving and delivering the Bonds to the Underwriter; the costs of printing and shipping the Preliminary Official Statement and the Official Statement; the fees and disbursements of the District, the City, the Trustee, the Dissemination Agent, Bond Counsel, accountants, engineers, appraisers, economic consultants and any other experts or consultants retained by the City in connection with the issuance and sale of Bonds; and any other expenses not specifically enumerated in paragraph (b) of this Section incurred in connection with the issuance and sale of the Bonds. (b) Whether or not the Bonds are delivered to the Underwriter as set for the herein, the City shall be under no obligation to pay, and the Underwriter shall be responsible for and pay, CUSIP Bureau and CDIAC fees and expenses to qualify the Bonds for sale under any "blue sky" laws; and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Bonds not specifically enumerated in paragraph (a) of this Section, including the fees and disbursements of its counsel. Section 5. Undertakings of the City. The City agrees (a) to inform the Underwriter, from time to time, upon the reasonable request of the Underwriter, of the amount then on deposit in the Reserve Account and all accounts thereunder, and (b) to make available to the Underwriter, upon reasonable request of the Underwriter, at the expense of the City, sufficient copies of its audited financial statements, if any, resolutions of its legislative body with respect to the Bonds, the Indenture, the Official Statement, any amendments or supplements thereto, and other documents relating to the Bonds and pertaining to the District or the City, to the extent that such documents are publicly available, as may be reasonably required from time to time for the prompt and efficient performance by the Underwriter of their obligations hereunder (except any portion of any such document which, by contract, is not subject to disclosure). Section 6. Notices. Any notice or other communication to be given to the City under this Purchase Agreement may be given by delivering the same in writing to the City of Palm Desert at 73-510 Fred Waring Drive, Palm Desert, California 92260-2578, Attention: City Manager; any notice or other communication to be given to the Underwriter under this Purchase 11 Agreement may be given by delivering the same in writing to: Stinson Securities LLC, 55 San Francisco Street, Suite 800,San Francisco, California 94133,Attention: Public Finance. Section 7. Parties in Interest. This Purchase Agreement is made solely for the benefit of the City, the District and the Underwriter (including any successors or assignees of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. Section 8. Survival of Representations and Warranties. The representations and warranties of the City hereunder shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the City and regardless of the delivery of and payment for the Bonds. Section 9. Execution in 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 10. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings among the parties hereto in relation to the sale of the Bonds of the City. 19 Section 11. Effective Date. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance. Very truly yours, STINSON SECURITIES LLC By: Managing Director KINSELL NEWCOMB & DeDIOS, INC. By: Managing Director CITY OF PALM DESERT on behalf of COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) By: City Manager 1-A EXHIBIT A MATURITY SCHEDULE Maturity Principal Interest (September 1) Amount Rate Yield Price 1 Exhibit B CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2006A Developer Representations,Warranties and Covenants (the "Developer") hereby makes the following representations, warranties and covenants as of the date hereof to and for the benefit of the City of Palm Desert (the "City") for itself and on behalf of Community Facilities District No. 2005-1 (University Park) (the "District") and to Stinson Securities, LLC on behalf of itself and Kinsell Newcomb & DeDios, Inc. (together the "Underwriter") in connection with the pricing by the City of its Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A (the "Bonds"). Capitalized terms not otherwise defined herein, are defined as provided in the Purchase Agreement dated , 2006 (the "Purchase Agreement") between the Underwriter and the City. 1. Due Organization, Existence and Authority. The Developer is a and is duly formed and validly existing under the laws of its organization and has full rights, power and authority to execute, deliver and perform its obligations under the Acquisition Agreement, the Cost Sharing and Bond Proceeds Allocation Agreement, the Joint Community Facilities Agreement dated as of January 12, 2006 by and among the City, the Coachella Valley Water District and the Continuing Disclosure Agreement (Developer) and to carry out and consummate the transactions contemplated by the Acquisition Agreement and the Continuing Disclosure Agreement (Developer) (collectively, the "Developer Documents"). 2. Due Authorization and Approval. By all necessary action of the corporation, the Developer has duly authorized and approved the execution and delivery of, and the performance by the Developer of the obligations of the Developer contained in the Developer 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. The Developer acknowledges that it has an obligation to pay Special Taxes on property it owns in the District. 3. No Breach or Default. The execution and delivery of the Developer Documents and compliance with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Developer a breach or default under any agreement or instrument to which the Developer is a party or by which it is bound, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would, in any material respect, constitute a default or an event of default under the Developer Documents. 4. No Litigation. 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 (with service of process having been accomplished) or, to the actual knowledge of the undersigned, threatened by or against the Developer: (i) in any way questioning the due formation and valid existence of the Developer; (ii) in any way contesting or affecting the validity of the Developer R_1 Documents or the consummation of the transactions contemplated thereby; (iii) in any way questioning or contesting the validity of any governmental approval of the City or any aspect thereof, or (iv) which would have a material adverse effect upon the financial condition of the Developer or the ability to develop the property it owns within the District. 5. Information. The information submitted by the Developer to the City or the Underwriter in connection with the preparation of the Preliminary Official Statement and the Official Statement was, as of the date of its submittal, true and correct in all material respects. 6. Official Statement. The Developer has provided the information set forth in the Preliminary Official Statement and the Official Statement describing the Developer and the development undertaken and proposed to be undertaken by the Developer, and the Underwriter is authorized to use such information in the distribution of the Preliminary Official Statement and the Official Statement. With respect to the discussion in the Preliminary Official Statement and the Official Statement under the captions "THE DISTRICT" (except for any discussion of Zones A, B, C, and D, and any of the other owners of property in the District or their property, for which no certification is provided), "THE PROJECT," and "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT — Palm Desert Funding Company, L.P.," insofar as such statements purport to summarize information with respect to the Developer, the proposed development of its property in the District, the property owned by the Developer within the District, and pending or threatened litigation in which the Developer is a litigant, nothing has come to the Developer's attention as of the date of this Certificate which would lead the Developer to believe that such discussion contains any untrue statements 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. 7. Developer's Financial Statements. The financial statements, if any, and other financial information submitted to the Underwriter are true, correct and complete in all material respects and fairly present the financial position of the Developer as of the date thereof. No material adverse change has occurred in such financial position since the date of such financial statements. 8. Taxes and Assessments. All taxes and assessments are current on the property which the Developer currently owns within the District. 9. Appraisal. The Developer has reviewed the Appraisal Report dated , 2006 ("Appraisal") prepared by Capital Realty Analysts and believes that the estimate that the Improvements (as defined in the Appraisal) will be completed within 12 months following the issuance of the Bonds is a reasonable assumption. [DAVID: THIS PARAGRAPH MAY NEED TO BE REWORDED. IT IS IMPORTANT THAT THE DEFINITION OF IMPROVEMENTS BE SPECIFICALLY IDENTIFIED AND SHOULD NOT INCLUDE IN-TRACTS OR OTHER THINGS THAT MAY BE DONE BEYOND THE TIME FRAME.] 10. Consent to Bond Issuance. The Developer hereby consents to the issuance of the Bonds. 11. Consent to Indenture. The Developer hereby consents to all of the terms and conditions contained in that certain Bond Indenture, dated as of April 1. 2006, by and between the City and Wells Fargo Bank, National Association, as trustee (the"Trustee"). R-') 12. Agreement. In addition to the foregoing, the Developer covenants that, while the Bonds are outstanding, the Developer will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body which in any way seeks to challenge or overturn the District, the levy of the Special Tax in accordance with the terms of the resolutions and ordinances previously adopted by the District or the validity of the Bonds or the proceedings leading up to their issuance. The foregoing agreement shall not prevent the Developer in any way from bringing any other action, suit or proceeding including, without limitation, an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the District's Rate and Method of Apportionment of Special Tax pursuant to which the Special Taxes are levied, an action or suit with respect to the application or use of the Special Taxes levied and collected, or an action or suit to enforce the obligations of the City and the District under the Acquisition Agreement or any other agreements between the Developer, the City and/or the District, or to which the Developer is a beneficiary. Dated: , 2006 [DEVELOPER] By: Authorized Representative R_1 Exhibit C CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2006A Form of Developer's Counsel Opinion [Letterhead of Developer Counsel] City of Palm Desert 73-510 Fred Waring Drive Palm Desert California 92260-2578 Stinson Securities LLC 55 San Francisco Street, Suite 800 San Francisco, CA 94133 Kinsell Newcomb & DeDios, Inc. 462 Stevens Avenue, Suite 308 Solana Beach, CA 92075 Re: $ City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A Ladies and Gentlemen: We have acted as counsel to (the "Developer") in connection with (i) the proposed development known as (the "Development") to be located in the City of Palm Desert (the "City") as described in the Preliminary Official Statement (as defined herein), and (ii) the issuance and sale of $ City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A (the "Bonds"). This opinion is rendered pursuant to the Purchase Agreement dated , 2006 (the "Purchase Agreement") between the City, acting for itself and on behalf of the City of Palm Desert Community Facilities District No. 2005-1, and the Underwriters named therein. Capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreement. In rendering the opinions set forth herein, we have reviewed and examined such documents as we have determined to be appropriate, including the following documents: A. The Purchase Agreement; B. The Official Statement for the offer and sale of the Bonds dated , 2006 (the "Official Statement"); r_i City of Palm Desert [Underwriter] , 2006 Page 2 C. The Continuing Disclosure Agreement (Developer), dated , 2006, by and between the Developer and Wells Fargo National Bank, as dissemination agent (the "Continuing Disclosure Agreement"); D. A litigation search of Developer, dated , 2006 (the "Litigation Search"), conducted by , but without warranty as to the completeness and accuracy thereof due to the potential for errors or inaccuracies in the data and files made available to us from the applicable courts. [DAVID: WE WILL BE PERFORMING AN ON-LINE LITIGATION SEARCH ONLY. I WILL SEND YOU OUR FORM OF OPINION.] E. The Acquisition Agreement dated as of , 2006, between, among others, the Developer and the City (the "Acquisition Agreement" and together with the Continuing Disclosure Agreement, the "Developer Agreements"); F. [The Articles of Incorporation for dated as of , certified by the Secretary of State of the State of California on G. [The Bylaws of the Developer certified by the Secretary of Developer to be the bylaws in effect on the date hereof;] H. Resolutions of the Board of Directors of Developer dated 2006; Certificate of Good Standing for Developer, issued by the Secretary of State of the State of California on , 2006; and J. The Developer Certificate provided by Developer to the City and Underwriter pursuant to the Purchase Agreement. With respect to factual matters underlying our opinions herein, we have made no independent investigation or inquiry and have relied solely upon the Developer Certificate. We advise you that the phrase "to our knowledge," as used herein, means that no facts have come to our attention, based upon an inquiry of attorneys in this firm who devote substantive legal attention to Developer, or as a result of our examination of the Developer Certificate, that indicate to us anything contrary to the statement to which the phrase relates. Except as expressly set forth above, the phrase does not mean that we have conducted any investigation or inquiry or performed any other examination, or review. We have no reason to believe that any factual matters or assumptions relied upon by us are not true, correct and complete. Our opinions herein are limited to the internal laws of the State of California and the federal laws of the United States of America. We express no opinion whatsoever with respect to the laws of any other jurisdiction and assume no responsibility for the applicability of such laws. In rendering our opinions herein, we have assumed the following, with your approval: City of Palm Desert [Underwriter] , 2006 Page 3 (i) The genuineness and authenticity of all signatures on original documents submitted to us (other than any signatures on behalf of Developer); the authenticity and completeness of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; where any signature, other than any signature on behalf of Developer purports to have been made in a corporate, governmental, fiduciary or other capacity, the person who affixed such signature had the full power and authority to do so; (ii) The due authorization, execution and delivery of the applicable agreements by the parties thereto, other than the Developer, and the legality, validity, binding effect and enforceability against such parties of their respective obligations under such agreements; (iii) The truth, accuracy and completeness of all factual representations and warranties of all parties under the documents described in paragraphs A through J, above; and (iv) The constitutionality or validity of a relevant statute, rule, regulation or agency action is not in issue unless a reported decision in the State of California has specifically addressed but not resolved, or has established, its unconstitutionality or invalidity. Based upon the foregoing and in reliance thereon, and based on our examination of such questions of law as we have deemed appropriate under the circumstances, and subject to any further assumptions, comments, exceptions, qualifications and limitations set forth below, as of the date hereof, it is our opinion that: 1. Developer is a corporation duly incorporated and validly existing in the State of California and in good standing under the laws of the State of California. Developer is qualified to do business in the State of California. 2. The Developer Agreements have been duly authorized, executed and delivered by Developer, and constitute legal, valid and binding obligations of the Developer, enforceable against the Developer in accordance with their respective terms. 3. The execution and delivery by Developer of the Developer Agreements and the performance of its obligations thereunder will not conflict with or result in a violation of, or breach of or a default under, as applicable (a) the Articles of Incorporation or Bylaws of Developer, (b) to our knowledge, any indenture, mortgage, deed of trust, lease, note, commitment, agreement or other instrument to which Developer is a party, or by which Developer or its property is bound or (c) to our knowledge, of any order, rule or regulation of any court or other governmental body having jurisdiction over Developer, the conflict, violation or breach of which, in the case of clauses (b) or (c) would have a material adverse effect on Developer or the development, use, occupancy or operation of the Development or any material portion thereof. 4. To our knowledge, and otherwise based solely upon a review of the Litigation Search, there are no actions, suits or proceedings pending or threatened r_1 City of Palm Desert [Underwriter] , 2006 Page 4 against Developer which, if determined adversely, would have a material adverse effect (a) on the ability of Developer to perform its obligations under the Developer Agreements or (b) on the development, construction, use, occupancy or operation of the Development or a material portion thereof. 6. Without having undertaken to independently determine the accuracy, completeness or fairness of the discussion contained in the Preliminary Official Statement under the captions captions "THE DISTRICT" (except for any discussion of Zones A, B, C, and D, and any of the other owners of property in the District or their property, for which no certification is provided), "THE PROJECT," and "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT — Palm Desert Funding Company, L.P.," insofar as such statements purport to summarize information with respect to the Developer, the proposed development of its property in the District, the property owned by the Developer within the District, and pending or threatened litigation in which the Developer is a litigant, nothing has come to our attention which would lead us to believe that such discussion contains any untrue statements of a material fact or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. In addition, all of our opinions expressed hereinabove are specifically subject to and limited by the following: (a) The effect of laws or court decisions relating to bankruptcy, insolvency, fraudulent conveyance, equitable subordination, reorganization, arrangement, moratorium or other laws or court decisions relating to or affecting creditors' rights generally. (b) Limitations imposed by California or federal law or equitable principles upon the availability of the remedy of specific performance of any of the remedies, covenants or other provisions of any document or agreement and upon the availability of injunctive relief or other equitable remedies. In addition, we express no opinion as to the title of the property within the District or any entitlements, permits, approvals or other assets relating to the Development. This letter is intended solely for your use in accordance with the Purchase Agreement and may not be reproduced or filed publicly or relied upon for any other purpose by you or for any purpose whatsoever by any other party without the express written consent of the undersigned except that this Opinion may be copied and distributed as part of a closing book of the bond transaction documents, provided that such distribution shall not expand in any way the permitted uses of this letter. We assume no responsibility for the effect of any fact or circumstance occurring subsequent to the date of this letter, including without limitation, legislative or other changes in the law. Further, we assume no responsibility to advise you of any facts or circumstances of which we become aware after the date hereof, regardless of whether or not they may affect our opinions herein. This opinion is given as of the date hereof and we assume no obligation to update our opinions herein after the date hereof. Very truly yours, �_a City of Palm Desert [Underwriter] , 2006 Page 5 [COUNSEL] By: r_c Exhibit D CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2006A Certificate of Special Tax Consultant City of Palm Desert 73-510 Fred Waring Drive Palm Desert, California 92260-2578 Stinson Securities LLC 55 San Francisco Street, Suite 800 San Francisco, CA 94133 Kinsell Newcomb & DeDios, Inc. 462 Stevens Avenue, Suite 308 Solana Beach, CA 92075 The undersigned hereby states and certifies: 1. That he is an authorized officer of Minifiancial (the "Special Tax Consultant") and as such is familiar with the facts herein certified and is authorized and qualified to certify the same. 2. That the Special Tax Consultant assisted the City of Palm Desert (the "City") in the preparation of (a) the Rate and Method of Apportionment of the Special Tax (the "Special Tax Formula") as set forth in Appendix A to the Official Statement, as described under the section entitled "THE DISTRICT" of the Preliminary Official Statement dated 2006 (the "Preliminary Official Statement") and the Official Statement dated 2006 (the "Official Statement") for the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "District") Special Tax Bonds, Series 2006A (the "Bonds"). The Bonds are secured by Special Taxes of the Community Facilities District. Capitalized terms not otherwise defined herein shall be defined as provided in the Special Tax Formula or in the Indenture dated as of April 1, 2006 (the "Indenture"), by and between the City and the Trustee. 3. That the Special Taxes, if levied in accordance with the Special Tax Formula and collected will annually yield sufficient revenue to make timely payments of the annual debt service on the Bonds, and annual Administrative Expenses related to the levy and collection of the Special Taxes and the expenses of the Trustee for the Bonds. 4. That all information supplied by the Special Tax Consultant for use in the Official Statement, including Appendix A thereto, is true and correct. 5. That, as of the date of the Preliminary Official Statement and the Official Statement and as of the date hereof, those portions of the Official Statement entitled "SECURITY AND SOURCES OF PAYMENTS FOR THE BONDS--Special Taxes" and "-- n_i Special Tax Methodology," "THE DISTRICT," "SPECIAL RISK FACTORS," and "APPENDIX A" and the other data provided by the Special Tax Consultant and included in the Preliminary Official Statement and the Official Statement, do not, to our knowledge, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Dated: , 2006 MUNIFINANCIAL By: , Principal T1_7 Exhibit E CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2006A Certificate of Appraiser City of Palm Desert 73-510 Fred Waring Drive Palm Desert. California 92260-2578 Stinson Securities LLC 55 San Francisco Street, Suite 800 San Francisco, CA 94133 Kinsell Newcomb & DeDios, Inc. 462 Stevens Avenue, Suite 308 Solana Beach, CA 92075 The undersigned hereby states and certifies: 1. That he or she is an authorized principal of Capital Realty Analysts (the "Appraiser") and as such is familiar with the facts herein certified and is authorized and qualified to certify the same. 2. That the Appraiser has prepared an appraisal report dated 2006 (the "Appraisal Report"), on behalf of the City of Palm Desert (the "City") and in connection with the sale by the City on behalf of the Community Facilities District No. 2005-1 (University Park) (the "District") of its City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A (the "Bonds"). Capitalized terms not otherwise defined herein shall be defined as provided in the Purchase Agreement dated as of , 2006, between the City and the Underwriter named therein. 3. That, as of the date of this Certificate, the conclusions set forth in the Appraisal Report included as Appendix B to the Preliminary Official Statement dated 2006 (the "Preliminary Official Statement") and the Official Statement dated 2006 (the "Official Statement") are confirmed. 4. That, as of the date hereof, the information under the caption "APPRAISAL OF PROPERTY WITHIN THE DISTRICT" and the Appraisal Report appended to the Preliminary Official Statement and the Official Statement, to the best of our knowledge and belief, and subject to all of the General and Specific Assumptions and Limiting Conditions set forth in the Appraisal Report, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and no events or occurrences have been ascertained by us or have come to our attention that would substantially change the F_1 estimated values concluded in the Appraisal Report. However, we have not performed any procedures since the date of the Appraisal Report to obtain knowledge of such events or occurrences nor are we obligated to do so in the future. 5. We hereby consent to the reproduction and use of the Appraisal Report appended to the Preliminary Official Statement and the Official Statement. We also consent to the use of the references to our firm made in the Preliminary Official Statement. Dated: , 2006 CAPITAL REALTY ANALYSTS . By: F_) ACQUISITION AGREEMENT by and among CITY OF PALM DESERT, CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK), DESERT WELLS 237,LLC, ALBOR PROPERTIES HI,LP, PALM DESERT FUNDING COMPANY, LP, THE UNIVERSITY VILLAGE PARTNERSHIP, SHAW/PALM DESERT 1,LLC, AND SINATRA & COOK PROJECT, LLC Dated as of March 23, 2006 P6401.1032\835866.8 RWG DRAFT 3/16/06 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1 Section 1.1 Definitions 1 ARTICLE II RECITALS 6 Section 2.1 The District 6 Section 2.2 The Development 6 Section 2.3 The Facilities 6 Section 2.4 The Financing 6 Section 2.5 The Bonds 7 Section 2.6 No Advantage to City Construction 7 Section 2.7 Agreements 7 ARTICLE III FUNDING 7 Section 3.1 City Proceedings 7 Section 3.2 Bonds 8 Section 3.3 Bond Proceeds 8 Section 3.4 Developer Acknowledgments 12 ARTICLE IV CONSTRUCTION OF FACILITIES 13 Section 4.1 Scope of Article. 13 Section 4.2 Plans 13 Section 4.3 Duty of Developer to Construct 13 Section 4.4 Labor Code Provisions 14 Section 4.5 Relationship to Public Works;Bidding Requirements 14 Section 4.6 Independent Contractor 16 Section 4.7 Performance and Payment Bonds 16 Section 4.8 Contracts and Change Orders 17 Section 4.9 No Gift or Waiver by Developer. 17 ARTICLE V ACQUISITION AND PAYMENT 18 Section 5.1 Inspection 18 Section 5.2 Agreement to Sell and Purchase Facilities and Discrete Components. 18 Section 5.3 Payment Requests 19 Section 5.4 Processing Payment Requests 20 Section 5.5 Payment 21 Section 5.6 Restrictions on Payments 21 Section 5.7 Acquisition of Additional Facilities 23 Section 5.8 Defective or Nonconforming Work 24 ARTICLE VI OWNERSHIP AND TRANSFER OF FACILITIES 24 Section 6.1 Facilities to be Owned by the City-Conveyance of Land and Easements to City 24 Section 6.2 Facilities to be Owned by the City-Title Evidence 24 Section 6.3 Facilities Constructed on Private Lands 24 Section 6.4 Facilities Constructed on City Land 25 P6401.I032\835866.8 Section 6.5 Facilities to be Acquired by Other Public Agencies 25 Section 6.6 Maintenance and Warranties 25 ARTICLE VII INSURANCE; RESPONSIBILITY FOR DAMAGE 26 Section 7.1 Liability Insurance Requirements 26 Section 7.2 Responsibility for Damage and Claims under Acquisition Agreement or CVWD JCFA 29 ARTICLE VIII REPRESENTATIONS, WARRANTIES AND COVENANTS 31 Section 8.1 Representations, Covenants and Warranties of the Developer 31 ARTICLE IX TERMINATION 34 Section 9.1 No Bonds 34 Section 9.2 Mutual Consent 34 Section 9.3 City Election for Cause 34 Section 9.4 Force Majeure 36 ARTICLE X MISCELLANEOUS 36 Section 10.1 Limited Liability of City 36 Section 10.2 Excess Costs 36 Section 10.3 Audit 36 Section 10.4 Attorney's Fees 36 Section 10.5 Notices 36 Section 10.6 Severability 38 Section 10.7 Successors and Assigns to Acquisition Agreement or Allocation Agreement 38 Section 10.8 Other Agreements 38 Section 10.9 Waiver 39 Section 10.10 Merger;Entire Agreement 39 Section 10.11 Parties in Interest 39 Section 10.12 Amendment of Acquisition Agreement or Allocation Agreement 39 Section 10.13 Counterparts 40 EXHIBITS: EXHIBIT A DESCRIPTION OF AUTHORIZED FACILITIES ELIGIBLE FOR ACQUISITION FROM THE DEVELOPER EXHIBIT B DESCRIPTION OF ELIGIBLE DISCRETE COMPONENTS OF FACILITIES EXHIBIT C FORM OF PAYMENT REQUEST—Facilities and Discrete Components EXHIBIT D FORM OF PAYMENT REQUEST—Authorized Fees EXHIBIT E CITY OF PALM DESERT PUBLIC WORKS CONTRACTS AND BIDDING REQUIREMENTS EXHIBIT F FORM OF PAYMENT BOND EXHIBIT G FORM OF CONTRACTOR PERFORMANCE BOND EXHIBIT H FORM OF REQUEST FOR TRANSFER OF MONIES—Backbone Infrastructure EXHIBIT I FORM OF REQUEST FOR TRANSFER OF MONIES—Developer Subaccounts P6401.1032\835866.8 ii EXHIBIT J FORM OF REQUEST FOR TRANSFER OF MONIES —Gerald Ford (South) Landscaping Subaccount EXHIBIT K FORM OF REQUEST FOR TRANSFER OF MONIES — Surplus Backbone to Developer Subaccounts EXHIBIT L FORM OF DEVELOPER TAX CERTIFICATE—Backbone Infrastructure EXHIBIT M FORM OF DEVELOPER TAX CERTIFICATE—In-Tract Facilities/Authorized Fees P6401.1032\835866.8 iii THIS ACQUISITION AGREEMENT (the "Acquisition Agreement"), dated as of March 23, 2006, is by and among the CITY OF PALM DESERT, a municipal corporation existing under the laws of the State of California(the"City"), CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK), a community facilities district established under the Mello-Roos Community Facilities Act of 1982 (the "District"), DESERT WELLS 237, LLC, a California limited liability company ("DW 237"), ALBOR PROPERTIES III, LP, a California limited partnership ("Albor"), PALM DESERT FUNDING COMPANY, LP, a Delaware limited partnership ("PDFC"), THE UNIVERSITY VILLAGE PARTNERSHIP, a California general partnership ("UV Partnership"), SHAW/PALM DESERT 1, LLC, a California limited liability company ("Shaw"), and SINATRA & COOK PROJECT, LLC, a California limited liability company ("S&C," and each individually and together with DW 237, Albor, PDFC, UV Partnership, and Shaw, as the context may require, the "Developer"). ARTICLE I DEFINITIONS Section 1.1 Definitions. The following terms shall have the meanings ascribed to them in this Section 1.1 for purposes of this Acquisition Agreement. Unless otherwise indicated, any other terms, capitalized or not, when used herein shall have the meanings ascribed to them in the Indenture (as hereinafter defined). "Acceptable Title" means title to a Facility or land, in form acceptable to the Director of Public Works, free and clear of all liens, taxes, assessments, leases, easements and encumbrances, whether or not recorded, and, with respect to land, as evidenced by such title guaranty or title insurance as the Director of Public Works may require, but subject to any exceptions determined by the Director of Public Works as not interfering with the actual or intended use of the land. Notwithstanding the foregoing, an irrevocable offer of dedication may constitute land with an"Acceptable Title" if: (i) such offer is necessary to satisfy a condition to a tentative or final parcel map, (ii) such offer is in a form acceptable to the Director of Public Works, (iii) the Director of Public Works has no reason to believe that such offer of dedication will not be accepted by the applicable governmental entity or utility, and (iv) the applicable Developer commits in writing not to allow any liens or other encumbrances to be imposed on such property prior to its acceptance and to indemnify the City against the imposition of any such lien or encumbrance. "Acceptance Date" means the date the City Council, or other governmental entity or utility which is to own a Facility, takes final action to accept dedication of or transfer of title to a Facility. "Acquisition Agreement" means this Acquisition Agreement, together with any Supplement hereto. "Act" means the Mello-Roos Community Facilities Act of 1982, Section 53311 et seq of the Government Code, as amended. P6401.1032\835866.8 1 "Actual Cost" means the substantiated cost of a Facility or a Discrete Component, which costs may include: (i) the costs incurred by the Developer for the construction of such Facility or Discrete Component (evidenced by payments to parties unrelated to such Developer); (ii) the documented costs incurred by the Developer in preparing the Plans for such Facility or Discrete Component and the related costs of design, engineering and environmental evaluations of the Facility or Discrete Component; (iii) the fees paid to governmental agencies for obtaining permits, licenses or other governmental approvals for such Facility or a Discrete Component; (iv) documented professional costs incurred by the Developer associated with such Facility or Discrete Component, such as engineering, legal, accounting, inspection, construction staking, materials testing and similar professional services, as well as related fees of the Independent CFD Construction Manager; (v) costs directly related to the construction and/or acquisition of a Facility or Discrete Component, such as costs of payment, performance and/or maintenance bonds, and insurance costs (including costs of any title insurance required hereunder), provided, if a Developer obtains a single bond or insurance policy relating to more than one contract for the construction of Facilities or Discrete Components, the premium for such aggregate bond or policy may be submitted for reimbursement on a pro rata basis by Facility or Discrete Component, based upon the estimated costs of the applicable Facilities or Discrete Components as set forth in Exhibit B hereto, and as part of the Payment Request for such Facility or Discrete Component; and (vi) with respect to Items X.A., X.C., X.E., and X.G. (Parks A through D) and IX.A., IX.C., IX.E., and IX.G. (Well Sites) on Exhibit B hereto, the cost, respectively, of land acquisition for park sites (as previously determined by the City and the Developer in accordance with Chapter 26.48 of the City Municipal Code, adopted pursuant to the Quimby Act (Government Code Section 66477)), and the cost of land acquisition for well sites(as set forth in the RBF Report). Actual Cost may include (a) an amount not in excess of 5.0% of the cost described in clause (i) of the preceding sentence in respect of any construction management or project management or other similar fee payable to the applicable Developer or any party related thereto, and (b) any financing fees, costs or charges, or any interest, cost of carry or other similar charges not exceeding 3.5% of the cost described in clauses (i) through (v) of the preceding sentence. "Affiliate" means, with respect to any Developer, any entity with respect to which fifty percent (50%) or more of the ownership or voting power is held individually or collectively by any of such Developer and any other entity owned, controlled or under common ownership or control by or with, such Developer or its managing member(s), general partner(s), or majority shareholder, as applicable, and includes all general partners of any entity which is a partnership. Control shall mean ownership of fifty percent (50%) or more of the voting power of or ownership interest in the respective entity. "Albor" means Albor Properties III, LP, a California limited partnership, and its successor and assigns to the extent permitted under Section 10.7 hereof. "Allocation Agreement" means that certain Cost Sharing and Bond Proceeds Allocation Agreement by and among DW 237, Albor Properties III, L.P., a California limited partnership, PDFC, UV Partnership, Shaw, S&C, Palm Desert Forum, LLC, a California limited liability company, and Donald L. McCoy and Marcellene W. McCoy, dated as of January 25, 2006, as it may be amended, modified, or supplemented from time to time with the City's prior written consent. P6401.1032\835866.8 2 "Authorized Fees" means, collectively or individually, as the context may require, (i) sewer and/or water connection, capacity, or other development impact fees imposed by the CVWD (which shall also be governed by the CVWD JCFA), as set forth in Exhibit A, and (ii) connection, capacity, park, or other development impact fees (including without limitation TUMF Fees, Fringed-Toed Lizard Fees, Art-in-Public Places Fees) imposed by the City, as set forth in Exhibits A and B, which fees have been authorized by the qualified electors within the District pursuant to the Act. "Backbone Infrastructure" means those authorized facilities marked with a single asterisk in Exhibit A hereto, which are Items I, II.A.-H., III.A.-D., III.E.1.-4., IV.A.-G., V.A.-D., VI.A.- F., VII.A.-F., VIII.A-D., and IX.A. "Bonds" means the bonds to be issued, in one or more series, by the District. "City" means the City of Palm Desert, California. "City Backbone Infrastructure" means the Backbone Infrastructure to be owned by the City. "City Facilities Fund" means the City Facilities Fund established by the Indenture. "Civil Code" means the Civil Code of the State of California. "County" means the County of Riverside, California. "CVWD" means the Coachella Valley Water District. "CVWD Backbone Infrastructure" means the Backbone Infrastructure to be owned by the CVWD. "CVWD Facilities Fund" means the CVWD Facilities Fund established by the Indenture. "CVWD Facility" means those sewer and water facilities subject to acquisition by the CVWD pursuant to the CVWD JCFA. The CVWD Facilities are as designated on Exhibits A and B hereto. "CVWD JCFA" means that certain Joint Community Facilities Agreement dated as of January 12, 2006, by and among the City, the CVWD, DW 237, PDFC, UV Partnership, Shaw, and S&C. "Defaulting Developer" means any Developer(s) involved in any event specified in clauses A. through G. of Section 9.3 hereof. "Developer" means, collectively, DW 237, Albor, PDFC, UV Partnership, Shaw, and S&C, or any of them, as the context may require. "Developer Pro Rata Share" means (i) 56.217% with respect to a DW 237 Subaccount of an Other Facilities Account within an Improvement Fund, (ii) 28.862% with respect to a PDFC P6401.1032\835866.8 3 Subaccount of an Other Facilities Account within an Improvement Fund, (iii) 3.758% with respect to a UV Subaccount of an Other Facilities Account within an Improvement Fund, (iv) 2.654% with respect to a Shaw Subaccount of an Other Facilities Account within an Improvement Fund, and (v) 8.509% with respect to a S&C Subaccount of an Other Facilities Account within an Improvement Fund. "Director of Public Works" means the Director of Public Works of the City, or the written designee of such officer acting as such under this Acquisition Agreement. "Discrete Component" means a segment or component of a Facility which the Director of Public Works, pursuant to Section 53313.51 of the Act, has heretofore agreed can be separately identified, inspected and completed, and be the subject of a Payment Request hereunder, as listed in Exhibit B hereto, which may be amended or supplemented by any Supplement; provided in no event shall any payment be made for any Discrete Component unless, as required by Section 5.2.B. hereof, such Discrete Component, as determined by the Director of Public Works in its sole discretion, (i) has been completed in accordance with the Plans therefor and (ii) as required by Section 53313.51, is functional and capable of serviceable use for its intended purpose. "District" means the City of Palm Desert Community Facilities District No. 2005-1 (University Park), created by the City Council of the City under the Act. "DW 237" means Desert Wells 237, LLC, a California limited liability company, and its successors and assigns to the extent permitted under Section 10.7 hereof. "Eligible Facilities" means the public facilities which are eligible, and have been authorized by the qualified electors within the District, to be financed by the District, including without limitation Authorized Fees, and are described in Exhibit A hereto, as such exhibit may be amended or supplemented by any Supplement. "Expected Facilities" means, as to a Developer, the Eligible Facilities identified as "Expected Facilities" by such Developer pursuant to Section 8.1.M.(ii). "Facilities" means the public facilities among the Eligible Facilities which are actually financed by the District, including without limitation Authorized Fees. "Finance Director-Treasurer" means the Finance Director-Treasurer of the City, or the written designee of such officer acting as such under this Acquisition Agreement. "Final Discrete Component" means the final Discrete Component of a Facility, the completion of which renders the Facility complete in accordance with the approved Plans by the City or other applicable governmental entity or utility. "Gerald Ford Road Improvement Agreement" means that certain Road Improvement Agreement dated as of December 22, 2005, by and among PDFC, Palm Desert North 80, LLC, a California limited liability company, and the City. "Government Code" means the Government Code of the State of California. P6401.1032\835866.8 4 "Improvement Funds" means the City Facilites Fund and the CVWD Facilities Fund, and/or the accounts and subaccounts therein, established by the Indenture. "Indenture" means, the Bond Indenture, dated as of April 1, 2006, between the City and the Trustee with respect to the issuance of the Bonds and providing for, among other matters, the issuance of the Bonds and the establishment of the Improvement Funds, as it may be amended from time to time. "Independent CFD Construction Manager" shall mean the independent construction manager with demonstrated experience (to the satisfaction of the Director of Public Works) in the coordination of projects financed with the assistance of bonds issued by a community facilities district formed under the Act, approved in advance by the Director of Public Works and engaged by PDFC to coordinate construction of the Facilities, including but not limited to documentation and communication between the City and PDFC and certain inspections relating thereto, in an orderly and expeditious manner. As of the date of this Acquisition Agreement, the Independent CFD Construction Manager is Tetra Tech, Inc. "Labor Code" means the Labor Code of the State of California. "Payment Request" means a document, substantially in the form of Exhibit C or Exhibit D hereto, as applicable, to be used by the Developer in requesting payment of a Purchase Price. "PDFC" means Palm Desert Funding Company, LP, a Delaware limited partnership, and its successors and assigns to the extent permitted under Section 10.7 hereof. "Plans" means the plans, specifications, schedules, and related construction contracts for the design and construction of any Facility (or any Discrete Component thereof) as approved by the City, the CVWD, or other entity that will own, operate, or maintain such Facility when completed and acquired. "Pre-Formation Facility" shall mean any Eligible Facility or Discrete Component thereof designated as a Pre-Formation Facility on Exhibit B hereto, which pursuant to Section 53313.5 of the Act, were completed, as determined by and at the sole discretion of the Director of Public Works, before the City Council's adoption on January 12, 2006 of Resolution No. 06-6 to establish the District. "Public Contract Code" means the Public Contract Code of the State of California. "Purchase Price" means the amount paid by the City for a Facility or any Discrete Component thereof determined in accordance with Article V hereof, being an amount equal to the Actual Cost of such Facility or Discrete Component, but subject to any applicable limitations and reductions provided for in Article V. "RBF Report" means the cost estimate report regarding the Eligible Facilities, dated September 22, 2005 and prepared by RBF Consulting. "Risk Manager" shall mean the person acting in the capacity of Risk Manager for the City. P6401.1032\835866.8 5 "Shaw" means Shaw/Palm Desert 1, LLC, a California limited liability company, and its successors and assigns to the extent permitted under Section 10.7 hereof. "S&C" means Sinatra & Cook Project, LLC, a California limited liability company, and its successors and assigns to the extent permitted under Section 10.7 hereof. "Supplement" means a written document amending, supplementing or otherwise modifying this Acquisition Agreement or any exhibit hereto. "Trustee" means Wells Fargo Bank, National Association, in its capacity as Trustee under the Indenture, or any successor thereto acting as trustee under the Indenture. "UV Partnership" means The University Village Partnership, a California general partnership, and its successors and assigns to the extent permitted under Section 10.7 hereof. ARTICLE II • RECITALS Section 2.1 The District. The City Council has established the District under the Act for the financing of, among other things, the acquisition, construction and installation of public facilities identified in the proceedings to form the District, which include the Eligible Facilities listed in Exhibit A hereto. Section 2.2 The Development. The Developer is developing land located within the District. Section 2.3 The Facilities. The Eligible Facilities are required as a condition of regulatory approval by the City and other entities that service the District, and the City, the District, and the Developer will benefit from a coordinated plan of design, engineering, and construction of the Facilities and the development of the land owned by the Developer that is located within the District. The Developer acknowledges that the inclusion of Eligible Facilities in Exhibit A hereto in no way, in itself, obligates the District to issue, or the City to cause the District to issue, any Bonds to acquire any of the Eligible Facilities from the Developer or implies that the City or District have in any way engaged any Developer to construct any of the Eligible Facilities, except as specifically provided in this Acquisition Agreement. The Facilities and the Discrete Components thereof, which are the subject of acquisition by the City from the Developer under this Acquisition Agreement are only the Eligible Facilities and Discrete Components listed in Exhibits A and B hereto. Section 2.4 The Financing. The Developer, the District, and the City wish to finance, in part, the acquisition of the Facilities and the payment therefor by entering into this Acquisition Agreement for the acquisition of the Facilities and payment for Discrete Components thereof, eligible for such financing as shown in Exhibits A and B hereto (as they may be amended and supplemented by any Supplement), with the portion of the proceeds of the Bonds on deposit in the applicable Improvement Fund with respect to each such Facility and Discrete Component thereof. P6401.1032\835866.8 6 Section 2.5 The Bonds. The City, on behalf of the District, is proceeding to consider the authorization and issuance of the Bonds under the Act and the Indenture, the proceeds of which Bonds shall be used, in part,to finance the acquisition of the Facilities. The execution by the City and the District of this Acquisition Agreement in no way obligates the District to issue, or the City to cause the District to issue, any Bonds, or to acquire any facilities with proceeds of any Bonds issued, except facilities among the Eligible Facilities listed in Exhibit A hereto, the Discrete Components of which are listed in Exhibit B hereto, and which are to be acquired subject to the terms and conditions set forth in this Acquisition Agreement. Section 2.6 No Advantage to City Construction. The City, by its approval of this Acquisition Agreement, has determined that it will obtain no advantage from undertaking the construction by the City directly of the Eligible Facilities, except for the Cook Street pedestrian bridge identified as Item I. on Exhibit A and as Item I.F. on Exhibit B, which shall be constructed directly by the City and the construction of which shall be funded, in part, with monies deposited into the Cook Street Pedestrian Subaccount of the Backbone Facilities Account of the City Facilities Fund pursuant to Section 3.3.A. hereof. The City, the District, and each Developer agree the provisions of this Acquisition Agreement require that the Facilities and Discrete Components thereof be constructed by the Developer as if they had been constructed under the direction ,and supervision of the City, except for Pre-Formation Facilities. Each Developer hereby represents that it has experience in the supervision of the construction of public facilities of the character of the Eligible Facilities. Section 2.7 Agreements. In consideration of the mutual promises and covenants set forth herein, and for other valuable consideration the receipt and sufficiency of which are hereby acknowledged, the City, the District, and the Developer agree that the foregoing recitals, as applicable to each, are true and correct and further make the agreements set forth herein. ARTICLE III FUNDING Section 3.1 City Proceedings. The City, on behalf of the District, shall conduct all necessary proceedings under the Act for the issuance, sale and delivery of the Bonds; provided, however, that nothing herein shall be construed as requiring the District to issue, or the City to cause the District to issue, the Bonds or any portion thereof. Upon the written request of the Developer, the Developer and the City staff shall meet regarding the amount, timing and other material aspects of the Bonds, but the legal proceedings and the principal amount, interest rates, terms and conditions and timing of the sale of the Bonds shall be in all respects subject to the absolute discretion and approval of the City Council or such City officers to whom the City Council has delegated the authority for such absolute discretion and approval. The City, the District, and each Developer agree the issuance of a second series of Bonds, if authorized by the City Council in its absolute discretion, shall be subject to the prior receipt of bids, pursuant to the terms of this Acquisition Agreement, for the construction of all Backbone Infrastructure (except (i) the Cook Street pedestrian bridge identified as Item I. on Exhibit A and as Item I.F. on Exhibit B, which shall be constructed directly by the City, (ii)the land acquisition Discrete Components of the well sites, identified as IX.A., IX.C., IX.E., and IX.G. on Exhibit B, P6401.1032\835866.8 7 and (iii) the land acquisition Discrete Components of the park sites, identified as Items X.A., X.C., X.E., and X.G. on Exhibit B). Section 3.2 Bonds. The City, in connection with this Acquisition Agreement, is proceeding to consider the issuance and delivery of the Bonds on behalf of the District. Neither the City nor the District shall be obligated to pay the Purchase Prices of the Facilities or any Discrete Components thereof except from amounts on deposit in the applicable Improvement Fund with respect to each such Facility on or after the closing date of the Bonds. Each Developer acknowledges that the proceeds of the Bonds deposited and held in the Improvement Funds may not be sufficient for payment of the Purchase Price of all of the Facilities authorized to be paid from each such Improvement Fund. Section 3.3 Bond Proceeds. A. Deposit of Bond Proceeds and Use for Construction and Acquisition Costs of the Facilities. The proceeds of the Bonds shall be deposited, held, invested, reinvested, and disbursed as provided in the Indenture. A portion of the proceeds of the Bonds will be set aside under the Indenture in the Improvement Funds. Proceeds of the Bonds available for deposit in the Improvement Funds shall be allocated(i)to the Improvement Funds (and to the accounts and subaccounts therein) in accordance with Articles IV and VI of the Allocation Agreement, and(ii) as between the Backbone Infrastructure Accounts of the Improvement Funds, first to the Backbone Infrastructure Account of the City Facilities Fund, an amount equal to the then estimated costs of the City Backbone Infrastructure (calculated as the sum of estimated costs of the Eligible Facilities constituting City Backbone Infrastructure, as available from all or a combination of the following sources in order of priority: (aa) as set forth in any contract for such City Backbone Infrastructure which as of the pricing/sale date of the applicable series of Bonds have been awarded to any contractors by PDFC, plus an amount equal to 15% of such contract as a contingency for change orders and an additional amount equal to 13% of such contract to cover costs of consultants and fees, (bb) as set forth in the lowest responsible and responsive bid received for such City Backbone Infrastructure if no contracts have been awarded but bids have been received, plus an amount equal to 15% of such bid as a contingency for change orders and an additional amount equal to 13% of such bid to cover costs of consultants and fees, or (cc) as set forth in the RBF Report (including without limitation the contingencies set forth therein and the proportionate share of consultant costs and fees attributable to such City Backbone Infrastructure) if no bids have been received nor any contract awarded for such City Backbone Infrastructure), and second to the Backbone Infrastructure Account of the CVWD Facilities Fund, the balance of the total amount available for deposit to the Backbone Infrastructure Accounts pursuant to Article IV of the Allocation Agreement; provided, of the monies allocated to the Backbone Infrastructure Account of the City Facilities Fund pursuant to the foregoing, the parties agree (I) the amount of $1,500,000 shall be deposited into the Cook Street Pedestrian Subaccount of the Backbone Infrastructure Account of the City Facilities Fund (notwithstanding the estimate in the RBF Report of $1,460,500), and (II) the amount of $1,401,364.58 shall be deposited into the Gerald Ford (South) Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund, in furtherance of the Gerald Ford Road Improvement Agreement, and the balance of such monies shall be deposited into the Backbone Infrastructure Account of the City Facilities Fund. The parties agree the amount of $1,401,364.58 is reasonably calculated as the projected cost to install (x)the full width of median P6401.1032\835866.8 8 landscaping improvements within Gerald Ford Drive from the intersection with Portola Avenue to the intersection with Cook Street and (y) the landscaping improvements within the public right-of-way along the south half of Gerald Ford Drive from the intersection with Portola Avenue to the intersection with Cook Street, based on the City's estimate of$7.25/sq. ft., which is comprised of average current prices of$6.00/sq. ft. plus a contingency of$1.25/sq. ft. Moneys in the Improvement Funds shall be withdrawn therefrom in accordance with the provisions of the Indenture and the applicable provisions hereof for payment of all or a portion of the costs of construction and/or acquisition of the Facilities, including payment of the Purchase Price of Discrete Components thereof. The Developer, the City, and the CFD agree the Developer's provision to the City of one- half of the Cook Street pedestrian bridge identified as Item I. on Exhibit A and as Item I.F. on Exhibit B is required as condition of development of the property within the District as proposed by the Developer and that the deposit from the proceeds of the Bonds of$1,500,000 into the Cook Street Pedestrian Subaccount of the Backbone Infrastructure Account of the City Facilities Fund shall constitute full satisfaction by the Developer of such condition of development. B. Transfer of Monies Between Backbone Infrastructure Accounts. The parties hereto acknowledge the relative costs of the CVWD Backbone Infrastructure and the City Backbone Infrastructure may change from the estimated costs set forth in Exhibit B, which are substantiated by the RBF Report, which was drafted several months ago and without the benefit of actual bids, and consequently, the Actual Costs of the Backbone Infrastructure to be owned by either the City or the CVWD may vary significantly from the estimates in the RBF Report. As set forth in Section 3.1(b) of the Allocation Agreement, PDFC acts as "master developer" with respect to the Backbone Infrastructure to serve the District and is responsible for entering into all contracts for the construction and installation of such Backbone Infrastructure. The parties hereto agree, absent assignment by PDFC to another Developer party in accordance with Section 10.7 hereof, PDFC shall be the only Developer entitled to submit Payment Requests with respect to Backbone Infrastructure, except with respect to the land acquisition Discrete Components of the well sites, identified as IX.A., IX.C., IX.E., and IX.G. on Exhibit B, and the land acquisition Discrete Components of the park sites, identified as Items X.A., X.C., X.E., and X.G. on Exhibit B, for which Developers other than PDFC may submit a Payment Request as provided in Section 7.7 of the Allocation Agreement. In the event (i) the Actual Costs of the Backbone Infrastructure to be owned by either the City or the CVWD vary from the estimates in the RBF Report and (ii) such difference results in a projected surplus in the Backbone Infrastructure Account of one Improvement Fund while resulting in a projected deficit in the Backbone Infrastructure Account of the other Improvement Fund, as demonstrated by PDFC to the satisfaction of the Director of Public Works, in its sole discretion after consultation with the Finance Director-Treasurer, PDFC may submit a written request in the form of Exhibit H hereto to the Director of Public Works requesting the transfer of all or a specified portion of monies remaining in the Backbone Infrastructure Account of the Improvement Fund (except for monies remaining in the Gerald Ford (South) Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund, which shall be subject to Section 3.3.D. below, and the Cook Street Pedestrian Bridge Subaccount of the Backbone Infrastructure Account of the City Facilities Fund) with the projected surplus to the P6401.1032\835866.8 9 Backbone Infrastructure Account of the Improvement Fund with the projected deficit, as may be necessary to rectify the projected imbalance of monies in such accounts; provided, unless otherwise agreed to by the Finance Director-Treasurer, no more than one request for transfer of monies pursuant to this Section 3.3.B. shall be submitted by PDFC in any calendar month. Subject to (x) the prior concurrence of the Director of Public Works as to the projected surplus/deficit, as provided in the foregoing sentence, and (y) the availability of monies remaining in the Backbone Infrastructure Accounts of the Improvement Funds, within five (5) business days of the receipt by the Finance Director-Treasurer of any such written request of PDFC approved by the Director of Public Works, the Finance Director-Treasurer shall request the Trustee, in accordance with Sections 3.9(c) or 3.10(b) of the Indenture, as applicable, to transfer monies as requested by PDFC in such written request, but solely to the extent available from monies remaining in the applicable account. C. Transfer of Monies Between Subaccounts Relating to a Developer. The provisions of this Section 3.3.C. apply solely to subaccounts within the Other Facilities Accounts of the Improvement Funds and shall not apply to any Backbone Infrastructure Account within an Improvement Fund. With respect to Facilities other than Backbone Infrastructure and as contemplated by Section 6.1(f) of the Allocation Agreement, Section 8.1 hereof requires each Developer to identify to the District its Expected Facilities not later than four (4) business days after the execution of a final bond purchase contract relating to the sale of each series of Bonds and prior to the printing of a final official statement for such Bonds. The parties hereto agree such identification of the Expected Facilities is reasonable, convenient, and necessary to, among other things, effectuate the timely deposit of proceeds of Bonds to the appropriate subaccounts of the Other Facilities Accounts of the Improvement Funds upon the sale and issuance of Bonds in accordance with the terms and conditions of Articles IV and VI of the Allocation Agreement. The City, the District, and each Developer acknowledge although such identification of Expected Facilities is based on the reasonable expectations of each Developer as of the date thereof, during the course of construction, the sequence of costs actually incurred may deviate from the assumptions underlying such reasonable expectations. In the event the sequence of costs incurred by the Developer with respect to Eligible Facilities has deviated from the assumptions made at the time of the identification of the Expected Facilities in such a way that a transfer of monies between the subaccounts of the Improvement Funds relating to such Developer would expedite the expenditure of proceeds of the Bonds (e.g., the Expected Facilities consist of Eligible Facilities to be owned by the CVWD (or Authorized Fees of the CVWD), but costs now are expected to be incurred earlier for Facilities to be owned by the City (or Authorized Fees of the City), or vice versa), as demonstrated to the satisfaction of the Director of Public Works, in its sole discretion after consultation with the Finance Director-Treasurer, such Developer may submit a written request in the form of Exhibit I hereto to the Director of Public Works requesting the transfer of all or a specified portion of monies remaining in the subaccount of the Other Facilities Fund of the City Facilities Fund which relates to such Developer to the subaccount of the Other Facilities Fund of the CVWD Facilities Fund relating to such Developer, or vice versa, as the case may be. Subject to (x) the prior concurrence of the Director of Public Works, as provided in the foregoing sentence, and (y) the availability of monies remaining in the applicable subaccount of the Other Facilities Fund of the applicable Improvement Fund, within five (5) business days of the receipt P6401.1032\835866.8 10 by the Finance Director-Treasurer of any such written request of the Developer approved by the Director of Public Works, the Finance Director-Treasurer shall request the Trustee, in accordance with Sections 3.9(d) or 3.10(c) of the Indenture, as applicable, to transfer monies as requested by such Developer in such written request, but solely to the extent available from monies remaining in the applicable subaccount. D. Transfer of Surplus Monies from the Gerald Ford (South) Landscaping Subaccount. After PDFC has installed all landscaping improvements for the south half of Gerald Ford Drive identified in Section 3.3.A. above in accordance with the Plans therefor, as determined by the Director of Public Works in its sole discretion, and PDFC has received all payments pursuant to all Payment Requests of PDFC relating thereto in accordance with this Acquisition Agreement, if monies remain on deposit in the Gerald Ford (South) Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund, PDFC may submit a written request in the form of Exhibit J hereto to the Director of Public Works requesting the transfer of all of the monies remaining in the Gerald Ford(South)Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund to, first, the Backbone Infrastructure Account of the City Facilities Fund, or second, if all City Backbone Infrastructure has been completed and the Purchase Prices for all City Backbone Infrastructure have been paid pursuant to the terms hereof, to the Backbone Infrastructure Account of the CVWD Facilities Fund, for payment with respect to Payment Requests for other Backbone Infrastructure. Subject to (i) the prior concurrence of the Director of Public Works as to the completion of the Gerald Ford landscaping improvements, as provided in the foregoing sentence, and (ii) the availability of monies remaining in the Gerald Ford (South) Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund, within five (5) business days of the receipt by the Finance Director-Treasurer of any such written request of PDFC approved by the Director of Public Works, the Finance Director-Treasurer shall request the Trustee, in accordance with Section 3.9(e) of the Indenture, to transfer monies as requested by PDFC in such written request, but solely to the extent available from monies remaining in the Gerald Ford (South) Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund. E. Transfer of Surplus Monies from a Backbone Infrastructure Account to Subaccounts Relating to Developers. After the occurrence of one of the following two events, PDFC may submit a written request in the form of Exhibit K hereto to the Director of Public Works requesting the transfer of all of the monies remaining in the Backbone Infrastructure Account of the City Facilities Fund or the Backbone Infrastructure Account of the CVWD Facilities Fund, as applicable, to (i) all of the subaccounts within the Other•Facilities Account of the City Facilities Fund, (ii) all of the subaccounts within the Other Facilities Account of the CVWD Facilities Fund, or (iii) a combination of the subaccounts within the Other Facilities Account of the City Facilities Fund and the subaccounts within the Other Facilities Account of the CVWD Facilities Fund, in a manner such that only one (and not less than one) such subaccount pertaining to each of DW 237, PDFC, UV Partnership, Shaw, and S&C, receives the applicable Developer Pro Rata Share of the amount of all monies remaining in the subject Backbone Infrastructure Account (and the sum of monies so transferred to subaccounts of the Other Facilities Accounts within the P6401.1032\835866.8 11 Improvements Funds equals the amount of all monies remaining in the subject Backbone Infrastructure Account prior to such transfer): 1. PDFC has completed all City Backbone Infrastructure in accordance with the Plans therefor(except (i)the Cook Street pedestrian bridge identified as Item I. on Exhibit A and as Item I.F. on Exhibit B, which shall be constructed directly by the City), as determined by the Director of Public Works in its sole discretion, and PDFC has received all payments pursuant to all Payment Requests of PDFC relating to all such City Backbone Infrastructure in accordance with this Acquisition Agreement; or 2. PDFC has completed all CVWD Backbone Infrastructure in accordance with the Plans therefor, as determined by CVWD in its sole discretion with evidence thereof provided to the satisfaction of the Director of Public Works in its sole discretion, and PDFC has received all payments pursuant to all Payment Requests of PDFC relating to all CVWD Backbone Infrastructure in accordance with this Acquisition Agreement. Subject to (i) the prior concurrence of the Director of Public Works as to the completion of all such City Backbone Infrastructure or all CVWD Backbone Infrastructure, as applicable, as provided in the foregoing clauses of this Section 3.3.E., and (ii) the availability of monies remaining in the Backbone Infrastructure Account of the City Facilities Fund or the Backbone Infrastructure Account of the CVWD Facilities Fund, as applicable, within five(5)business days of the receipt by the Finance Director-Treasurer of any such written request of PDFC approved by the Director of Public Works, the Finance Director-Treasurer shall request the Trustee, in accordance with Sections 3.9(g) or 3.10(d) of the Indenture, as applicable, to transfer monies as requested by PDFC in such written request, but solely to the extent available from monies remaining in the Backbone Infrastructure Account of the City Facilities Fund or the Backbone Infrastructure Account of the CVWD Facilities Fund, as applicable. Section 3.4 Developer Acknowledgments. Each Developer acknowledges that the obligation of any owner of real property in the District, including any Developer to the extent it owns any real property in the District,to pay special taxes levied in the District is not in any way dependent on: (i) the availability of amounts in the Improvement Funds to pay for all or any portion of the Facilities or Discrete Components thereof hereunder, or(ii)the alleged misconduct of the City in the performance of its obligations under this Acquisition Agreement, the Indenture, any developer agreement or amendment thereto or any other agreement to which any Developer and the City or the District are signatories. Each Developer acknowledges that any lack of availability of amounts in the Improvement Funds to pay the Purchase Price of Facilities or any Discrete Components thereof shall in no way diminish any obligation of any Developer with respect to the construction of or contributions for public facilities required by any development or other agreement to which such Developer is a party, or any governmental approval to which such Developer or any land within the District is subject. P6401.1032\835866.8 12 ARTICLE IV CONSTRUCTION OF FACILITIES Section 4.1 Scope of Article. This Article IV shall not apply to Authorized Fees or to any Developer submitting Payment Requests solely with respect to Authorized Fees, nor shall this Article IV apply to the Cook Street pedestrian bridge identified as Item I. on Exhibit A and as Item I.F. on Exhibit B, which is being constructed by the City. Section 4.2 Plans. Each Developer shall cause, or represents and warrants that it has caused, Plans to be prepared for the Facilities and any Discrete Component thereof for which it is responsible, and shall obtain, or represents and warrants that it has obtained, the written approval of the Plans in accordance with applicable ordinances and regulations of the City or the governmental entity or utility that will own and operate the Facilities. Copies of any Plans shall be provided by the responsible Developer to the Director of Public Works upon request therefor, and, in any event, as built drawings and a written assignment of the Plans for any Facility shall be provided to the City prior to its acceptance of the Facility. Section 4.3 Duty of Developer to Construct. All Facilities and Discrete Components thereof to be acquired hereunder shall be constructed by or at the direction of the responsible Developer in accordance with the approved Plans. Each Developer hereby represents it has performed, and shall continue to perform, all of its obligations hereunder and has conducted, and shall continue to conduct, all operations with respect to the construction of Facilities and any Discrete Components thereof in a good, workmanlike and commercially reasonable manner, with the standard of diligence and care normally employed by duly qualified persons utilizing their best efforts in the performance of comparable work and in accordance with generally accepted practices appropriate to the activities undertaken. If a Developer will be submitting a Payment Request relating to Facilities other than Authorized Fees, such Developer has employed, and shall continue to employ, at all times adequate staff or consultants with the requisite experience necessary to administer and coordinate all work related to the design, engineering, acquisition, construction and installation of the Facilities and Discrete Components thereof to be acquired by the City from such Developer hereunder. Each Developer shall be obligated: (i) to construct and cause to be conveyed to the City, or other applicable governmental entity or utility, all Eligible Facilities and Discrete Components thereof for which it is responsible as a condition of any development agreement, improvement agreement, subdivision map, or regulatory approval (or as to Authorized Fees, to pay or cause to be paid all such Authorized Fees), and (ii) to use its own funds to pay all costs thereof in excess of the Purchase Prices thereof to be paid therefor hereunder. No Developer shall be relieved of its obligation to construct each Facility for which it is responsible and the Discrete Components thereof and convey each such Facility to the City in accordance with the terms hereof, even if(i) because of the limitations imposed by Section 5.6 hereof, the Purchase Price for such Discrete Component or Facility is less than the Actual Cost, or cost to the Developer, of such Discrete Component or Facility, or (ii) there are insufficient P6401.1032\835866.8 13 M N funds in the applicable Improvement Fund to pay the Purchase Prices thereof, and, in any event, this Acquisition Agreement shall not affect any obligation of any owner of land in the District under any other agreement or any governmental approval to which any land within the District is subject, with respect to the public improvements required in connection with the development of the land within the District. Such obligation of each Developer to construct and convey such Facilities for which it is responsible, and pay the costs thereof in excess of available monies in the Improvement Fund applicable to each such Facility, shall be an obligation of the applicable Developer as a party to this Acquisition Agreement without regard to any governmental conditions to development of the land in the District that may otherwise apply to the land owners in the District. Nothing in this Section 4.3 requires any Developer to commence or complete any Facility any sooner than required under the related City land use approvals for the Developer's project within the District. Section 4.4 Labor Code Provisions. Pursuant to Section 1781 of the Labor Code, the City and the District hereby state, and each Developer hereby acknowledges, that the construction of the Facilities and any Discrete Components thereof by the Developer, which will be paid in part out of public funds, is "public work" (as defined in Section 1720 of the Labor Code) to which Section 1771 of the Labor Code applies, and each Developer hereby agrees that it shall cause the construction of the Facilities and any Discrete Components thereof for which it is responsible and which will be subject to a Payment Request hereunder (excluding Authorized Fees) to be performed as "public work" as required by Section 1781 of the Labor Code. Without limiting the foregoing, each Developer agrees to comply with the provisions of Sections 1720 et seq. of the Labor Code with respect to prevailing wages. Section 4.5 Relationship to Public Works; Bidding Requirements. The following shall apply to all contracts applicable to any Facilities and any Discrete Components thereof which will be the subject of a Payment Request hereunder: A. General. This Acquisition Agreement is for the acquisition by the City of the Facilities and payment thereof (including payment for Discrete Components thereof) from moneys in the Improvement Funds and is not intended to be a public works contract. The City, the District, and each Developer agree that the Facilities are of local, and not state-wide concern, and that the provisions of the Public Contract Code shall not apply to the construction of the Facilities or Discrete Components thereof. The City, the District, and each Developer agree that (i) each Developer shall award, or has awarded, all contracts for the construction of the Facilities for which it is responsible and the Discrete Components thereof, (ii) this Acquisition Agreement is necessary to assure the timely and satisfactory completion of the Facilities, and (iii) compliance with the Public Contract Code with respect to the Facilities or Discrete Components thereof would work an incongruity and would not produce an advantage to the City or the District. B. Bidding Procedures. Notwithstanding Section 4.5.A. hereof, each Developer represents and warrants it shall award, or has awarded, all contracts for construction of the Facilities and any Discrete Components thereof not being undertaken directly by such Developer, and materials related thereto, by means of a bid process consistent with this Section P6401.1032\835866.8 14 N 4.5.B. or otherwise acceptable to the Director of Public Works, in each case consistent with City regulations relating to the bidding of contracts for public projects or public works, including without limitation the provisions of the City's Public Works Contracts and Bidding Requirements as described in Exhibit E hereto (interpreted with the Developer, instead of the City, as the contracting party for construction of the Facility or Discrete Component and with a view toward compliance with Section 53313.5 of the Act), and Government Code Sections 3300, 3400, 6109, and 6610; provided, however, pursuant to Section 53313.5 of the Act, each Developer excepts from such representation and warranty any Pre-Formation Facility for which it is responsible. Each Developer represents and warrants it shall evaluate, or has evaluated, criteria such as experience, ability to perform on schedule, financial ability, and such other criteria as required by the Director of Public Works to determine qualified contractors for any contract. Such contractors shall comply with any applicable City regulations. With respect to contracts already awarded, each Developer represents and warrants that formal bids were requested from those entities on the list of qualified contractors, and as to any additional contracts that may be required, formal bids shall be requested from those entities on the list of qualified contractors;provided, however, pursuant to Section 53313.5 of the Act, each Developer excepts from such representation and warranty any Pre-Formation Facility for which it is responsible. Each Developer shall prepare, or has prepared, bid packages (including engineering reports and estimates) for each of the Facilities for which it is responsible or any specific Discrete Component thereof to be separately bid, and shall submit, or has submitted, such packages to the Director of Public Works, reasonably in advance of the anticipated bid, for review. The Developer may proceed, or has proceeded, to take bids on the applicable Facilities or any Discrete Components thereof solely upon agreement by the Director of Public Works and the applicable Developer on the content of such bid packages and a schedule of bid prices, plus an acceptable margin of variance. At the reasonable request of any Developer, the Director of Public Works shall also meet with the qualified general contractors to discuss the requirements of the particular contract to be bid. Except with respect to any Pre-Formation Facility, if a bid is within the constraints of the approved bid package, the Developer responsible for any Facility or Discrete Component thereof shall award, or represents and warrants it has awarded, the applicable contract to the lowest responsive and responsible bidder. If all bids are in excess of the bid parameters, the applicable Developer shall obtain, or represents and warrants it has obtained, the consent of the Director of Public Works prior to awarding the contract. Upon written request of the Director of Public Works, the applicable Developer shall provide an analysis of bids for construction and materials for the Facilities or applicable Discrete Components, indicating how the winning bid was determined and how it was consistent with the applicable bid package. Except as to the award of the contract for any Pre-Formation Facility, the applicable Developer shall promptly publish, or represents and warrants it has promptly published, notice of the award of any contract in such paper as the Director of Public Works shall specify. C. Scheduling. At the request of the Director of Public Works, each Developer shall develop, or cause to be developed, and shall maintain a project schedule, providing for all major project elements included in the construction of the Facilities to be acquired hereunder for which it is responsible, so that the whole project is scheduled in an efficient manner. If a schedule is P6401.1032\835866.8 15 N N requested, the applicable Developer shall provide the Director of Public Works with complete copies of the schedule and each update to the schedule for the Director's review. D. Periodic Meetings. From time to time at the request of the Director of Public Works, representatives of the Developer shall meet and confer with City staff, consultants and contractors regarding matters arising hereunder with respect to the Facilities, Discrete Components and the progress in constructing and acquiring the same, and as to any other matter related to the Facilities or this Acquisition Agreement. The Developer shall advise the Director of Public Works in advance of any coordination and scheduling meetings to be held with contractors relating to the Facilities or any Discrete Components thereof, in the ordinary course of performance of an individual contract. The Director of Public Works or the Director of Public Works' designated representative shall have the right to be present at such meetings, and to meet and confer with individual contractors if deemed advisable by the Director of Public Works to resolve disputes or ensure the proper completion of the Facilities and any Discrete Components thereof. Section 4.6 Independent Contractor. In performing its obligations under this Acquisition Agreement, each Developer is an independent contractor and not the agent or employee of the City or the District. Neither the City nor the District shall be responsible for making any payments directly or otherwise to any contractor, subcontractor, agent, consultant, employee or supplier of any Developer. Section 4.7 Performance and Payment Bonds. Each Developer agrees to comply with all performance and payment bonding requirements of the City and other applicable public entities and public utilities with respect to the construction of the Facilities and any Discrete Component thereof. As to the City, each Developer that will construct Facilities shall provide payment bonds and performance bonds, which bonds shall meet the following requirements: A. Payment Bonds. Each payment bond shall be in conformity with the requirements of the Civil Code, Sections 3247 and 3248, and substantially in the form as set forth in Exhibit F, and shall be provided to the City and the District prior to commencement of construction under the corresponding construction contract. Provided that (a) fifteen (15) days have passed after the later of(i) the expiration of the applicable statutory period in which any person may bring suit against the surety(ies) on a payment bond as set forth in Sections 3239 or 3249 of the Civil Code or (ii) the expiration of the applicable statutory period in which any person may record a lien pursuant to Sections 3115 or 3116 of the Civil Code and (b) no such suit or lien has been filed at such time, at the applicable Developer's written request submitted to the Risk Manager, the City shall provide such Developer with a letter confirming that the City no longer requires the applicable payment bond to be maintained in full force and effect. In the event a contractor to whom a Developer awards a contract for the construction of a Facility or Discrete Component thereof provides a payment bond meeting the requirements hereof, such contractor's payment bond shall be deemed as the provision by such Developer of a payment bond hereunder. P6401.1032\835866.8 16 N M B. Performance Bonds. To satisfy a Developer's obligations as to performance bonds under this Section 4.7, prior to the commencement of construction on a Facility for which such Developer is responsible, such Developer shall require any contractor to whom a contract is awarded for the construction of such Facility (or each Discrete Component thereof that is separately bid) to provide a performance bond for the benefit of the City and the District, in substantially the form attached hereto as Exhibit G, securing such contractor's obligations under such contract. Any performance bond provided hereunder shall be in form and substance satisfactory to the Director of Public Works and, if applicable, meet the requirements of the Government Code Sections 66499 through 66499.10 of the Subdivision Map Act. Section 4.8 Contracts and Change Orders. Each Developer shall be responsible for entering into all contracts and any supplemental agreements, commonly referred to as "change orders," required for the construction of the Facilities for which it is responsible or any Discrete Components thereof. All such contracts and supplemental agreements shall be submitted to the Director of Public Works or, as to any such contracts and supplemental agreements entered into prior to the date of this Acquisition Agreement, the Developer represents and warrants they have been submitted to the Director of Public Works. Prior approval of supplemental agreements by the Director of Public Works shall be required for any change orders which involve an amount of $1,000.00 (One Thousand Dollars) or greater, or which in any way materially alter the quality or character of the subject Facilities or Discrete Components thereof; provided, as to any such change orders meeting the thresholds set forth in the foregoing and entered into prior to the date of this Acquisition Agreement, each Developer who has entered into any such change order represents and warrants it has obtained the prior approval of the Director of Public Works. The City expects that such contracts and supplemental agreements needing prior approval by the Director of Public Works will be approved or denied (any such denial to be in writing, stating the reasons for denial and the actions, if any, that can be taken to obtain later approval) (i) if the amount involved is less than $10,000 (Ten Thousand Dollars), within ten (10) business days of receipt by the Director of Public Works thereof, and (ii) if the amount involved is $10,000 (Ten Thousand Dollars) or greater, within thirty(30)business days of receipt by the Director of Public Works thereof. Any approval by the Director of Public Works of a supplemental agreement shall in no way affect the estimated costs listed in Exhibits A and B for any related Facility or Discrete Component, but to the extent that it increases the Actual Cost of a Facility or Discrete Component, such increased cost may be payable as part of the Purchase Price of the related Facility or Discrete Component as provided in Section 5.6.A. hereof. Section 4.9 No Gift or Waiver by Developer. The City, the District, and the Developer understand and agree that (i) in some instances, the Developer will be constructing the Facilities or paying the Authorized Fees prior to the issuance of Bonds, a portion of the proceeds of which will be used to pay the Purchase Prices to the Developer for those Facilities or the Authorized Fees, (ii)the Developer will be submitting Payment Requests with knowledge that there may be insufficient funds available in the Improvement Funds for reimbursement for Actual Costs of such Facilities or Discrete Components thereof, (iii) the Facilities and/or Authorized Fees that are the subject of the Payment Requests submitted when there are insufficient proceeds will be inspected and reviewed as set forth in this Acquisition Agreement, and the Payment Requests submitted when there are insufficient proceeds will be reviewed and approved in manner set forth herein, and (iv)the P6401.1032\835866.8 17 payment for any Payment Requests approved in the preceding manner will be deferred until there are sufficient proceeds in the Improvement Funds to make such payment, at which time the District will make payment on the approved Payment Requests in the manner set forth herein; provided, if (x) there are insufficient proceeds available in the Improvement Funds for reimbursement of any Payment Request at any time after the issuance of all Bonds authorized to be issued by the qualified electors on January 12, 2006 (which are authorized to be issued in the maximum aggregate principal amount of$70 million), (y) there are no monies available in the Improvement Funds upon which to accrue investment earnings, and (z) there are no monies remaining in any account under the Indenture to be transferred to the Improvement Funds pursuant to the terms of the Indenture, the foregoing clauses (iii) and (iv) shall not apply. At all times, the construction of the Facilities is made with the expectation that such Facilities will be purchased by the City or CVWD (but solely from moneys in the Improvement Funds, as authorized and limited pursuant to terms and conditions of the Indenture, the Allocation Agreement, and this Acquisition Agreement), and that the conveyance of such Facilities to the City or CVWD prior to receipt of the Purchase Price for such Facilities shall not be construed as a dedication or gift, or a waiver of the Purchase Price for such Facilities as set forth in, and limited by the terms of, this Acquisition Agreement. ARTICLE V ACQUISITION AND PAYMENT Section 5.1 Inspection. No payment hereunder shall be made by the City or District to any Developer for a Facility or Discrete Component thereof until the Facility or Discrete Component thereof has been inspected and found to be completed in accordance with the approved Plans by the City or other applicable governmental entity or utility. The City shall make periodic site inspections of the Facilities and any Discrete Components thereof to be acquired by the City hereunder;provided that in no event shall the City incur any liability for any delay in the inspection of any Facilities or Discrete Components thereof. For Facilities or any Discrete Components thereof to be acquired by other public entities or utilities, the Developer responsible for such Facility or Discrete Component thereof shall be responsible for obtaining such inspections and providing written evidence thereof to the Director of Public Works. Each Developer agrees to pay all inspection, permit and other similar fees of the City applicable to construction of the Facilities for which it is responsible and any Discrete Components thereof, subject to reimbursement therefor as an Actual Cost of the related Facility or Discrete Component thereof. Section 5.2 Agreement to Sell and Purchase Facilities and Discrete Components. A. Each Developer hereby agrees to sell the Facilities to the City or other applicable governmental entity or utility that will own a Facility, and the District hereby agrees to use amounts in the applicable Improvement Fund for each such Facility to pay the Purchase Price thereof to the applicable Developer, subject to the terms and conditions hereof. Except for payment for Discrete Components as provided in paragraph B. below, neither the City nor the District shall be obligated to finance the purchase of any Facility until the Facility is completed and the Acceptance Date for such Facility has occurred. P6401.1032\835866.8 18 B. Pursuant to Section 53313.51 of the Act and at the request of the Developer, the City has identified Discrete Components of Facilities which may be the subject of a Payment Request prior to completion of the entire Facility of which it is a part, and paid pursuant to the terms of this Acquisition Agreement prior to completion of such entire Facility. The Discrete Components are expressly shown in Exhibit B hereto, as it may be supplemented by any Supplement, and any payment for a Discrete Component shall not be made until such Discrete Component, as determined by the Director of Public Works in its sole discretion, (i) has been completed in accordance with the Plans therefor and (ii) as required by Section 53313.51 of the Act, is functional and capable of serviceable use for its intended purpose. For example, the Discrete Component of a street identified as"aggregate base and paving (1st lift) street improvements, curb and gutter" is not capable of serviceable use, even if completed pursuant to the Plans therefor, if functional catch basins (which, in turn, may require functional related retention basins) associated with such curbs and gutters have not been installed prior to, or concurrently with, the curbs and gutters. "Aggregate base and paving (1st lift) street improvements, curb and gutter" are identified as a single Discrete Component, because until the street is paved, the street elevation is lower than the elevation of the curb and gutter, therefore mooting the purpose of the curb and gutter to catch overflow from the street until the street is paved to its ultimate elevation. The parties hereto acknowledge the Discrete Components do not have to be accepted by the City, or other applicable governmental entity or utility that will own a Facility, as a condition precedent to the payment of the Purchase Price therefor, but in no event shall any such payment be made until the requirements of the first paragraph of this Section 5.2.B. have been met. Each Developer acknowledges that the Discrete Components have been identified for payment purposes only, and that the City, or other applicable governmental entity or utility that will own a Facility, is not obligated to accept a Facility of which a Discrete Component is a part until the entire Facility has been completed, although at the sole discretion of the Director of Public Works, the City may accept a Discrete Component of a Facility prior to completion of the entire Facility, and any governmental entity or utility that will own a Facility may at its sole discretion determine to accept a Discrete Component of a Facility prior to completion of the entire Facility. C. In any event, the City shall not be obligated to pay the Purchase Price for any Facility or Discrete Component except from the moneys in the applicable Improvement Fund with respect to such Facility or Discrete Component. Section 5.3 Payment Requests. A. Due to the number of Developers who are party to this Acquisition Agreement and constructing the Facilities subject hereto, each Developer agrees to prepare each Payment Request in consultation with the Independent CFD Construction Manager to facilitate the processing of Payment Requests. B. In order to receive the Purchase Price for a completed Facility or Discrete Component other than Authorized Fees, inspection thereof under Section 5.1 shall have been made, and after consultation with the Independent CFD Construction Manager in accordance P6401.1032\835866.8 19 M with Section 5.3.A. above, the applicable Developer shall deliver to the Director of Public Works: 1. a Payment Request in the form of Exhibit C hereto for such Facility or Discrete Component, together with all attachments and exhibits required by Exhibit C and this Section 5.3 to be included therewith (including, but not limited to, Attachments 1 and 2 to Exhibit C), and 2. in addition, if payment is requested for a completed Facility (as opposed to any Discrete Component other than the Final Discrete Component), (a) if the property on which the Facility is located is not owned by the City (or other applicable governmental entity or utility that will own the Facility)at the time of the request, a copy of the recorded documents conveying to the City (or other applicable governmental entity or utility that will own the Facility) Acceptable Title to the real property on, in or over which such Facility is located, as described in Section 6.1 hereof, (b) a copy of the recorded notice of completion of such Facility (meeting the requirements specified in Section 5.6), (c) to the extent paid for with the proceeds of the Bonds, an assignment to the District of any reimbursements that may be payable with respect to the Facility, such as public or private utility reimbursements, and(d) an assignment of the warranties and guaranties for such Facility, as described in Section 6.6 hereof, in a form acceptable to the City. C. In order to receive the Purchase Price for Authorized Fees, the applicable Developer shall deliver to the Director of Public Works a Payment Request in the form of Exhibit D hereto for such Authorized Fees(including, but not limited to, Attachment 1 to Exhibit D). Section 5.4 Processing Payment Requests. Upon receipt of a Payment Request and all accompanying documentation, the Director of Public Works shall conduct a review in order to confirm that such request is complete, that such Facility or Discrete Component identified therein was constructed in accordance with the Plans therefor, and to verify and approve the Actual Cost of such Facility or Discrete Component specified in such Payment Request. The Director of Public Works shall also conduct such review as is required in the Director of Public Works' discretion to confirm the matters certified in the Payment Request. Each Developer agrees to cooperate with the Director of Public Works in conducting each such review and to provide the Director of Public Works with such additional information and documentation as is reasonably necessary for the Director of Public Works to conclude each such review. For any Facilities or Discrete Components thereof to be acquired by another governmental entity or utility, the applicable Developer shall provide evidence acceptable to the Director of Public Works that such Facilities or Discrete Components thereof are acceptable to such governmental entity or utility. Within thirty (30) days of receipt of any Payment Request, the Director of Public Works expects to review the request for completeness and notify the applicable Developer whether such Payment Request is complete, and, if not, what additional documentation must be provided. If such Payment Request is complete, the Director of Public Works expects to provide a written approval, or denial specifying the reason for any denial, of the request within thirty (30) days of its submittal. If a Payment Request seeking reimbursement for more than one Facility or Discrete Component is denied, the Director of Public Works shall state whether the Payment Request is nevertheless approved and complete for any one or more Facilities or Discrete P6401.1032\835866.8 20 41111 41. Components and any such Facilities or Discrete Component shall be processed for payment under Section 5.5 notwithstanding such partial denial. Section 5.5 Payment. Upon approval of the Payment Request by the Director of Public Works, the Director of Public Works shall sign the Payment Request and forward the same to the City's Finance Director-Treasurer. Upon receipt of the reviewed and fully signed Payment Request, the City's Finance Director-Treasurer shall, within the then current City financial accounting payment cycle but in any event within twenty (20) days of receipt of the approved Payment Request, cause the same to be paid by the Trustee under the applicable provisions of the applicable Indenture, to the extent of funds then on deposit in the applicable Improvement Fund. Any approved Payment Request not paid due to an insufficiency of funds in the applicable Improvement Fund shall be paid promptly following the deposit into such Improvement Fund of proceeds of any investment earnings, other amounts transferred to such Improvement Fund under the terms of the applicable Indenture, or amounts deposited into such Improvement Fund from the proceeds of another series of Bonds. The Purchase Price paid hereunder for any Facility or Discrete Component shall constitute payment in full for such Facility or Discrete Component, including, without limitation, payment for all labor, materials, equipment, tools and services used or incorporated in the work, supervision, administration, overhead, expenses and any and all other things required, furnished or incurred for completion of such Facility or Discrete Component, as specified in the Plans. Section 5.6 Restrictions on Payments. Notwithstanding any other provisions of this Acquisition Agreement, the following restrictions shall apply to any payments made to any Developer under Sections 5.2 and 5.5 hereof: A. Amounts of Payments. Subject to the following paragraphs of this Section 5.6, payments for each Facility or Discrete Component will be made only in the amount of the Purchase Price for the respective Facility or Discrete Component, which Purchase Price shall equal the Actual Cost of the Facility or Discrete Component. Further, the Purchase Price of any CVWD Facility shall be subject to the limitations set forth in Section 3.6 of the CVWD JCFA. Nothing herein shall require the City or the District in any event (i) to pay more than the Actual Cost of a Facility or Discrete Component, or (ii) to make any payment beyond the available funds in the applicable Improvement Fund. The parties hereto acknowledge and agree that all payments to any Developer for the Purchase Prices of Facilities or Discrete Components are intended to be reimbursements to such Developer for monies already expended or, if made pursuant to Section 5.6.B. or 5.6.C. hereof, for immediate payment by such Developer (or directly by the City)to third parties in respect of such Facilities or Discrete Components thereof. B. Joint or Third Party Payments. The City may make any payment jointly to the requesting Developer and any mortgagee or trust deed beneficiary, contractor or supplier of materials, as their interests may appear, or solely to any such third party, if such Developer so requests the same in writing or as the City otherwise determines such joint or third party payment is necessary to obtain lien releases. P6401.1032\835866.8 21 C. Withholding Payments. The City and the District shall be entitled, but shall not be required, to withhold any payment hereunder to a Developer for a Facility or a Discrete Component if such Developer or any Affiliate thereof is delinquent in the payment of ad valorem real property taxes, special assessments or taxes, or Special Taxes levied in the District. With respect to any Facility for which any such delinquent Developer is responsible, in the event of any such delinquency, the City or the District shall only make payments hereunder, should any be made at such parties' discretion, directly to contractors or other third parties employed in connection with the construction of such Facilities for which such delinquent Developer is responsible, or Discrete Component thereof, or to any assignee of such delinquent Developer's interests in this Acquisition Agreement (and not to such delinquent Developer or any Affiliate thereof), until such time as such delinquent Developer provides the Director of Public Works with evidence that all such delinquent taxes and assessments have been paid. The City and the District shall withhold payment for any Facility or Discrete Component constructed on land, until Acceptable Title to such land is conveyed to the City, as described in Article VI hereof. The City and the District shall be entitled to withhold any payment hereunder for a Facility or Discrete Component that is the subject of a Payment Request until the City and District are satisfied that any and all claims for labor and materials have been paid by the applicable Developer for the Facility or Discrete Component that is the subject of a Payment Request, or conditional lien releases have been provided by such Developer for such Facility or Discrete Component. The City and the District may waive this limitation upon the provision by the Developer of sureties, undertakings, securities and/or bonds of such Developer or appropriate contractors or subcontractors and deemed satisfactory by the Director of Public Works to assure payment of such claims. The City and the District shall be entitled to withhold payment for any Facility or the Final Discrete Component of any such Facility hereunder to be owned by the City until: (i) the Director of Public Works determines that the Facility is ready for its intended use, (ii) the Acceptance Date for the Facility has occurred and the requirements of Section 6.1, if applicable to such Facility, have been satisfied, (iii) a notice of completion executed by the applicable Developer as an owner pursuant to Section 3093 of the Civil Code, reciting the name and address of the City as an owner of an interest as a vendee under a contract of purchase pursuant to Section 3093 of the Civil Code, and in a form acceptable to the Director or Public Works, has been recorded for the Facility and (iv) general lien releases conditioned solely upon payment from the proceeds of the Bonds to be used to acquire such Facility or Final Discrete Component have been submitted to the Director of Public Works for the Facility. The City shall be entitled to withhold payment for any Facility, or Final Discrete Component thereof, to be owned by other governmental entities until the applicable Developer provides the Director of Public Works with evidence that the governmental entity or utility has accepted dedication of, or title to, the Facility. If the Director of Public Works determines that a Facility is not ready for intended use under(i) above, the Director of Public Works shall so notify the applicable Developer as soon as reasonably practicable in writing specifying the reason(s)therefor. Nothing in this Acquisition Agreement shall be deemed to prohibit any Developer from contesting in good faith the validity or amount of any mechanics or materialmans lien nor limit P6401.1032\835866.8 22 the remedies available to the Developer with respect thereto so long as such delay in performance shall not subject the Facilities or any Discrete Component thereof to foreclosure, forfeiture or sale. D. Retention. The District shall withhold in each Improvement Fund an amount equal to ten percent (10%) of the Purchase Price of each Facility or Discrete Component attributable to each such Improvement Fund and to be paid hereunder. Any such retention will be released to the applicable Developer upon final completion and acceptance of the related Facility and the expiration thereafter of a maintenance/warranty period consistent with applicable City policy (currently, a one-year maintenance period for landscaping improvements, and as to other Facilities, a warranty period of one (1) year after the Acceptance Date of such Facility or the posting of a warranty bond to remain in effect for one (1) year after the Acceptance Date thereof). Notwithstanding the foregoing, each Developer shall be entitled to payment of any such retention upon the completion and acceptance of a Facility for which it is responsible or Discrete Component thereof, if a maintenance or warranty bond is posted in lieu thereof in accordance with Section 6.6 hereof. Payment of any retention shall also be contingent upon the availability of monies in the applicable Improvement Fund therefor. No retention shall apply if the Developer proves to the Director of Public Works' satisfaction that the Developer's contracts for the Facilities or Discrete Components provide for the same retention as herein provided, so that the Purchase Price paid for the Facility or Discrete Component is at all times net of the required retention. E. Frequency. Unless otherwise agreed to by the Director of Public Works, no more than one Payment Request shall be submitted by each Developer in any calendar month (i.e., each Developer shall be allowed to submit a Payment Request once a month). F. Right-of-Way. Payments for any right-of-way described in Exhibits A or B hereto shall be based upon appraisals of the respective land to be acquired in a form acceptable to the Director of Public Works, or upon such other basis as the Director of Public Works shall determine is appropriate in the circumstances. As to the Discrete Components identified as Items X.A., X.C., X.E., and X.G. on Exhibit B (Land Acquisition for Parks A through D), the City, the District, and the Developer agree the Actual Costs thereof have been previously determined by the City and the Developer in accordance with Chapter 26.48 of the City Municipal Code, adopted pursuant to the Quimby Act (Government Code Section 66477), and are as set forth in Exhibit B. As to the Discrete Components identified as Items IX.A., IX.C., IX.E., and IX.G. on Exhibit B (Land Acquisition for Well Sites), the City, the District, and the Developer agree the Actual Costs thereof have been previously agreed to by each affected Developer and are as set forth in the RBF Report and in Exhibit B. Section 5.7 Acquisition of Additional Facilities. If the construction and acquisition of all the Facilities theretofore listed in Exhibit A have been completed and the Purchase Prices, • including any retentions described in Section 5.6.D. above, with respect thereto have been paid, and funds remain on deposit in any Improvement Fund, the City and the Developer may designate in a Supplement hereto additional Eligible Facilities and Discrete Components thereof to be constructed and acquired with such remaining funds. P6401.1032\835866.8 23 Section 5.8 Defective or Nonconforming Work. If any of the work done or materials furnished for a Facility or Discrete Component are found by the Director of Public Works to be defective or not in accordance with the applicable Plans: (i) and such finding is made prior to payment for the Purchase Price of such Facility or Discrete Component hereunder, the City and the District may withhold payment therefor until such defect or nonconformance is corrected to the satisfaction of the Director of Public Works, or(ii) and such finding is made after payment of the Purchase Price of such Facility or Discrete Component, but prior to the expiration of the applicable warranty period, the City and the applicable Developer shall act in accordance with Section 6.6 hereof. ARTICLE VI OWNERSHIP AND TRANSFER OF FACILITIES Section 6.1 Facilities to be Owned by the City—Conveyance of Land and Easements to City. Acceptable Title to all property on, in, or over which each Facility to be acquired by the City will be located, shall be deeded over to the City by way of grant deed, quitclaim, or dedication of such property. Each Developer agrees to assist the City in obtaining such documents as are required to obtain Acceptable Title with respect to such property on, in, or over which each Facility for which such Developer is responsible will be located. Completion of the transfer of title to land shall be accomplished prior to the payment of the Purchase Price for a Facility or Final Discrete Component thereof and shall be evidenced by recordation of the acceptance thereof by the City Council or the designee thereof. Section 6.2 Facilities to be Owned by the City — Title Evidence. Upon the request of the City, the applicable Developer shall furnish to the City a preliminary title report for land with respect to Facilities to be acquired by the City and not previously dedicated or otherwise conveyed to the City, for review and approval at least fifteen (15) calendar days prior to the transfer of Acceptable Title to a Facility to the City. The Director of Public Works shall approve the preliminary title report unless it reveals a matter which, in the judgment of the City, could materially affect the City's use and enjoyment of any part of the property or easement covered by the preliminary title report. In the event the City does not approve the preliminary title report, the City shall not be obligated to accept title to such Facility and the City shall not be obligated to pay the Purchase Price for such Facility or Final Discrete Component thereof until the applicable Developer has cured such objections to title to the satisfaction of the City. Section 6.3 Facilities Constructed on Private Lands. A. Except as to any well sites or park facility subject to Section 6.3.B. below, if any Facilities to be acquired are located on privately-owned land, the owner thereof shall retain title to the land and the completed Facilities until acquisition of the Facilities under Article V hereof. Pending the completion of such transfer of title to land, the applicable Developer shall not be entitled to receive any payment for any such Facility or Final Discrete Component thereof. The applicable Developer shall, however, be entitled to receive payment for Discrete Components, other than the Final Discrete Component, upon making an irrevocable offer of dedication of such P6401.1032\835866.8 24 land in form and substance acceptable to the Director of Public Works. Notwithstanding the foregoing, upon written request of the Director of Public Works before payment for any Discrete Component of such a Facility, the applicable Developer shall convey or cause to be conveyed Acceptable Title thereto in the manner described in Sections 6.1 and 6.2 hereof. B. As to the well sites (identified as Items III.E.1.-4. on Exhibit A) and the park facilities (identified as Items VIII.A.-D. on Exhibit A), the City has agreed that the land acquisition for each such well site and each such park is a Discrete Component as shown on Exhibit B which may be subject to a separate Payment Request prior to the acquisition of the related water improvements or park improvements, respectively, but no payment for any such land acquisition shall be made unless the Developer responsible for such Discrete Component has conveyed or cause to be conveyed Acceptable Title thereto in the manner described in Sections 6.1 and 6.2 hereof. Section 6.4 Facilities Constructed on City Land. If the Facilities to be acquired are on land owned by the City, the City shall grant to the applicable Developer a license to enter upon such land for purposes related to the construction, and maintenance pending acquisition, of the Facilities. The provisions for inspection and acceptance of such Facilities otherwise provided herein shall apply. Section 6.5 Facilities to be Acquired by Other Public Agencies. With respect to any Facility to be acquired by a governmental entity other than the City, each Developer shall comply with such entity's rules and regulations regarding title and conveyance of property and provide the Director of Public Works with evidence of such compliance, prior to the payment of the Purchase Price for any such Facility or Final Discrete Component thereof Section 6.6 Maintenance and Warranties. Each Developer shall maintain each Discrete Component for which it is responsible in good and safe condition until the Acceptance Date of the Facility of which such Discrete Component is a part. Prior to the Acceptance Date, the applicable Developer shall be responsible for performing any required maintenance on any completed Discrete Component or Facility for which it is responsible. On or before the Acceptance Date of the Facility, the applicable Developer shall assign to the City all of the Developer's rights in any warranties, guarantees, maintenance obligations or other evidence of contingent obligations of third persons with respect to such Facility. The applicable Developer shall maintain or cause to be maintained each Facility to be owned by the City, including the repair or replacement thereof, for a period of one (1) year from the Acceptance Date thereof, or, alternatively, shall provide a bond reasonably acceptable in form and substance to the Director of Public Works for such period and for such purpose (specifically, a one-year maintenance period for landscaping improvements, and as to other Facilities, the posting of a warranty bond to remain in effect for one (1)year after the Acceptance Date thereof), to insure that defects, which appear within said period will be repaired, replaced, or corrected by the applicable Developer, at its own cost and expense, to the satisfaction of the Director of Public Works. The applicable Developer shall commence to repair, replace or correct any such defects within thirty (30) days after written notice thereof by the City to such Developer, and shall complete such repairs, replacement or correction as soon as practicable. After such one-year period, the City shall be responsible for maintaining such Facility. Any warranties, guarantees or other evidences of P6401.1032\835866.8 25 contingent obligations of third persons with respect to the Facilities to be acquired by the City shall be delivered to the Director of Public Works as part of the transfer of title. ARTICLE VII INSURANCE; RESPONSIBILITY FOR DAMAGE Section 7.1 Liability Insurance Requirements. Each Developer that is constructing Facilities shall procure and maintain insurance policies and provide to the Director of Public Works evidence of insurance and endorsements thereto on forms acceptable to the Risk Manager as provided below. A. Time for Compliance. Each Developer shall not commence any physical work on the Facilities for which such Developer is responsible until it has provided evidence satisfactory to the Risk Manager that it has secured all insurance required under this Section 7.1. In addition, no Developer shall allow any subcontractor to commence work on any subcontract until it has provided evidence satisfactory to the City that the subcontractor has secured all insurance required under this Section 7.1. B. Minimum Requirements. At its expense (but subject to reimbursement to the extent permitted as an Actual Cost), each Developer shall procure and maintain, until acceptance pursuant to the terms of this Acquisition Agreement of all Facilities for which such Developer is responsible, insurance against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the work covered by this Acquisition Agreement by such Developer, its agents, representatives, employees or subcontractors. Each Developer shall also require all of its subcontractors to procure and maintain the same insurance until acceptance (pursuant to the terms of this Acquisition Agreement) of all Facilities for which such Developer is responsible. Such insurance shall meet at least the following minimum levels of coverage: 1. Minimum Scope of Insurance. Coverage shall be at least as broad as the latest version of the following: (a) General Liability: Insurance Services Office Commercial General Liability coverage(occurrence form CG 0001); (b)Automobile Liability: Insurance Services Office Business Auto Coverage form number CA 0001, code 1 (any auto); (c) Workers' Compensation and Employers' Liability: Workers' Compensation insurance as required by the State of California and Employer's Liability Insurance; and (d)Builders'/All Risk: Builders'/All Risk insurance covering for all risks of loss, including explosion, collapse, underground excavation and removal of lateral support(and including earthquakes and floods if requested by the City). P6401.1032\835866.8 26 2. Minimum Limits of Insurance. Developer shall maintain limits no less than: (a) General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. The general aggregate limit shall apply separately to each construction contract for a Facility or Discrete Component thereof that is separately bid and shall be $2,000,000. If multiple Facilities are aggregated under one construction contract, the Risk Manager may in its sole discretion require a higher general aggregate limit; (b)Automobile Liability: $1,000,000 per accident for bodily injury and property damage; (c) Workers' Compensation and Employer's Liability: Workers' compensation limits as required by the Labor Code of the State of California. Employers Liability limits of$1,000,000 per accident for bodily injury or disease; and (d)Builders'/All Risk: Completed value of the project. C. Insurance Endorsements. The insurance policies shall contain the following provisions, or each Developer shall provide endorsements on forms supplied or approved by the Risk Manager to add the following provisions to its insurance policies: 1. General Liability. (a) The City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers shall be covered as additional insureds with respect to the construction of the Facilities or operations performed by or on behalf of the Developer, including materials, parts or equipment furnished in connection with such work; (b) the insurance coverage shall be primary and non- contributing insurance as respects the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents and volunteers, or if excess, shall stand in an unbroken chain of coverage excess of the Developer's scheduled underlying coverage; and (c) any failure to comply with reporting provisions of the policy shall not affect coverage provided to the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers. Any insurance or self- insurance maintained by the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers shall be excess of the Developer's insurance and shall not be called upon to contribute with it. 2. Automobile Liability. (a) The City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents and volunteers shall be covered as additional insureds with respect to the ownership, operation, maintenance, use, loading or unloading of any auto owned, leased, hired or borrowed by the Developer or for which the Developer is responsible; (b)the insurance coverage shall be primary insurance as respects the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers, or if excess, shall stand in an unbroken chain of coverage excess of the Developer's scheduled underlying coverage; and (c) any failure to comply with reporting provisions of the policy shall not affect coverage provided to the City, the District, and their respective Councilmembers, directors, officials, officers, • P6401.1032\835866.8 27 employees, consultants, agents, and volunteers. Any insurance or self-insurance maintained by the City, its directors, officials, officers, employees, consultants, agents and volunteers shall be excess of the Developer's insurance and shall not be called upon to contribute with it in any way. 3. Workers' Compensation and Employer's Liability Coverage. The insurer shall agree to waive all rights of subrogation against the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents and volunteers for losses paid under the terms of the insurance policy which arise from work performed by the Developer. 4. All Coverages. Each insurance policy required by this Acquisition Agreement shall be endorsed to state that: (a) coverage shall not be suspended, voided, reduced (in coverage or in limits) or canceled except after thirty (30) days prior written notice by certified mail, return receipt requested, has been given to the Risk Manager; and (b) any failure to comply with reporting or other provisions of the policies, including breaches of warranties, shall not affect coverage provided to the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers. Liability coverage shall not be limited to the vicarious liability or supervising role of any additional insured nor shall there be any limitation with the severability clause. Coverage shall contain no limitation endorsements and there shall be no endorsement or modification limiting the scope of coverage for liability arising from pollution, explosion, collapse, underground property damage or employment related practices. All liability insurance shall be on an occurrence basis. Insurance on a claims made basis will be rejected. There shall be no cross policy exclusion. E. Separation of Insureds;No Special Limitations. All insurance required by this Section 7.1 shall contain standard separation of insureds provisions. In addition, such insurance shall not contain any special limitations on the scope of protection afforded to the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers. F. Professional Liability Insurance. All architects, engineers, consultants or design professionals retained by any Developer shall also procure and maintain, for a period of five (5) years following acceptance (pursuant to the terms of this Acquisition Agreement) of all Facilities for which such Developer is responsible, errors and omissions liability insurance with a limit of not less than $1,000,000 per occurrence. G. Deductibles and Self-Insurance Retentions. Any deductibles or self- insured retentions must be declared to and approved by the Risk Manager. Each Developer shall guarantee that, at the option of the City, either: (1) the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects the City, the District, and their respective Councilmembers, officers, directors, officials, employees, consultants, agents, and volunteers; or (2) the Developer shall procure a bond guaranteeing payment of losses and related investigation costs, claims and administrative and defense expenses. P6401.1032\835866.8 28 H. Acceptability of Insurers. Insurance is to be placed with insurers authorized to do business in the State of California and with a minimum "Best's" Insurance Guide rating of"A+:VII." Self-insurance will not be considered to comply with these insurance specifications. I. Verification of Coverage. Each Developer shall furnish the City with certificates of insurance and endorsements, duly authenticated, evidencing coverage required by this Acquisition Agreement on forms satisfactory to the Risk Manager and with other evidence of coverage as may be reasonably required by the Risk Manager. The certificates and endorsements for each insurance policy shall be signed by a person authorized by that insurer to bind coverage on its behalf, and shall be on forms supplied or approved by the Risk Manager. All certificates and endorsements must be received and approved by the Risk Manager before work commences. The Risk Manager reserves the right to require complete, certified copies of all required insurance policies, at any time. J. Reduction, Cancellation, Void or Suspended Policy. In the event that any required insurance is reduced in coverage, canceled for any reason, voided or suspended, each Developer agrees that the City may arrange for insurance coverage as specified, and each Developer further agrees that administrative and premium costs may be deducted from any deposits or bonds the City may have, or from the Improvement Funds. A reduction or cancellation will be grounds for termination of this Acquisition Agreement as to the Developer whose insurance policy has been reduced or cancelled (but not as to the other Developer parties) and will cause a halt to payment for any Facilities or Discrete Components for which such non- compliant Developer is responsible until the insurance is reestablished. K. Subcontractors. All subcontractors shall meet the requirements of this Section 7.1 before commencing any physical work on the Facilities for which such Developer is responsible. In addition, each Developer shall include all subcontractors as insureds under its policies or shall furnish separate certificates and endorsements for each subcontractor, in form and substance acceptable to the Risk Manager, prior to the subcontractor entering the job site. All coverages for subcontractors shall be subject to all of the requirements stated herein. Each Developer may furnish insurance that meets all the specifications of this Section 7.1 to all of its subcontractors though use of a "Developer Controlled Insurance Program" or "Wrap-up" program, subject to approval by the Risk Manager. Section 7.2 Responsibility for Damage and Claims under Acquisition Agreement or CVWD JCFA. Each Developer shall take and assume all responsibility for the work performed as part of the Facilities for which it is responsible and constructed pursuant to this Acquisition Agreement or the CVWD JCFA. Each Developer shall bear all losses and damages directly or indirectly resulting to it, to the City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers, or to others on account of the performance or character of the work, unforeseen difficulties, accidents or with respect to the Facilities for which the Developer is responsible. Each Developer acknowledges the indemnification provisions set forth in this Section 7.2 constitute the indemnification, defense, and hold harmless provisions of the City and the District by Developer referred to in Section 2.4(f) of the CVWD JCFA. P6401.1032\835866.8 29 Each Developer and its successors and assigns shall assume the defense of, indemnify, protect and save harmless the City, the District, and each of their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers (each an "Indemnified Party"), and each and every one of them (including independent contractors who serve as the City's or District's officers or officials), from and against all actions, demands, damages, injuries, claims, losses, causes of action, liabilities, costs, or expenses of every type and description to which they may be subjected or put, whether known or unknown, existing or potential, anticipated or unanticipated, .in law or equity, to property or persons, including wrongful death, by reason of, or resulting or in any manner arising from or incident to, the performance by such Developer (or any of its officers, agents, servants, employees, subcontractors, materialmen, or suppliers) of its obligations under this Acquisition Agreement or the CVWD JCFA, the construction of the Facilities for which such Developer is responsible (including, but not limited to, failure of such Developer to pay any amount due to any contractor hired by such Developer for the construction of any Facility and any fines or penalties arising therefrom, and all damages to property or personal injury received by reason of, or in the course of, performing work, which may be caused by any willful or negligent act or omission by the Developer or any of the Developer's employees, or any subcontractor), the nature or physical condition of any Facilities constructed or caused to be constructed by such Developer, the presence of any hazardous materials on or in any land conveyed by such Developer to the City hereunder or to the CVWD hereunder and under the CVWD JCFA (but excluding hazardous materials which are introduced in or on such land by an Indemnified Party or after the expiration of the period for which such Developer is responsible for maintenance of the related Facility pursuant to Section 6.6. hereof), or an alleged misstatement or omission of fact relating to such Developer or its development of the property within the District in any official statement for the District or the Bonds (including, but not limited to, any statements regarding the presence of any hazardous materials or endangered species thereon or therein), including without limitation the payment of all consequential damages and attorneys' fees and other related costs and expenses. No provision of this Acquisition Agreement or the CVWD JCFA shall in any way limit the extent of any Developer's responsibility for payment of damages resulting from the operations of such Developer and its contractors; provided, however, that no Developer shall be required to indemnify an Indemnified Party as to damages resulting from the gross negligence or willful misconduct of an Indemnified Party in performing its obligations under this Acquisition Agreement or the CVWD JCFA. A Developer shall defend, at such Developer's own cost, expense and risk, any and all such aforesaid suits, actions or other legal proceedings of every kind that may be brought or instituted against the City or the District, or their respective directors, officials, officers, employees, consultants, agents or volunteers. A Developer shall pay and satisfy any judgment, award or decree that may be rendered against City or the District, or their Councilmembers, directors, officials, officers, employees, consultants, volunteers or agents, in any such suit, action or other legal proceeding. Each Developer shall reimburse City, the District, and their respective Councilmembers, directors, officials, officers, employees, consultants, agents and/or volunteers, for any and all legal expenses and costs incurred by each of them in connection therewith or in enforcing the indemnity herein provided. As a matter of clarification, this paragraph does not intend to make a Developer who otherwise would not be responsible for an indemnification, defense, payment, or reimbursement obligation of another Developer pursuant to the P6401.1032\835866.8 30 immediately preceding paragraph responsible for such indemnification, defense, payment, or reimbursement obligation of such other Developer. The City and District do not, and shall not, waive any rights against any Developer which either may have by reason of the aforesaid hold harmless agreements because of the acceptance by the City, or deposit with the City by such Developer of any insurance policies described in Section 7.1. The aforesaid hold harmless agreement by such Developer shall apply to all damages and claims for damages of every kind suffered, or alleged to have been suffered by reasons of any of the aforesaid operations of the Developer, or any subcontractor, regardless of whether or not such insurance policies are determined to be applicable to any of such damages or claims for damages. No act by the City, the District, or their respective representatives in processing or accepting any plans, in releasing any bond, in inspecting or accepting any work, or of any other nature, shall in any respect relieve any Developer or anyone else from any legal responsibility, obligation or liability it might otherwise have. The indemnification and hold harmless provisions of this Section 7.2 shall survive the termination of this Acquisition Agreement or the CVWD JCFA, the completion of construction of the Facilities, and the conveyance of title thereto to the City. ARTICLE VIII REPRESENTATIONS,WARRANTIES AND COVENANTS Section 8.1 Representations, Covenants and Warranties of the Developer. The Developer represents and warrants for the benefit of the City and the District as follows: A. Organization. (i) DW 237. DW 237 represents and warrants that it is a limited liability company duly organized and validly existing under the laws of the State of California, is qualified to do business in and is in compliance with all applicable laws of the State of California, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. (ii) Albor. Albor represents and warrants that it is a limited partnership duly organized and validly existing under the laws of the State of California, is qualified to do business in and is in compliance with all applicable laws of the State of California, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. (iii) PDFC. PDFC represents and warrants that it is a limited partnership duly organized and validly existing under the laws of the State of Delaware, is qualified to do business in and is in compliance with all applicable laws of the State of California, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. P6401.1032\835866.8 31 (iv) UV Partnership. UV Partnership represents and warrants that it is a general partnership duly organized and validly existing under the laws of the State of California, is qualified to do business in and is in compliance with all applicable laws of the State of California, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. (v) Shaw. Shaw represents and warrants that it is a limited liability company duly organized and validly existing under the laws of the State of California, is qualified to do business in and is in compliance with all applicable laws of the State of California, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. (vi) S&C. S&C represents and warrants that it is a limited liability company duly organized and validly existing under the laws of the State of California, is qualified to do business in and is in compliance with all applicable laws of the State of California, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. B. Authority. Each Developer represents and warrants that it has the power and authority to enter into this Acquisition Agreement, and has taken all action necessary to cause this Acquisition Agreement to be executed and delivered, and this Acquisition Agreement has been duly and validly executed and delivered by such Developer. C. Binding Obligation. Each Developer represents and warrants that this Acquisition Agreement is a legal, valid and binding obligation of such Developer, enforceable against such Developer in accordance with its terms, subject to bankruptcy and other equitable principles. D. Compliance with Laws. Each Developer shall not with knowledge commit, suffer or permit any act to be done in, upon or to the lands of such Developer in the District or the Facilities in violation of any law, ordinance, rule, regulation or order of any governmental authority or any covenant, condition or restriction now or hereafter affecting the lands in the District or the Facilities. E. Requests for Payment. Each Developer represents and warrants that (i) it will not request payment from the City or the District for the acquisition of any improvements that are not part of the Facilities, and (ii) it will diligently follow all procedures set forth in this Acquisition Agreement with respect to the Payment Requests. F. Financial Records. Until the date which is one (1) year following the final acceptance of the Facilities, each Developer covenants to maintain proper books of record and account for the construction of the Facilities for which such Developer is responsible and all costs related thereto. Such accounting books shall be maintained in accordance with generally accepted accounting principles, and shall be available for inspection by the City or its agent at any reasonable time during regular business hours on reasonable notice. G. Prevailing Wages. Each Developer covenants that, with respect to any contracts or subcontracts for the construction of the Facilities to be acquired from such Developer P6401.1032\835866.8 32 hereunder, it will assure complete compliance with any applicable law or regulation for the payment of prevailing wages. H. Plans. Each Developer represents that it has obtained or will obtain approval of the Plans for the Facilities to be acquired from such Developer hereunder from all appropriate departments of the City and from any other governmental entity or utility from which such approval must be obtained. Each Developer further agrees that the Facilities to be acquired from such Developer hereunder have been or will be constructed in full compliance with such approved plans and specifications and any supplemental agreements (change orders) thereto, as approved in the same manner. I. Land Owners. Each Developer agrees that in the event that it sells any land owned by it within the boundaries of the District, such Developer will (i) notify the City within thirty (30) days of the sale, in writing, identifying the legal name of and mailing address for the purchaser, the applicable County Assessor's Parcel Number or Numbers for the land sold and the acreage of the land sold, (ii) notify the purchaser in writing prior to the closing of any such sale of the existence of this Acquisition Agreement and, in general, such Developer's rights and obligations hereunder with respect to the construction of and payment for the Facilities, unless any such closing has occurred prior to the execution of this Acquisition Agreement, in which case such Developer shall provide such notification to the purchaser within thirty (30) days of the date hereof, and (iii) notify the purchaser in writing of the existence of the District and the special tax lien in connection therewith, and otherwise comply with any applicable provision of Section 53341.5 of the Act. J. Additional Information. Each Developer agrees to cooperate with all reasonable written requests for nonproprietary information by the original purchasers of the Bonds or the City related to the status of construction of improvements within the District, the anticipated completion dates for future improvements, and any other matter material to the investment quality of the Bonds. K. Continuing Disclosure. Each Developer agrees to comply with all of its obligations under any continuing disclosure agreement executed by it in connection with the offering and sale of any of the Bonds. L. Ownership By Affiliates. Each Developer agrees to provide to the City's Finance Director-Treasurer prior to the date of issuance of any series of the Bonds, on (or within five (5) business days of) July 1 of each year so long as the Bonds are outstanding, and on any other date upon three (3) business days' notice from the City's Finance Director-Treasurer, a written list of all Affiliates of such Developer which own or control the ownership of land located within the District, or which have options on land within the District, indicating the parcels of land by County Assessor's Parcel number of all such land so owned or optioned. • P6401.1032\835866.8 33 M. Certificate of Developer — Reasonable Expectation to Expend Bond Proceeds. As contemplated by Sections 5.1(j) and 6.1(f) of the Allocation Agreement, the Developer agrees with the City and District as follows: (i) As the Backbone Infrastructure, PDFC agrees to provide to the City, not later than four (4) business days after the execution of a final bond purchase contract relating to the sale of each series of Bonds and prior to the printing of a final official statement for such Bonds, a certificate substantially in the form of Exhibit L. (ii) As to Eligible Facilities other than Backbone Infrastructure (including without limitation Authorized Fees), each Developer agrees to provide to the City, not later than four (4) business days after the execution of a final bond purchase contract relating to the sale of each series of Bonds and prior to the printing of a final official statement for such Bonds, a certificate substantially in the form of Exhibit M identifying such Developer's Expected Facilities. ARTICLE IX TERMINATION Section 9.1 No Bonds. If, for any reason, the City does not cause the District to issue any of the Bonds by December 31, 2006, this Acquisition Agreement shall terminate and be null and void and of no further effect. Section 9.2 Mutual Consent. This Acquisition Agreement may be terminated by the mutual, written consent of the City, the District, and each Developer, in which event the City may let contracts for any remaining work related to the Facilities not theretofore acquired from the Developer hereunder, and use all or any portion of the monies in the Improvement Funds to pay for same, and no Developer shall have any claim or right to any further payments for the Purchase Price of Facilities or Discrete Components hereunder, except as otherwise may be provided in such written consent. Section 9.3 City Election for Cause. The following events shall constitute grounds for the City or the District, at the option of such party, to terminate this Acquisition Agreement as to any Developer involved in any such occurring event ("Defaulting Developer"), without the consent of such Defaulting Developer. If the Defaulting Developer is PDFC, the City and the District also shall be entitled to terminate this Acquisition Agreement as to all Developers, without any Developer's consent. If the Defaulting Developer is any Developer but PDFC, the City and the District shall not be entitled to terminate this Acquisition Agreement as to any non- defaulting Developer: A. Any Developer shall voluntarily file for reorganization or other relief under any Federal or state bankruptcy or insolvency law. B. Any Developer shall have any involuntary bankruptcy or insolvency action filed against it, or shall suffer a trustee in bankruptcy or insolvency or receiver to take possession of the assets of any Developer, or shall suffer an attachment or levy of execution to be made against P6401.1032\835866.8 34 the property any Developer owns within the District unless, in any of such cases, such circumstance shall have been terminated or released within thirty(30) days thereafter. C. Any Developer shall abandon construction of the Facilities for which it is responsible. Failure for a period of ninety (90) consecutive days to undertake substantial work related to the construction of the Facilities, other than for a reason specified in Section 9.4 hereof, shall constitute such abandonment. D. Any Developer shall breach any material covenant or default in the performance of any material obligation hereunder. E. Any Developer shall transfer any of its rights or obligations under this Acquisition Agreement in violation of the terms and conditions of this Acquisition Agreement. F. Any Developer shall have made any material misrepresentation or omission in any written materials furnished in connection with any preliminary official statement, official statement, continuing disclosure agreement, or bond purchase contract used in connection with the sale of the Bonds. G. Any Developer or any of its Affiliates shall at any time challenge the validity of the District or any of the Bonds, or the levy of Special Taxes within the District, other than on the grounds that such levy was not made in accordance with the terms of the Rate and Method of Apportionment of the Special Taxes for the District. If any such event occurs, the City or District shall give written notice of its knowledge thereof to the Defaulting Developer, and each Developer agrees to meet and confer with the Director of Public Works and other appropriate City staff and consultants within ten (10) days of its receipt of any such notice as to options available to assure timely completion of the Facilities. Such options may include, but not be limited to the termination of this Acquisition Agreement by the City or District as provided in this Section 9.3. If the City or the District elects to terminate this Acquisition Agreement as provided in this Section 9.3, such party shall first notify the Defaulting Developer (and any mortgagee or trust deed beneficiary specified in writing by such Defaulting Developer to the City and/or District to receive such notice) of the grounds for such termination and allow the Defaulting Developer a minimum of thirty (30) days to eliminate or mitigate to the satisfaction of the Director of Public Works the grounds for such termination. Such period may be extended, at the sole discretion of the City, if the Defaulting Developer, to the satisfaction of the City or District, is proceeding with diligence to eliminate or mitigate such grounds for termination. If at the end of such period (and any extension thereof), as determined solely by the City or District, the Defaulting Developer has not eliminated or completely mitigated such grounds, to the satisfaction of the City or District, the City or the District may then terminate this Acquisition Agreement with respect to such Defaulting Developer. Notwithstanding the foregoing, so long as any event listed in any of clauses A. through and including G. above has occurred, notice of which has been given by the City and the District to the Developer, and such event has not been cured or otherwise eliminated by the Defaulting Developer, the City or the District may in its respective discretion cease making payments under P6401.1032\835866.8 35 Article III or Article V hereof for the Purchase Price of any Facilities or Discrete Components for which the Defaulting Developer is responsible. Section 9.4 Force Majeure. Whenever performance is required of a party hereunder, that party shall use all due diligence and take all necessary measures in good faith to perform, but if completion of performance is delayed by reasons of floods, earthquakes or other acts of God, war, civil commotion, riots, strikes, picketing, or other labor disputes, damage to work in progress by casualty, or by other cause beyond the reasonable control of the party (financial inability excepted), then the specified time for performance shall be extended by the amount of the delay actually so caused. ARTICLE X MISCELLANEOUS Section 10.1 Limited Liability of City. Each Developer agrees that any and all obligations of the City or the District arising out of or related to this Acquisition Agreement are special and limited obligations of the City or the District, as applicable, and the City's and District's respective obligations to make any payments hereunder are restricted entirely to the moneys, if any, in the Improvement Funds, and from no other source. No member of the City Council or City or District staff member, employee or agent shall incur any liability hereunder to any Developer or any other party in their individual capacities by reason of their actions hereunder or execution hereof. Section 10.2 Excess Costs.Each Developer agrees to pay all costs of the Facilities that it is obligated to construct (pursuant to Section 4.3 or otherwise) in excess of the moneys available therefor in the Improvement Fund applicable to each such Facility. Section 10.3 Audit. The Director of Public Works and/or the City's Finance Director- Treasurer shall have the right, during normal business hours and upon the giving of five (5) business days prior written notice to any Developer, to review all books and records of such Developer pertaining to costs and expenses incurred by such Developer in to any of the Facilities, and any bids taken or received for the construction thereof or materials therefor. Section 10.4 Attorney's Fees. In the event that any action or suit arising out of this Acquisition Agreement is instituted by any party hereto against another party hereto, the party in whose favor final judgment shall be entered shall be entitled to recover from the other party all costs and expenses of suit, including reasonable attorneys' fees. Section 10.5 Notices. Any notice, payment or instrument required or permitted by this Acquisition Agreement to be given or delivered to a party shall be deemed to have been received when personally delivered, or transmitted by telecopy or facsimile transmission (which shall be immediately confirmed by telephone and shall be followed by mailing an original of the same within twenty-four (24) hours after such transmission), or seventy-two (72) hours following deposit of the same in any United States Post Office, registered or certified mail, postage prepaid, addressed as follows: P6401.1032\835866.8 36 City or District: City of Palm Desert 73-510 Fred Waring Drive Palm Desert, California 92260 Facsimile: (760) 776-6306 Attention: City Manager Developer DW 237: Desert Wells 237, LLC 5005 Calle San Raphael Suite B-1 Palm Springs, California 92664 Facsimile: (760) 778-4417 Attention: Michael Marix Albor: 2730 Wilshire Boulevard Suite 300 Santa Monica, California 90403 Facsimile: (310) 582-1999 Attention: Alan Borstein PDFC: Palm Desert Funding Company, LP 3 Civic Plaza Suite 215 Newport Beach, California 92660 Facsimile: (949) 644-7620 Attention: Tom Hover UV Partnership: The University Village Partnership 74-000 Country Club Drive Suite H-2 Palm Desert, California 92211 Facsimile: (760) 773-9903 Attention: Rick Evans Shaw: Shaw/Palm Desert 1,LLC 160 Newport Center Drive Suite 250 Newport Beach, California 92660 Facsimile: (949) 759-5619 Attention: Charles E. Crookall P6401.1032\835866.8 37 S&C: Sinatra& Cook Project, LLC 9777 Wilshire Boulevard Suite 918 Beverly Hills, California 90212 Facsimile: (323) 651-3118 Attention: Ryan Ogulnick Each party may change its address or addresses for delivery of notice by delivering ten (10) calendar days' prior written notice of such change of address to the other parties. Section 10.6 Severability. If any part of this Acquisition Agreement is held to be illegal or unenforceable by a court of competent jurisdiction, the remainder of this Acquisition Agreement shall be given effect to the fullest extent possible. Section 10.7 Successors and Assigns to Acquisition Agreement or Allocation Agreement. This Acquisition Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. Except for an assignment in whole or in part to an Affiliate or to another Developer party hereto or thereto, which shall not require the prior written consent of the City, neither this Acquisition Agreement nor the Allocation Agreement shall be assigned by any Developer without the prior written consent of the City and the District, which consent shall not be unreasonably withheld. In connection with any such consent of the City or the District, the City or the District, as applicable, may condition its consent upon the acceptability of the relevant experience and financial condition of the proposed assignee, the assignee's express assumption of all obligations of the applicable Developer hereunder, and/or upon any other factor which the City or District, as applicable, deems relevant in the circumstances. If any such factors may adversely affect the security for the Bonds, as determined by the City and the District, in their sole discretion after consultation with the City's and/or District's financial advisor, bond counsel, and underwriters, the City's withholding or conditions of such consent shall be deemed to be reasonable. In any event, any such assignment shall be in writing, shall clearly identify the scope of the rights and/or obligations assigned, and shall not be effective until approved in writing by the City and the District. No assignment, whether or not consented to by the City and the District, shall release any Developer from its obligations and liabilities under this Acquisition Agreement unless such release is expressly agreed to by the City and the District in writing, which shall not be unreasonably withheld. The provisions set forth in this Section 10.7 shall constitute terms of the prior written consent of the City referenced in Section 7.3 of the Allocation Agreement, relating to consent of parties to assumption of the Allocation Agreement by a buyer. Section 10.8 Other Agreements. The obligations of each Developer hereunder shall be those of a party hereto and not as an owner of property in the District. Nothing herein shall be construed as affecting the City's or any Developer's rights, or duties to perform their respective obligations, under other agreements, use regulations or subdivision requirements relating to the development of the lands in the District. This Acquisition Agreement shall not confer any additional rights, or waive any rights given, by either party hereto under any development or other agreement to which they are a party. P6401.1032\835866.8 38 Section 10.9 Waiver. Failure by a party to insist upon the strict performance of any of the provisions of this Acquisition Agreement by the other party, or the failure by a party to exercise its rights upon the default of the other party, shall not constitute a waiver of such party's right to insist and demand strict compliance by the other party with the terms of this Acquisition Agreement thereafter. Section 10.10 Merger; Entire Agreement. No other agreement, statement or promise made by any party or any employee, officer or agent of any party with respect to any matters covered hereby that is not in writing and signed by all the parties to this Acquisition Agreement shall be binding. Section 10.11 Parties in Interest. Nothing in this Acquisition Agreement, expressed or implied, is intended to or shall be construed to confer upon or to give to any person or entity other than the City, the District, and the Developer any rights, remedies or claims under or by reason of this Acquisition Agreement or any covenants, conditions or stipulations hereof; and all covenants, conditions, promises, and agreements in this Acquisition Agreement contained by or on behalf of the City, the District, or the Developer shall be for the sole and exclusive benefit of the City, the District, and the Developer. Section 10.12 Amendment of Acquisition Agreement or Allocation Agreement. A. This Acquisition Amendment may be amended, from time to time, by written Supplement hereto and executed by each of the City, the District, and the Developer. B. Each Developer agrees and covenants it shall not amend, supplement, or otherwise modify the Allocation Agreement (i) without the City's prior written consent, which consent shall not be unreasonably withheld, and (ii) except as expressly provided therein. [Remainder of Page Intentionally Left Blank] P6401.1032\835866.8 39 Section 10.13 Counterparts. This Acquisition Agreement may be executed in counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties have executed this Acquisition Agreement as of the day and year first-above written. CITY: CITY OF PALM DESERT By: Mayor DISTRICT: CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) By: Mayor of the City of Palm Desert DEVELOPER: DESERT WELLS 237, LLC, a California limited liability company By: Palm Desert 237, LLC, a California limited liability company Its: Manager By: Marix Family Limited Partnership, DW 237 a Delaware limited partnership Its: Manager By: Marix Family Trust dated as of October 12, 2000, as amended Its: General Partner By: Michael S. Marix Its: Sole Trustee [signatures continue on next page] P6401.1032\835866.8 40 ALBOR PROPERTIES HI, LP a California limited partnership By: Albor Properties, Inc., a California corporation Albor Its: General Partner By: Name: Alan S. Borstein Title: President PALM DESERT FUNDING COMPANY,LP, a Delaware limited partnership By: Palm Desert Funding Company, LLC, a Delaware limited liability company Its: General Partner PDFC By: Palm Desert Funding Company, Inc., a Delaware corporation Its: Member By: Name: Thomas I. Hover Title: Authorized Agent [signatures continue on next page] P6401.1032\835866.8 41 THE UNIVERSITY VILLAGE PARTNERSHIP, a California general partnership By: Evans University Village LLC, a California limited liability company Its: Partner By: The Evans Company LLC, a California limited liability company Its: Manager UV Partnership By: Frederick Oliver Evans, III Its: Member By: Edwards University Village LLC, a California limited liability company Its: Partner By: James W. Edwards, Jr. Its: Manager SHAW/PALM DESERT 1, LLC, a California limited liability company By: Shaw-CDK Properties, LLC, a California limited liability company Shaw Its: Manager By: Charles E. Crookall Its: Manager [signatures continue on next page] P6401.1032\835866.8 42 SINATRA & COOK PROJECT, LLC, A California limited liability company By: The Rancho Mirage Trust Its: Manager and Member By: Steven Gilfenbain Its: Trustee By: Ryan Ogulnick Its: Member and Manager By: Fordar, LLC, S&C A California limited liability company Its: Member and Manager By: Kambiz Kamdar Its: Manager By: Fred Kamdar Its: Member By: Joseph Foroosh, D. Its: Member P6401.1032\835866.8 43 ACQUISITION AGREEMENT EXHIBIT A DESCRIPTION OF AUTHORIZED FACILITIES ELIGIBLE FOR ACQUISITION FROM THE DEVELOPER The public facilities(the"Facilities") described below are authorized to be financed by the CFD and include a pedestrian bridge, traffic signals, landscaping, street improvements, water improvements, well site improvements and land acquisition, sewer improvements, storm drain improvements, utility improvements, public art improvements, park improvements, and park site land acquisition, together with all appurtenances and appurtenant work, such as related clearing and grubbing, grading, and any removal or temporary signage or markings related thereto. The cost of the Facilities shall include incidental expenses, including costs associated with forming the CFD, issuance of bonds, determination of the amount of the Special Tax, collection of the Special Tax, payment of the Special Tax, costs incurred in order to carry out the authorized purposes of the CFD, and the costs of engineering, inspecting, coordinating, completing, planning and designing the Facilities, including the costs of environmental evaluations. The Facilities include, but shall not be limited to,the facilities listed below, and other facilities of the same type or types may be substituted in the place of one or more of the specific facilities listed below. Any of the Facilities to be constructed shall be constructed, whether or not acquired in their completed states, pursuant to plans and specifications approved by the City of Palm Desert (or the Coachella Valley Water District, as applicable)and the officials thereof, including the City Engineer. The final nature and location of the Facilities will be determined upon the preparation of final plans and specifications for such Facilities. The Facilities may include facilities financed pursuant to public agency development impact fees. The Facilities marked with a single asterisk are Backbone Infrastructure. I.* One half of Cook Street Pedestrian Bridge(including, but not limited to bridge, ADA access ramps, elevator, retaining walls, hand railing, pedestrian lighting, revised sidewalks and minor grading) II. Street Improvements(including, but not limited to, street widening, excavation, signing and striping, access ramps, street and slope grading(including soil transport, fill and compaction), median and parkway landscaping, curbs and gutters, sidewalks, retaining walls, street lights, dry utility infrastructure, bus stops, fringe toed lizard fee and City fees) A.* Frank Sinatra Drive: from West of Cook Street to College Drive B.* Cook Street: from Frank Sinatra Drive to Gerald Ford Drive C.* Portola Avenue: from South of College Drive to Gerald Ford Drive D.* Southern half of Gerald Ford Drive: from Portola Avenue to Cook Street E.* University Park Drive: from College Drive to Cook Street F.* Technology Drive: from College Drive to Gerald Ford Drive G.* Pacific Avenue: from College Drive to Gerald Ford Drive H.* College Drive: from Portola Avenue to Frank Sinatra Drive P6401.1032\835866.8 A-1 I. In-tract streets J. City Fees, including TUMF Fees, Fringe Toed Lizard Fees, Drainage Fees, Signal Fees, and Art in Public Places Fees. III. Water Improvements A.* University Park Drive: from West intersection College Drive to East intersection College Drive; and Stand-Alone Connections(hot taps)into Gerald Ford Drive and Cook Street, as necessary B.* Technology Drive: from College Drive to Gerald Ford Drive C.* Pacific Avenue: from College Drive to Gerald Ford Drive D.* College Drive: from Portola Avenue to Frank Sinatra Drive E.* Well Sites(including land acquisition and improvements)to be located at four sites to be determined by the Coachella Valley Water District concurrently with land plan, final tentative map(s), or similar document(s) (as appropriate)to be approved by the City's Planning Commission and City Council. The tentatively approved locations of the well sites are as follows: 1.* Adjacent to Gerald Ford Drive between Pacific Avenue and Technology Drive; 2.* Northeast corner of College Drive and Portola Avenue; 3.* Adjacent to University Park Drive close to the western intersection with College Drive; and 4.* Adjacent to College Drive South of University Park Drive F. In-tract water facilities G. CVWD Water Capacity Fees and CVWD Water Supplemental Fees IV. Traffic Signals A.* The intersection of Cook Street/Gerald Ford Drive(modified) B.* The intersection of Cook Street/University Park Drive(modified) C.* The intersection of Frank Sinatra Drive/College Drive D.* The intersection of Portola Avenue/College Drive E.* Signals to be located on the south side of the intersection of Gerald Ford Drive/Pacific Avenue F.* Signals to be located on the south side of the intersection of Gerald Ford Drive/Technology Drive G.* Signals to be located on the south side of the intersection of Gerald Ford Drive/Portola Avenue(cost participation only) V. Sewer Improvements A.* Technology Drive: from College Drive to Gerald Ford Drive; and Stand-Alone Connections into Gerald Ford Drive and Cook Street B.* Pacific Avenue: from College Drive to Gerald Ford Drive P6401.1032\835866.8 A-2 C.* College Drive: from West of the Western intersection University Park Drive to Technology Drive to North of Frank Sinatra Drive D.* University Park Drive: from West intersection College Drive to Southwest of West intersection of College Drive and West of the Eastern intersection College Drive to the Eastern intersection College Drive E. In-tract sewer improvements F. CVWD Sewer Connection Fees VI. Storm Drain Improvements A.* Pacific Avenue: Catch basins, on both Pacific Avenue and south half of Gerald Ford Drive, and interim-condition retention basins on the east and west sides of Pacific, adjacent to Gerald Ford Drive; and Portola Avenue: Catch basin to catch basin(bubbler)crossing the intersection of College Drive, and catch basin to catch basin(bubbler)crossing the intersection of Gerald Ford Drive B.* College Drive: Catch basins and interim-condition retention basin on the southwest corner of College Drive and University Park Drive(west intersection); catch basins on the east and west sides of the intersection with Technology Drive and a permanent retention basin along Technology Drive; and a catch basin and interim-condition retention basin on the east side of College Drive south of the east intersection with University Park Drive C.* University Park Drive: Catch basin s on the east and west sides of University Park Drive at the west intersection with College Drive and an interim-condition retention basin in the southwestern corner of the intersection as indicated above under VI.B; catch basins on the north and south sides of University Park Drive and an interim-condition retention basin in the northwest quadrant of the east intersection of College Drive and University Park Drive; and, as indicated above under VI.B., a catch basin and interim-condition retention basin on the south side of University Park Drive, west of Cook Street D.* Technology Drive: Catch basins on the east and west sides of Technology Drive and an interim-condition retention basin west of Technology Drive and south of Gerald Ford Drive E.* Gerald Ford Drive: Catch basin and interim condition retention basin on the south side of Gerald Ford Drive, west of Pacific Avenue; catch basins to drywells located in permanent small depressions, four(4)locations, between the sidewalk and right of way on the south side of Gerald Ford Drive between Pacific Avenue and Technology Drive; and, as indicated above under VI.D., catch basin and interim-condition retention basin west of Technology Drive F.* Cook Street: As indicated above under VI.B., catch basin and interim-condition retention basin south of University Park Drive, west side of Cook Street and catch basin and interim-condition retention basin between Frank Sinatra Drive and University Park Drive; and Frank Sinatra Drive: Catch basin to catch basin(bubbler) crossing the intersection of College Drive G. In-tract storm drains P6401.1032\835866.8 A-3 VII. Utilities Improvements A.* Frank Sinatra Drive: from West of Cook Street to College Drive B.* University Park Drive: from West intersection College Drive to Cook Street C.* Technology Drive: from College Drive to Gerald Ford Drive D.* Pacific Avenue: from College Drive to Gerald Ford Drive E.* College Drive: from Portola Avenue to Frank Sinatra Drive F.* Southern half of Gerald Ford Drive: from Technology Drive to Pacific Avenue VIII. Park Improvements and Park Site Land Acquisition(including, but not limited to, site development, lighting and landscaping improvements, restroom facilities, age-appropriate tot lots, sand volleyball and basketball facilities, picnic pavilions, greenspace(including without limitation greenspace large enough for sports activities), shade structures, walking paths, water spray features, dog park improvements, and parking improvements) A.* Park A(approximately 2 acres)—Generally surrounded by Portola Avenue, College Drive, Pacific Avenue and Gerald Ford Drive B.* Park B (approximately 4.5 acres)—Generally surrounded by Gerald Ford Drive, Pacific Avenue, College Drive and to the west of the intersection of College Drive and University Park Drive C.* Park C (approximately 2.3 acres)—Located in the southwest corner of the west intersection of University Park Drive and College Drive D.* Park D(approximately 2.8 acres)—Generally surrounded by College Drive and University Park Drive IX. Landscaping(includes all planting, irrigation, trees, and necessary hardscape/rocking) A.* All street median areas as well as parkway areas(listed under Section II)between the back of curb and gutter and street right of way (excluding the sidewalk)will be landscaped. P6401.1032\835866.8 A-4 ACQUISITION AGREEMENT EXHIBIT B DESCRIPTION OF ELIGIBLE DISCRETE COMPONENTS OF FACILITIES FA BACKBONE ILITIES C ESTIMATED PAID" `:>.<,`"»:.a>>:: STREETS' DISCRETE COMPONENTS COST ( .) ................. ................ ....:............ I. Cook Street (from Gerald Ford Dr.to Frank Sinatra Dr.) A. Gradingof slopes7 >'street and adjacent 92 18 J e $ soil transport, ortfill and compaction) n 2 B. Agg r e ate base and paving (1 st lift)street 297,370 > improvements,curb&gutter C. Traffic signals(not including signals on the north 111,090 IN half of theintersection of Cook Street&Gerald d Ford o d Drive) D. Si dewalk S dewalk 85,668 • g3 E. Landscaping3 447,713 `> 4 4 F. ofpedestrian bri e 1 460 500 s an d P , Subtotal: $2,494 528 ......>:::::;:.;.,:. ,. .. .. * As stated in Section 4.8,and subject to the terms and conditions, of this Acquisition Agreement,payment for a particular Facility or Discrete Component (except Items IX.A., IX.C., IX.E., IX.G. (Well Site — Land Acquisition)and Items X.A., X.C.,X.E.,and X.G. (Parks—Land Acquisition))may exceed, and is not limited to, the dollar amount shown in the "Estimated Costs" Column on this Exhibit B. The RBF Report is dated September 22,2005,and was based on preliminary plans for the Eligible Facilities available as of such date. In certain instances (such as with the storm drain improvements listed in Item VI.D.), a particular Discrete Component of a Facility was not yet identified as of the date of the RBF Report, resulting in an "Estimated Cost" shown for such Discrete Component of$0. The "Estimated Cost" shown on this Exhibit B does not include consultant costs and fees payable in connection with each Facility and Discrete Component,which are a part of the Actual Cost of the Facility and are estimated in the RBF Report to add an average of approximately 13%to such Estimated Cost. ' When portions of multiple streets are listed under a single roman numeral heading, the"Discrete Component" consists of the installation of the particular improvement for all such portions of multiple streets, and reimbursement shall not be paid until the applicable improvement has been installed for all such portions of multiple streets under a single heading. For instance, reimbursement is only available for the Discrete Component listed as item III.C. when all of the sewer improvements for College Drive (from Portola Ave. to Pacific Ave.) and Pacific Avenue (from College Dr. to Gerald Ford Dr.)have been installed and completed pursuant to the terms of this Acquisition Agreement. 2 This grading Discrete Component is not part of the single mass-grading contract. 3 For items listed under the roman numeral headings I. through VIII. above, landscaping is eligible for reimbursement only if installed on City-owned property. Eligible landscaping consists of street median areas as well as parkway areas between the back of the curb and gutter and within the street right-of-way(excluding the sidewalk). Landscaping of homeowners association-owned slopes or other privately-owned property is not eligible for reimbursement from proceeds of the Bonds. ' The City shall be responsible for the construction of the pedestrian bridge, and such construction shall be funded in part with monies deposited to the Cook Street Pedestrian Bridge Subaccount of the Backbone Infrastructure Account of the City Facilities Fund, which the parties hereto agree shall be in the amount of $1,500,000,notwithstanding the estimate in the RBF Report of$1,460,500. P6401.1032\835866.8 B-1 BACKBONE FACILITIES ESTIMATED PAID' STREETS' DISCRETE COMPONENTS COST' (q) III. South half of Gerald Ford Drive (from Cook St. to Portola Ave A. Grading of south half of street and adjacent $ 553,755 slopes to the south of street(including soil transport,fill,and compaction)Z•5 B. Storm drain improvements which include all of 18,589 the following:5'6 • Catch basins to drywells located in permanent small depressions, four(4) locations,between the sidewalk and right of way on the south side of Gerald Ford Drive between Pacific Avenue and Technology Drive C. Storm drain improvements which include all of 18,589 the following:5 6 • catch basin on the south side of Gerald Ford ... ..:.::.::.:. .:: Drive,west of Pacific Avenue • interim condition retention basin on the south side of Gerald Ford Drive,west of Pacific Avenue D. Joint trench for dry utilities 5'7 181,012 E. Aggregate base and paving(1st lift)street 914,748 improvements for the south half of the street,and curb&gutter along south half of street5 F. Traffic signals along south half of street5 451,766 G. Sidewalk aloLi8 south half of street5 187,604 H. Landscaping' 895,426 Subtotal: $3,221,489 5 The District is authorized to finance/reimburse the improvements along the south half of Gerald Ford Drive only, and not along the north half of Gerald Ford Drive. The north half of Gerald Ford Drive is subject to a separate Road Improvement Agreement dated as of December 22, 2005, by and among the City, PDFC, and Palm Desert North 80, LLC, a California limited liability company, whereby Palm Desert North 80, LLC, agrees to pay for the improvement of the north half of Gerald Ford Drive,with the possibility of reimbursement from a future community facilities district,if formed,encompassing the property north of Gerald Ford Drive. 6 As with other Discrete Components,catch basins may only be reimbursed when they are capable of serviceable use, as determined at the sole discretion of the Director of Public Works. Typically, this means the ultimate improvement to which catch basin waters flow(such as a retention basin),must have been accepted(pursuant to the terms of this Acquisition Agreement)by the City previously or concurrently with the catch basin. ' Pursuant to federal tax laws and regulations,the aggregate amount which may be spent on construction costs for all dry utilities(joint trench)(Items II.D.,III.F.,IV.G.,V.G.,VI.F.,and VIII.C.),which are privately-owned, is limited to 5%of monies initially deposited to the Improvement Funds. P6401.1032\835866.8 B-2 BACKBONE FACILITIES ;:.»>:: ESTIMATED PAID' STREETS' DISCRETE COMPONENTS COST` (q) III. College Drive(from Portola Ave. to Pacific Ave.) & Pacific Avenue(from College Dr. to Gerald Ford Dr.)' ::` «.:..:::>:s A. Grading of streets and adjacent slopes(including $ 546,210 soiltransport,fill and compaction) a .:::. ........ B. Retaining walls adjacent to street right-of-way 0 . rimprovements 154,982 C Sewe improvementswhich include all f 20 859 ::::::<::::::::>:::>`= D. Storm drain w c c ude o f11 •the o ow in6 g • catch basin on the west of Pacific Avenue,e 1 adjacent to Gerald Ford Drive • an interim condition retention basin on the west side of Pacific,adjacent to Gerald Ford Driv e m n 519 678 r <>E. Water improvements ate o ve P for utilities' 140 639 >:f>:: F. Joint trencho dry u t es , rpaving(1stlift) <>:: Aggregate ate base andstreet 708 099 imProvemanis curb&gutte r H. Traffic signals(parts and installation) 133,308 I. Sidewalk 202,572 M. J. Landsca m 3 895,426 p. :...:;....�. : .:....... :. .. ... :. .. . i Subtotal: $3,321,773 ::<' IV. College Drive(from Pacific Ave. to Technology Dr.) & Technology Drive (from College Dr. to Gerald Ford Dr.)' A. Grading of streets and adjacent slopes(including $ 546,210 210 soiltransport fill>and compaction)!)s ::"1," "Fi::ii:nwV44Il :l: B. Retaining walls adjacent to street right-of-way ht-of-wav 473 984 ` C Sewer improvements 124,718 D. Stormdrain improvements which all of 13,096 '". include > the following 6 • catch basin on the east of Pacific Avenue, adjacent to Gerald Ford Drive J • interim condition retention basin on the east side of Pacific Avenue, adjacent to Gerald Ford Drive B Pre-Formation Facility. Such grading has been performed under a single mass-grading contract and is reimbursable on a pro rata basis by Discrete Component,based on the ratio of cubic yards attributable to such Discrete Component over the aggregate cubic yards subject to the single mass-grading contract. P6401.1032\835866.8 B-3 BACKBONE FACILITIES ESTIMATED PAID* STREETS' DISCRETE COMPONENTS COST' (J) E. Storm drain improvements which include all of 13,096 the following:6 • catch basins on the east and west sides of the intersection of College Drive&Technology Drive • interim condition retention basin west of Technology Drive and south of Gerald Ford Drive • permanent condition retention basin along Technology Drive 9 946 rimprovements0 F. Wate 5 G. Joint trench for dry utilities' 142,060 H. Aggregate base and paving(1st lift)street 688,228 <><` improvements,curb&gutter I. Traffic signals(parts anddinstallation) 0"J. Sidewalk 233,745 .::.::: .:. ..:..:. K. Landscain 609,472 Subtotal: S3,354,555 V. University Park Drive (from College Dr. (west intersection) to Cook St.) & College Drive (from University Park Dr. (east intersection)to Technology Dr.)' A. Gradingof streets and adjacent slo es (including ing $ 667,590 590 <»< soiltransport,fill and compaction) n s 2 488 416 Retaining wallsadjacentright-of-way B. to street , : ><3 C. Sewer improvements rim r m n 132,752 ...is P D. Storm drain improvements which include e all of 12 495 the following:6 • catch basins on the southwest and southeast corner of College Drive&UniversityPark Drive(west intersection) • interim condition retention basin on the southwest corner of College Drive& UniversityPark Drive(westestintersest intersection) E. Stormimprovements drain im rovements which include all of 12,495 6 fll the o ow in g• • catch basins on the north and south sides of Park Drive University ar an interim-condition retention basin in the >_ of northwestquadrantof intersection the east College Drive&UniversityPark Drive F. Water improvements 426,718 i. G. Joint trench for dry utilities' 176,809 H. Aggregate base and paving(1st lift)street 887,190 «< < improvements,curb&gutter I. Traffic signals(parts and installation) P6401.1032\835866.8 B-4 BACKBONE FACILITIES ESTIMATED P:%ID* STREETS' DISCRETE COMPONENTS COST* (J) J. Sidewalk 277,698 _ K. Landscaping 609,472 ;; Subtotal: $5,691,635 : VI. College Drive (from University Park Dr. (east intersection)to Frank Sinatra Drive. " : A. Gradingof street and slopes (including $ 262,990 € ' adjacentP fill,and compaction) s soil transport, P ) 1adjacentright-of-way 0>- B R 'nin wal s to street Retaining C. Sewer 93 004 1 1 f 0 D. Storm drain improvements which me ude al o to the follow in 6 • catch basin on the east side of College Drive, south of the east intersection of College Drive&University Park Drive • interim condition ndition retention basin on the east e side of College Drive south of the east intersection ection of College e Drive&Universi ty y Pa rk Drive E. Water improvements 304,298 F. Joint trench for utilities 275,948 'Jo 7 paving (1stlift)street 4 9 063 G. Aggregate base andst ee gutter im improvements,curb& e P g : ::<::::<:»::>::> >:::::::;::::>:: :> H. de i walk 99,196 ;';<<. S • I. Landscaping3 m 394,364 '' '. ... . ...:.::::.: Subtotal: $1 908 863 . ...... .... VII. Portola Avenue(from College Drive to Gerald Ford Drive) AGradin ofstreet and adjacent slopes(including $ 41,094 < <{ soil transport,ort fill,and compaction)2 z B. Storm drain improvements which include all of 32,068 > i» the following 6 • catch basin to catch basin(bubbler)crossing the intersection of Portola Avenue&College Drive h 1 catch basin to catc basin(bubbler)crossing theintersection P 1 Av n r ofPortola Avenue&Gerald FordDrive D ve C. Aggregate base and paving(1st lift) street 307 149 •`€<>< improvements, &gu tter o e e curb e P � � ,�.:.:I�I,::.I(),It,llfll;11s1 .1111'I I,i IIII lttll 11 � M,..:stt :: D. Traffic signalsincluding g(not signals on the north 0 halfof intersection P 1 Av n '' thePortola Avenue&Gerald Ford Drive a 9 E. Sde a i w lk 4 620 € €>€ • 3 >:: F. Lands in 154,256 r'ca ..: P g ;; Subtotal: $584,187 <`:>;.. .... ..: >. P6401.1032\835866.8 B-5 .................................................................. BACKBONE FACILITIES ESTIMATED , PAID" STREETS' DISCRETE COMPONENTS COST* (4) VIII. Frank Sinatra Drive (from College Drive to Cook Street) A. Grading of street and adjacent slopes (including $ 5,546 soil transport,fill,and compaction)2 improvementshi h include all of 2,473 <> Storm drain � c c ude B. the following:6 • catch basin along Cook Street,between >':a Park FrankSinatraDrive ar a and Driv e interim condition retention basin along Cook Street,between Frank Sinatra Drive and University Park Drive • catch basin to catch basin(bubbler)crossing the intersection of Colle a Drive >> C. Joint tr n h for�'YuU'li utilities' 296 240 > <:: , D. Aggregate base and paving(1st lift)street 24,852 <:<.: improvements,curb&gutter E. Traffic signals 266,616 F. Sidewalk 0' :. G. Landscaping3 25,000 Subtotal: $620,727 IX. Well Sites9 . , A. Well Site No. 1 —Land Acquisition $ 300,0009 iigli..i Tentatively Approved Location: Adjacent to Gerald Ford Drive,between Pacific Avenue and Technology Drive ..':•" B. Well Site No. 1 —Water Improvements 111,090 Tentatively Approved Location: Adjacent to Gerald Ford Drive,between Pacific €g Avenue Technology e ue andDrive C. Well Site No. 2—Land Acquisition9 300 0009 :::: Tentatively Approved Location: Northeast corner of College Drive and Portola Avenue D. Well Site No. 2—Water Improvements 111,090 Tentatively Approved Location: Northeast corner of College Drive and Portola Avenue 9 Well Site land acquisition is eligible for reimbursement only when Acceptable Title to such land has been accepted (pursuant to the terms of this Acquisition Agreement and CVWD JCFA,as applicable)by the CVWD or other governmental entity who will own the corresponding well site, and documentation satisfactory to the Director of Public Works has been provided,evidencing such acceptance. Amount in"Estimated Cost"column represents"Actual Cost" for such land acquisition, as previously agreed to by each affected Developer and as set forth in the RBF Report. P6401.1032\835866.8 B-6 BA KB NE FACILITIES C O ESTIMATED PAID STREETS' DISCRETE COMPONENTS COST (4) E. Well Site No. 3 —Land Acquisition 300,0009 Tentatively Approved roved Location: Adjacent to University Park rk Drive close to the western intersection with College Drive 111 0 0 <<1 3Water9 F. We 1 Stte No. Tentative]Y PP Approved ved Location: AdjacentUniversity to Park Drive close to the western int rsecti n with College Dri ve G. Well Site No. 4-Land Acquisition 300,0009 HHL Tentatively Approved Location: Adjacent to College Drive,south of University Park Drive H. Well Site No. 4—Water Improvements 111,090 Tentatively Approved Location: Adjacent to College Drive,south of University Park Drive Subtotal: $1,644,360 X. Parks A. Park A(approximately 2 acres) Land 1 285 714 10 ( P Y , ,P Acquisition'° 3° Location: surrounded byPort o1 a Avenue, College Drive,Pacific Avenue,and Gerald Ford Drive 10 Park site land acquisition is eligible for reimbursement only when Acceptable Title to such land has been accepted (pursuant to the terms of this Acquisition Agreement) by the City. Amount in "Estimated Cost" column represents "Actual Cost" for such land acquisition, as previously determined by the City and the Developer in accordance with Chapter 26.48 of the City Municipal Code, adopted pursuant to the Quimby Act (Government Code Section 66477). P6401.1032\835866.8 B-7 BACKBONE FACILITIES ESTIMATED PA I D" STREETS' DISCRETE COMPONENTS COST' ('l) B. Park A(approximately 2 acres)—Park 551,000" Improvements Improvements include,without limitation, site gomminogimil development, lighting and landscaping improvements, restroom facilities,tot lot appropriate for ages 2-5 with shade structures,tot lot appropriate for ages 5-12 with shade structures, sand volleyball facilities,basketball facilities,picnic pavilions(shade structures, grills,benches,and tables),greenspace, and walking paths" Location: Generally surrounded by Portola Avenue, College Drive, Pacific Avenue,and Gerald Ford Drive io 4 5 r 2,700,000 Park B(approximatelyac es Land C. Acquisiti �o Acquisition Location: Generally surrounded by Gerald Ford Drive, Pacific Avenue, College Drive,and to the west of the intersection of College Drive and University Park Drive " The applicable Developers' obligations under Chapter 26.48 of the City Municipal Code,adopted pursuant to the Quimby Act(Government Code Section 66477,will be satisfied by the provision of the park lands identified under heading X.of this Exhibit B and the improvements thereupon as required by the Plans for such parks,which include but are not limited to the park improvements described under heading X. of this Exhibit B, without regard to the actual costs incurred by the Developer for such improvements. Based on recent City park projects, the City's current estimates for the costs to provide the requisite improvements are$750,000 per acre,which are significantly higher than the respective estimates set forth in the RBF Report and in the"Estimated Costs"column of this Exhibit B. P6401.1032\835866.8 B-8 BACKBONE FACILITIES < ::»;:>:: ESTIMATED giiii PAID STREETS' DISCRETE COMPONENTS COST (4) D. Park B(approximately 4.5 acres)—Park 799,500 ImProvements limi i site n in l tatn o Im r v me is ude without c P oe development, lighting an d landscaping ili i 1 r r mf testotot im r m nts est oo ac P ove e , , a propriate for ages2-5 with shade st ructures,tot with for5 12 w t shade lot appropriate o ages a o PP P 1l facilities, k v ba basketball sand volleyball structures, 11 Y h re facilities,iespicnic pavilions (shade structures, c g b nh and tables),water spray es im greens ace(including without limitation 1or similar n largeenough forbasebal s ar reesaceeou g Pg 11 sports activities),and walking paths Location: Generallysurrounded byGerald Ford Drive,Pacific Avenue, College 118ee Drive,and to the is:: ,:::;:;:::::.:::::...«>;::, »:.;:;;: west of the intersection of College Drive and University Park Drive E Park C(approximately Proximate1 23 acres) Land 1n0714 1 A9s i itoi n 0 c u rn rof Location: Located in the southwest co e the west intersection of University Park Drive and College Drive F. Park C(approximately 2.3 acres)—Park 360,87511 T r m Im ove an is P 1 limitation i Im •r m nts me ud without tatio site P ove e e , , development, lighting and landscaping ing improvements,parkinglot an�Ygate drinki ng g foun tains,ms small dogPark andlarge dogPark improvem ents, perimeter fencing andfenci ng between small dogPark and largedogPark d rest area with shade structures,picnic benches , and tablesIl Locatedin southwestcorner of the Location: the 0 westint intersection ct i on of University Park Dri ve d < > ' << <<] < < : CollegaDrive,P6401.1032\835866.8 B-9 BACKBONE FACILITIES ESTIMATED PAID' STREETS1 DISCRETE COMPONENTS COST' (I) G. Park D (approximately 2.8 acres)—Land 1,607,1431° Acquisition'° Location: Generally surrounded by College Drive and University Park Drive H. Park D(approximately 2.8 acres)—Park 659,80011 " >.' .. Improvements Improvements include,without limitation,site development, lighting and landscaping improvements,restroom facilities,tot lot appropriate for a es 2-5 with shade structures,tot g lot appropriate for ages 5-12 with shade structures, sand volleyball facilities,basketball facilities,picnic pavilions(shade structures, grills,benches,and tables),greenspace,and walking paths" Location: Generally surrounded by College Drive and University Park Drive Subtotal: $9,571,17511 MEiMIARE TOTAL ESTIMATED COSTS-BACKBONE INFRASTRUCTURE: $32,413,29212 , In-Tract Facilities, including Authorized Fees: As to Eligible Facilities other than Backbone Infrastructure, there are no Discrete Components, and Eligible Facilities are as set forth in Exhibit A. However, Authorized Fees may be subject to Payment Requests as they are paid or, after the issuance of Bonds, as they are due, subject to the frequency limitation set forth in Section 5.6.E. and the other terms and conditions of this Acquisition Agreement. 12 Does not include costs of consultants or related fees,which are estimated in the RBF Report to add an average of approximately 13%to such Estimated Cost. According to Section 2.1(b)of the Allocation Agreement,the aggregate estimated costs of the backbone facilities,as substantiated by the RBF Report,is$36,620,346. P6401.1032\835866.8 B-10 ACQUISITION AGREEMENT EXHIBIT C FORM OF PAYMENT REQUEST—Facilities and Discrete Components PAYMENT REQUEST NO. The undersigned (the "Developer"), hereby requests payment in the total amount of $ for the Facilities (as defined in the Acquisition Agreement, dated as of March 23, 2006, among the City of Palm Desert (the "City"), the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"), and the Developer, as more fully described in Attachment I hereto. In connection with this Payment Request, the undersigned hereby represents and warrants to the City and the District as follows: 1. The Undersigned is a duly authorized officer of the Developer, qualified to execute this Payment Request for payment on behalf of the Developer and is knowledgeable as to the matters set forth herein. 2. To the extent that this payment request is with respect to a completed Facility, the Developer has submitted or submits herewith to the City as-built drawings or similar plans and specifications for the items to be paid for as listed in Attachment 1 hereto with respect to any such completed Facility, and such drawings or plans and specifications, as applicable, are true, correct and complete. To the extent that this payment request is for a Discrete Component, the Developer has in the Developer's construction office a marked set of drawings or similar plans and specifications for the Discrete Components to be acquired as listed in Attachment 1 hereto, which drawings or plans and specifications, as applicable, are current and show all changes or modifications which have been made to date. 3. All costs of the Facilities or Discrete Components thereof for which payment is requested hereby are Actual Costs (as defined in the Agreement referenced above) and have not been inflated in any respect. The items for which payment is requested have not been the subject of any prior payment request submitted to the City or District. 4. Supporting documentation (such as third party invoices) is attached with respect to each cost for which payment is requested. 5. There has been compliance with applicable laws relating to prevailing wages for the work to construct the Facilities or Discrete Components thereof for which payment is requested. 6. The Facilities or Discrete Components thereof for which payment is requested were constructed in accordance with all applicable City or other governmental standards, and in accordance with the as-built drawings or plans and specifications, as applicable, referenced in paragraph 2 above. 7. The Developer is in compliance with the terms and provisions of the Acquisition Agreement and no portion of the amount being requested to be paid was previously paid. P6401.1032\835866.8 C-1 8. The Purchase Price for each Facility or Discrete Component thereof(a detailed calculation of which is shown in an Attachment 2 hereto for each such Facility or Discrete Component thereof), has been calculated in conformance with the terms of Section 5.6 of the Acquisition Agreement. 9. Neither the Developer nor any Affiliate(as defined in the Acquisition Agreement) is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the District (as defined in the Acquisition Agreement), except as follows: I hereby declare that the above representations and warranties are true and correct. DEVELOPER: CITY: Payment Request Approved for Submission to the Finance Director-Treasurer of the City of Palm Desert By: Name: Its: By: Director of Public Works Date: Date: P6401.1032\835866.8 C-2 ATTACHMENT 1 EXHIBIT C [list here all Facilities or Discrete Components thereof for which payment is requested, and attach support documentation] • P6401.1032\835866.8 C-1-1 ATTACHMENT 2 EXHIBIT C CALCULATION OF PURCHASE PRICE. [Use a separate sheet for each Facility or Discrete Component for which payment is being requested] 1. Description(by reference to Exhibit B to the Acquisition Agreement)of the Facility or Discrete Component 2. Actual Cost(list here total of supporting invoices and/or other documentation supporting determination of Actual Cost): $ 3. Subtractions from Purchase Price: A. Holdback for Lien releases (see Section 5.6.C. of the Acquisition Agreement) $ B. Retention(see Section 5.6.D. of the Acquisition Agreement) $ 4. Total disbursement requested (amount listed in 2, less amounts, if any, listed in 3) $ P6401.1032\835866.8 C-1-2 ACQUISITION AGREEMENT EXHIBIT D FORM OF PAYMENT REQUEST—Authorized Fees PAYMENT REQUEST NO. The undersigned (the "Developer"), hereby requests payment in the total amount of $ for Authorized Fees (as defined in the Acquisition Agreement, dated as of March 23, 2006, among the City of Palm Desert (the "City"), the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "District"), and the Developer, as more fully described in Attachment 1 hereto. In connection with this Payment Request, the undersigned hereby represents and warrants to the City and the District as follows: 1. The Undersigned is a duly authorized officer of the Developer, qualified to execute this Payment Request for payment on behalf of the Developer and is knowledgeable as to the matters set forth herein. 2. All costs of the Authorized Fees thereof for which payment is requested hereby are Actual Costs (as defined in the Agreement referenced above) and have not been inflated in any respect. The items for which payment is requested have not been the subject of any prior payment request submitted to the City or District. 3. Supporting documentation (such as third party invoices) is attached with respect to each cost for which payment is requested. 4. The Developer is in compliance with the terms and provisions of the Acquisition Agreement and no portion of the amount being requested to be paid was previously paid. 5. Neither the Developer nor any Affiliate(as defined in the Acquisition Agreement) is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the District (as defined in the Acquisition Agreement), except as follows: 6. The City is requested to cause the District to make payment with respect to such Authorized Fees to: [circle one] • [the undersigned Developer(as reimbursement for Authorized Fees already paid — receipt(s)of payment are attached)] • [directly to the City of Palm Desert] • [directly to the Coachella Valley Water District] P6401.1032\835866.8 D-1 I hereby declare that the above representations and warranties are true and correct. DEVELOPER: CITY: Payment Request Approved for Submission to the Finance Director-Treasurer of the City of Palm Desert By: Name: Its: By: Director of Public Works Date: Date: P6401.1032\835866.8 D-2 O 4110 ATTACHMENT 1 EXHIBIT D [list here all Authorized Fees for which payment is requested, and attach support documentation] P6401.1032\835866.8 D-1-1 O ACQUISITION AGREEMENT EXHIBIT E CITY OF PALM DESERT PUBLIC WORKS CONTRACTS AND BIDDING REQUIREMENTS [See attached] P6401.1032\835866.8 E-1 ACQUISITION AGREEMENT EXHIBIT F FORM OF PAYMENT BOND Bond No. PAYMENT BOND (LABOR AND MATERIALS) CITY OF PALM DESERT— MELLO-ROOS ACT BOND FORM KNOW ALL PERSONS BY THESE PRESENTS that: WHEREAS [name of developer] ("Developer")has awarded to (Name,address,and telephone number of Contractor) ("Principal"), a contract(the "Contract")for the work described as follows: WHEREAS, Principal is required under the terms of the Contract, the Mello-Roos Community Facilities Act of 1982, and the California Civil Code to secure the payment of claims of laborers, mechanics, materialmen,and other persons as provided by law. NOW,THEREFORE,we,the undersigned Principal,and (Name,address,and telephone number of Surety) ("Surety")a duly admitted surety insurer under the laws of the State of California, as Surety,are held and firmly bound unto Developer,the City of Palm Desert, and the City of Palm Desert Community Facilities District No. 2005-1 (University Park)in the penal sum of Dollars ($ ), this amount being not less than one hundred percent (100%) of the total contract price, in lawful money of the United States of America, for the payment of which sum well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally,firmly by these presents. THE CONDITION OF THIS OBLIGATION IS SUCH THAT, if the hereby bounded Principal, his, her or its heirs, executors, administrators, successors or assigns, or subcontractors shall fail to pay any of the P6401.1032\835866.8 F-1 persons named in Section 3181 of the California Civil Code, or any amounts due under the Unemployment Insurance Code with respect to work or labor performed under the Contract, or for any amounts required to be deducted, withheld, and paid over to the Employment Development Department from the wages of employees of the Principal and subcontractors pursuant to Section 13020 of the Unemployment Insurance Code, with respect to work or labor performed under the Contract, the Surety will pay for the same in an amount not exceeding the penal sum specified in this bond; otherwise, this obligation shall become null and void. This bond shall inure to the benefit of any of the persons named in Section 3181 of the California Civil Code so as to give a right of action to such persons or their assigns in any suit brought upon the bond. In case suit is brought upon this bond, Surety further agrees to pay all court costs and reasonable attorneys' fees in an amount fixed by the court. FURTHER,the Surety,for value received,hereby stipulates and agrees that no change, extension of time, alteration, addition or modification to the terms of the Contract, or of the work to be performed thereunder, or the specifications for the same, shall in any way affect its obligations under this bond, and it does hereby waive notice of any such change, extension of time, alteration, addition, or modification to the terms of the Contract or to the work or to the specifications thereunder. Surety hereby waives the provisions of California Civil Code §§ 2845 and 2849. IN WITNESS WHEREOF, two (2) identical counterparts of this instrument, each of which shall for all purposes be deemed an original hereof, have been duly executed by Principal and Surety, on the date set forth below,the name of each corporate party being hereto affixed and these presents duly signed by its undersigned representative(s)pursuant to authority of its governing body. Dated: "Principal" "Surety" By: By: Its Its By: By: Its Its (Seal) (Seal) Note: This bond must be executed in duplicate and dated,all signatures must be notarized, and evidence of the authority of any person signing as attorney-in-fact must be attached. P6401.1032\835866.8 F-1 ACQUISITION AGREEMENT EXHIBIT G FORM OF CONTRACTOR PERFORMANCE BOND Bond No. CONTRACTOR PERFORMANCE BOND CITY OF PALM DESERT— MELLO-ROOS ACT BOND FORM KNOW ALL PERSONS BY THESE PRESENTS that: WHEREAS [name of developer] ("Developer")has awarded to (Name,address,and telephone number of Contractor) ("Principal"), a contract(the"Contract")for the work described as follows: WHEREAS, Principal is required under the terms of the Contract to furnish a bond for the faithful performance of the Contract. NOW,THEREFORE,we,the undersigned Principal,and (Name,address,and telephone number of Surety) ("Surety")a duly admitted surety insurer under the laws of the State of California, as Surety,are held and firmly bound unto Developer, the City of Palm Desert (the "City"), and the City of Palm Desert Community Facilities District No. 2005-1 (University Park)(the"CFD")in the penal sum of Dollars ($ ), this amount being not less than the total contract price, in lawful money of the United States of America, for the payment of which sum well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally, firmly by these presents. THE CONDITION OF THIS OBLIGATION IS SUCH THAT, if the hereby bounded Principal, his, her or its heirs, executors, administrators, successors or assigns, shall in all things stand to and abide by, and well and truly keep and perform all the undertakings,terms, covenants, conditions and agreements in the Contract and any alteration thereof made as therein provided, on the Principal's part to be kept and P6401.1032\835866.8 G-1 performed, all within the time and in the manner therein specified, and in all respects according to their true intent and meaning, and shall indemnify and hold harmless the City and the CFD, and their respective officers,agents, and others as therein provided,then this obligation shall become null and void; otherwise, it shall be and remain in full force and effect. In case suit is brought upon this bond, Surety further agrees to pay all court costs and reasonable attorneys' fees in an amount fixed by the court. FURTHER,the Surety,for value received,hereby stipulates and agrees that no change, extension of time, alteration, addition or modification to the terms of the Contract, or of the work to be performed thereunder, or the specifications for the same, shall in any way affect its obligations under this bond, and it does hereby waive notice of any such change, extension of time, alteration, addition, or modification to the terms of the Contract or to the work or to the specifications thereunder. Surety hereby waives the provisions of California Civil Code §§2845 and 2849. Each of the City and the CFD is a principal beneficiary of this bond and has all rights of a party thereto. IN WITNESS WHEREOF, two (2) identical counterparts of this instrument, each of which shall for all purposes be deemed an original hereof, have been duly executed by Principal and Surety, on the date set forth below,the name of each corporate party being hereto affixed and these presents duly signed by its undersigned representative(s)pursuant to authority of its governing body. Dated: "Principal" "Surety" By: By: Its Its By: By: Its Its (Seal) (Seal) Note: This bond must be executed in duplicate and dated,all signatures must be notarized,and evidence of the authority of any person signing as attorney-in-fact must be attached. P6401.1032\835866.8 G-2 ACQUISITION AGREEMENT EXHIBIT H FORM OF REQUEST FOR TRANSFER OF MONIES — Backbone Infrastructure REQUEST FOR TRANSFER OF MONIES— Backbone Infrastructure Pursuant to Section 3.3.B. of the Acquisition Agreement dated as of March 23,2006(the "Acquisition Agreement")by and among the City of Palm Desert(the"City"),the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"),and the undersigned(the "Developer"),the Developer hereby represents,warrants,and certifies as follows: 1. The undersigned is a duly authorized officer of the Developer,qualified to execute this Request for Transfer of Monies on behalf of the Developer,and is knowledgeable as to the matters set forth herein. 2. The Developer is in compliance with the terms and provisions of the Acquisition Agreement. 3. Neither the Developer nor any Affiliate is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the District,except as follows: 4. The Actual Costs of the Backbone Infrastructure to be owned by either the City or the Coachella Valley Water District vary from the estimates in the RBF Report dated as of September 22, 2005,and such difference results in a projected surplus in the Backbone Infrastructure Account of the [(circle one:) City Facilities Fund/CVWD Facilities Fund] while resulting in a projected deficit in the Backbone Infrastructure Account of the [(circle one:) City Facilities Fund/CVWD Facilities Fund]. THEREFORE,the undersigned Developer hereby requests the City to cause the District to transfer monies between Backbone Infrastructure Accounts of the Improvement Funds as follows: [Check one and complete as necessary:] Developer requests a transfer of all of the monies in the Backbone Infrastructure Account of the City Facilities Fund(but excluding monies within the Gerald Ford(South)Landscaping Subaccount and the Cook Street Pedestrian Bridge Subaccount therein)to the Backbone Infrastructure Account of the CVWD Facilities Fund. Developer requests a transfer of $ of the monies in the Backbone Infrastructure Account of the City Facilities Fund(but excluding monies within the Gerald Ford(South) Landscaping Subaccount and the Cook Street Pedestrian Bridge Subaccount therein)to the Backbone Infrastructure Account of the CVWD Facilities Fund. Developer requests a transfer of all of the monies in the Backbone Infrastructure Account of the CVWD Facilities Fund to the Backbone Infrastructure Account of the City Facilities Fund. Developer requests a transfer of $ of the monies in the Backbone Infrastructure Account of the CVWD Facilities Fund to the Backbone Infrastructure Account of the City Facilities Fund. P6401.1032\835866.8 H-1 Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Acquisition Agreement. I hereby declare that the above representations and warranties are true and correct. DEVELOPER: CITY: Request for Transfer of Monies Approved for Submission to the Finance Director-Treasurer of the City of Palm Desert: By: Name: By: Its: Director of Public Works Date: Date: P6401.1032\835866.8 H-2 ACQUISITION AGREEMENT EXHIBIT I FORM OF REQUEST FOR TRANSFER OF MONIES—Developer Subaccounts REQUEST FOR TRANSFER OF MONIES—Developer Subaccounts Pursuant to Section 3.3.C. of the Acquisition Agreement dated as of March 23, 2006 (the "Acquisition Agreement")by and among the City of Palm Desert(the"City"), the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"), and the undersigned(the"Developer"), the Developer hereby represents, warrants, and certifies as follows: 1. The undersigned is a duly authorized officer of the Developer, qualified to execute this Request for Transfer of Monies on behalf of the Developer, and is knowledgeable as to the matters set forth herein. 2. The Developer is in compliance with the terms and provisions of the Acquisition Agreement. 3. Neither the Developer nor any Affiliate is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the District, except as follows: 4. Of the Eligible Facilities for which the Developer is responsible, the Developer has previously identified in a Developer Tax Certificate, provided pursuant to Section 8.1 of the Acquisition Agreement, certain Expected Facilities to be constructed with certain proceeds of the issuance of special tax bonds by the District(the"Bonds"). As a result and in accordance with the Acquisition Agreement, proceeds of the Bonds were deposited into subaccounts of the Other Facilities Accounts of the City Facilities Fund and the CVWD Facilities Fund to correspond with the estimated costs of such Expected Facilities. 5. Over the course of construction, the sequence of costs incurred by the Developer with respect to Eligible Facilities has deviated from the assumptions made at the time of the aforementioned Developer Tax Certificate in such a way that a transfer of monies between the subaccounts of the Improvement Funds would expedite the expenditure of proceeds of the Bonds. (E.g.,the Expected Facilities consisted of Eligible Facilities to be owned by the CVWD (or Authorized Fees of the CVWD), but now costs are expected to be incurred earlier for Facilities to be owned by the City(or Authorized Fees of the City), or vice versa.) P6401.1032\835866.8 I-1 THEREFORE,the undersigned Developer hereby requests the City to cause the District to transfer monies between subaccounts of the Other Facilities Accounts of the Improvement Funds as follows: **NOTE: TRANSFERS MAY ONLY BE REQUESTED BETWEEN SUBACCOUNTS BEARING THE SAME ACCOUNT NAME. E.G.,A "DW 237"SUBACCOUNT MAY ONLY TRANSFER TO ANOTHER"DW 237"SUBACCOUNT. [Check one and complete as necessary:J Developer requests a transfer of all of the monies in the [(circle one:)DW 237/ PDFC/UV/SHAW/ S&C ] Subaccount (City Facilities) of the Other Facilities Account of the City Facilities Fund to the [(circle one.)DW 237 /PDFC/UV/ SHAW/ S&C ] Subaccount (CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund. Developer requests a transfer of $ of the monies in the [(circle one:)DW 237/PDFC/UV/SHAW/ S&C ] Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund to the [(circle one)DW 237/PDFC/UV/ SHAW/ S&C ] Subaccount (CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund. Developer requests a transfer of all of the monies in the [(circle one:)DW 237/ PDFC /UV/ SHAW/ S&C ] Subaccount(CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund to the [(circle one:)DW 237/PDFC/UV/ SHAW/ S&C ] Subaccount (City Facilities)of the Other Facilities Account of the City Facilities Fund. Developer requests a transfer of $ of the monies in the [(circle one.)DW 237/PDFC/UV/SHAW/ S&C ] Subaccount (CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund to the [(circle one:)DW 237/PDFC /UV/ SHAW/ S&C ] Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Acquisition Agreement. I hereby declare that the above representations and warranties are true and correct. DEVELOPER: CITY: Request for Transfer of Monies Approved for Submission to the Finance Director-Treasurer of the City of Palm Desert: By: Name: By: Its: Director of Public Works Date: Date: P6401.1032\835866.8 1-2 ACQUISITION AGREEMENT EXHIBIT J FORM OF REQUEST FOR TRANSFER OF MONIES—Gerald Ford (South) Landscaping Subaccount REQUEST FOR TRANSFER OF MONIES—Gerald Ford (South) Landscaping Subaccount Pursuant to Section 3.3.D. of the Acquisition Agreement dated as of March 23, 2006(the "Acquisition Agreement")by and among the City of Palm Desert(the"City"),the City of Palm Desert Community Facilities District No. 2005-1 (University Park)(the"District"),and the undersigned(the "Developer"),the Developer hereby represents,warrants,and certifies as follows: 1. The undersigned is a duly authorized officer of the Developer,qualified to execute this Request for Transfer of Monies on behalf of the Developer,and is knowledgeable as to the matters set forth herein. 2. The Developer is in compliance with the terms and provisions of the Acquisition Agreement. 3. Neither the Developer nor any Affiliate is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the District,except as follows: 4. The Developer has installed all landscaping improvements for the south half of Gerald Ford Drive generally described as(i)the full width of median landscaping improvements within Gerald Ford Drive from the intersection with Portola Avenue to the intersection with Cook Street and(ii)the landscaping improvements within the public right-of-way along the south half of Gerald Ford Drive from the intersection with Portola Avenue to the intersection with Cook Street,all in accordance with the City- approved Plans therefor. 5. The Developer has received all payments pursuant to all of Developer's Payment Requests relating to such landscaping improvements in accordance with the Acquisition Agreement. THEREFORE,the undersigned Developer hereby requests the City to cause the District to transfer all of the monies remaining in the Gerald Ford(South)Landscaping Subaccount of the Backbone Infrastructure Account of the City Facilities Fund to [Check one:J the Backbone Infrastructure Account of the City Facilities Fund. _ the Backbone Infrastructure Account of the CVWD Facilities Fund. In accordance with Section 3.9.D. of the Acquisition Agreement,the undersigned Developer hereby certifies that all City Backbone Infrastructure has been completed,that all Payment Requests with respect to such and the Purchase Prices for all City Backbone Infrastructure have been paid pursuant to the terms of the Acquisition Agreement. P6401.1032\835866.8 J-1 Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Acquisition Agreement. I hereby declare that the above representations and warranties are true and correct. DEVELOPER: CITY: Request for Transfer of Monies Approved for Submission to the Finance Director-Treasurer of the City of Palm Desert: By: Name: By: Its: Director of Public Works Date: Date: P6401.1032\835866.8 J-2 O ACQUISITION AGREEMENT EXHIBIT K FORM OF REQUEST FOR TRANSFER OF MONIES— Surplus Backbone to Developer Subaccounts REQUEST FOR TRANSFER OF MONIES— Surplus Backbone to Developer Subaccounts Pursuant to Section 3.3.E. of the Acquisition Agreement dated as of March 23, 2006(the "Acquisition Agreement")by and among the City of Palm Desert(the"City"),the City of Palm Desert Community Facilities District No. 2005-1 (University Park)(the"District"),and the undersigned(the "Developer"),the Developer hereby represents,warrants,and certifies as follows: 1. The undersigned is a duly authorized officer of the Developer,qualified to execute this Request for Transfer of Monies on behalf of the Developer,and is knowledgeable as to the matters set forth herein. 2. The Developer is in compliance with the terms and provisions of the Acquisition Agreement. 3. Neither the Developer nor any Affiliate is in default in the payment of ad valorem real property taxes or special taxes or special assessments levied in the District,except as follows: 4. [Check one, as applicable:] Palm Desert Funding Company,LP,a Delaware limited partnership,and/or its permitted successors and assigns pursuant to the terms of the Acquisition Agreement,has/have completed all City Backbone Infrastructure in accordance with the Plans therefor(except(i)the Cook Street pedestrian bridge identified as Item I. on Exhibit A and as Item I.F. on Exhibit B of the Acquisition Agreement, which shall be constructed directly by the City),and PDFC has received all payments pursuant to all Payment Requests of PDFC relating to all such City Backbone Infrastructure in accordance with the Acquisition Agreement. Palm Desert Funding Company,LP,a Delaware limited partnership,and/or its permitted successors and assigns pursuant to the terms of the Acquisition Agreement,has/have completed all CVWD Backbone Infrastructure in accordance with the Plans therefor,and evidence of the CVWD's concurrence with such completion of all CVWD Backbone Infrastructure is attached hereto. Further, PDFC has received all payments pursuant to all Payment Requests of PDFC relating to all CVWD, Backbone Infrastructure in accordance with the Acquisition Agreement. [DOCUMENTATION OF CVWD'S CONCURRENCE WITH COMPLETION OF ALL CVWD BACKBONE INFRASTRUCTURE MUST BE ATTACHED,IF THIS ITEM IS CHECKED.] P6401.1032\835866.8 K-1 O THEREFORE,the undersigned Developer hereby requests the City to cause the District to transfer all of the monies in the Backbone Infrastructure Account of the [Check one:J City Facilities Fund(but excluding monies within the Gerald Ford(South)Landscaping Subaccount and the Cook Street Pedestrian Bridge Subaccount therein) CVWD Facilities Fund in the following percentages(which total 100%)to the respectively marked subaccounts,as follows: • 56.217%to the [Check one:] DW 237 Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund DW 237 Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund • 28.862%to the [Check one:] PDFC Subaccount(City Facilities) of the Other Facilities Account of the City Facilities Fund PDFC Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund • 3.758%to the [Check one:] UV Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund UV Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund • 2.654%to the [Check one:J Shaw Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund Shaw Subaccount(CVWD Facilities)of the Other Facilities Account of the CVWD Facilities Fund • 8.509%to the [Check one:] S&C Subaccount(City Facilities)of the Other Facilities Account of the City Facilities Fund S&C Subaccount(CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund P6401.1032\835866.8 K-2 Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Acquisition Agreement. I hereby declare that the above representations and warranties are true and correct. DEVELOPER: CITY: Request for Transfer of Monies Approved for Submission to the Finance Director-Treasurer of the City of Palm Desert: By: Name: By: Its: Director of Public Works Date: Date: P6401.1032\835866.8 K-3 • ACQUISITION AGREEMENT EXHIBIT L FORM OF DEVELOPER TAX CERTIFICATE—Backbone Infrastructure 2006 In connection with the proposed issuance of the $ * Special Tax Bonds, Series (the "Bonds"). of City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "District"), Palm Desert Funding Company, LP ("Developer"), a limited partnership duly organized and operating under the laws of the State of Delaware, acting through its undersigned authorized representative,hereby states and certifies as follows: (i) The Developer has received final bond pricing terms of Stinson Securities LLC and/or Kinsell,Newcomb&De Dios, Inc., underwriters to the District, which set forth the aggregate amount of proceeds of the Bonds to be deposited to the Improvement Funds. (ii) The Developer and the City of Palm Desert, pursuant to the terms of the Allocation Agreement, have determined the respective amounts to deposited to the Backbone Infrastructure Accounts of the Improvement Funds (collectively, the "Available Backbone Infrastructure Funds"), which are as set forth in the Indenture relating to the Bonds and any applicable Supplemental Indenture. (iii) The Developer intends and reasonably expects to submit Payment Requests for Actual Costs of Facilities constituting Backbone Infrastructure, pursuant to the terms of the Acquisition Agreement, for amounts equivalent to the Available Backbone Infrastructure Funds within three years of the date of issuance of the Bonds(currently projected issue date: ,2006). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Acquisition Agreement dated as of March 23, 2006, by and among the City of Palm Desert, the District, Desert Wells 237, LLC, a California limited liability company, Albor Properties III, LP, a California limited partnership, Palm Desert Funding Company, LP, a Delaware limited partnership, The University Village Partnership, a California general partnership, Shaw/Palm Desert 1, LLC,a California limited liability company,and Sinatra&Cook Project,LLC,a California limited liability company, and if not defined therein, then in the Bond Indenture by and between the District and Wells Fargo bank, National Association,as Trustee,dated as of April 1, 2006. IN WITNESS WHEREOF,Developer has caused this Certificate to be executed by its authorized representative on the date first written above. DEVELOPER: PALM DESERT FUNDING COMPANY,LP, a Delaware limited partnership By: Name: Its: Authorized Representative Preliminary;subject to change. P6401.1032\835866.8 L-1 ACQUISITION AGREEMENT EXHIBIT M FORM OF DEVELOPER TAX CERTIFICATE—In-Tract Facilities/Authorized Fees , 2006 In connection with the proposed issuance of the $ * Special Tax Bonds, Series (the "Bonds"). of City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the"District"), ("Developer"), a duly organized and operating under the laws of the State of , acting through its undersigned authorized representative, hereby states and certifies that it intends and reasonably expects to expend any proceeds of the Bonds allocated for the financing of Eligible Facilities for which such Developer is responsible for the following facilities(the"Expected Facilities"): In addition, the Developer hereby certifies that such identified Expected Facilities have been financed, or based on the Developer's reasonable expectation will be financed, within three years of the date of issuance of the Bonds(currently projected issue date: , 2006). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Acquisition Agreement dated as of March 23, 2006, by and among the City of Palm Desert, the District, Desert Wells 237, LLC, a California limited liability company, Albor Properties III, LP, a California limited partnership, Palm Desert Funding Company, LP, a Delaware limited partnership, The University Village Partnership, a California general partnership, Shaw/Palm Desert 1, LLC, a California limited liability company, and Sinatra & Cook Project,LLC, a California limited liability company. IN WITNESS WHEREOF, Developer has caused this Certificate to be executed by its authorized representative on the date first written above. DEVELOPER: a By: Name: Its: Authorized Representative •Preliminary;subject to change. P6401.1032\835866.8 M-1 Jones Hall Draft 2/27/06 PRELIMINARY OFFICIAL STATEMENT DATED , 2006 NEW ISSUE-FULL BOOK ENTRY NOT RATED In the opinion of Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel, based on existing law and assuming compliance with certain covenants set forth in the documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the "Code"), as described herein, interest on the Bonds is not included in gross income of the owners thereof for federal income tax purposes. In the opinion of Bond Counsel, interest on the Bonds is not treated as an item of tax preference for the purposes of the federal alternative minimum tax imposed on individuals and corporations. Interest on the Bonds may be subject to certain federal taxes imposed on corporations, including the corporate alternative minimum tax on a portion of that interest. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. See"TAX MATTERS" herein." $50,000,000* CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS SERIES 2006A Dated: Date of Delivery Due: September 1,as shown below The bonds captioned above (the "Bonds"), are being issued by the City of Palm Desert (the "City") by and through its Community Facilities District No. 2005-1 (University Park) (the "District"). The Bonds are special tax obligations of the City, authorized pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, being California Government Code Section 53311, et seq. (the"Act"), and are issued pursuant to a Indenture dated as of April 1, 2006 (the "Indenture") by and between the City and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Bonds are issued to (i) construct and acquire certain public facilities of benefit to the District; (ii) provide for the establishment of a Reserve Account, (iii) provide capitalized interest, and (iv) pay the costs of issuance of the Bonds. Interest on the Bonds is payable on September 1, 2006, and thereafter semiannually on March 1 and September 1 of each year. The Bonds are being issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York("DTC"), and will be available to ultimate purchasers in the denomination of$5,000 or any integral multiple thereof, under the book-entry system maintained by DTC. See "APPENDIX G — BOOK- ENTRY SYSTEM." The Bonds are secured by and payable from a pledge of Net Taxes (as defined herein) derived from Special Taxes to be levied by the City on real property within the boundaries of the District, from the proceeds of any foreclosure actions brought following a delinquency in the payment of the Special Taxes, and from amounts held in certain funds under the Indenture, all as more fully described herein. Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within the District. In the event of delinquency, proceedings may be conducted only against the parcel of real property securing the delinquent Special Tax. There is no assurance the owners will be able to pay the Special Tax or that they will pay a Special Tax even though financially able to do so. To provide funds for payment of the Bonds and the interest thereon as a result of any delinquent Special Taxes, the City will establish a Reserve Account from proceeds of the Bonds, as described herein. See "SECURITY FOR THE BONDS." Property in the District subject to the Special Tax comprises approximately 267 acres planned to be developed into approximately 1,053 single family residential homes, 268 condominium units and, to a lesser extent, commercial uses. The land is currently undeveloped. See "THE DISTRICT" and "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT." The Bonds are subject to optional and mandatory redemption prior to maturity as described herein. See "THE BONDS—Redemption." NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS DO NOT CONSTITUTE A DEBT OF THE CITY WITHIN THE MEANING OF ANY STATUTORY OR CONSTITUTIONAL DEBT LIMITATION. THE INFORMATION SET FORTH IN THIS OFFICIAL STATEMENT, INCLUDING INFORMATION UNDER THE HEADING"SPECIAL RISK FACTORS,"SHOULD BE READ IN ITS ENTIRETY. This cover page contains certain information for general reference only. It is not a summary of all of the provisions of the Bonds. Prospective investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. See "SPECIAL RISK FACTORS"herein for a discussion of the special risk factors that should be considered, in addition to the other matters and risk factors set forth herein, in evaluating the investment quality of the Bonds. MATURITY SCHEDULE* Maturity Date Principal Interest Price or CUSIPt (September 1) Amount Rate Yield ( ) $ % Term Bond Due September 1, Price: % CUSIP: $ % Term Bond Due September 1, Price: % CUSIP: t Copyright 2006,American Bankers Association. CUSIP data herein are provided by Standard&Poors CUSIP Service Bureau,a division of The McGraw-Hill Companies,Inc.,and are provided for convenience of reference only. Neither the City nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data. The Bonds are offered when, as and if issued, subject to approval as to their legality by Richards, Watson & Gershon, a Professional Corporation, Los Angeles, California, Bond Counsel. Certain legal matters will be passed on by Jones Hall, a Professional Law Corporation, San Francisco, California, as Disclosure Counsel. Certain legal matters will be passed upon for the City by the City Attorney. It is anticipated that the Bonds will be available for delivery to DTC on or about , 2006 in New York, New York. Stinson Securities, LLC Kinsell Newcomb & DeDios, Inc. The date of this Official Statement is , 2006. * Preliminary, subject to change. CITY OF PALM DESERT, CALIFORNIA City Council James Ferguson, Mayor Richard Kelly, Mayor Pro Tem Jean M. Benson, Councilmember Buford Crites, Councilmember Robert A. Spiegel, Councilmember City Staff Carlos L. Ortega, City Manager Justin McCarthy, Assistant City Manager/Redevelopment Homer Croy, Assistant City Manager Development Services Sheila R. Gilligan, Assistant City Manager Community Services Paul S. Gibson, Finance Director/Treasurer Jose Luis Espinoza, Assistant Finance Director David Yrigoyen, Director of Redevelopment& Housing Rachelle Klassen, City Clerk • SPECIAL SERVICES Bond Counsel Richards, Watson & Gershon, A Professional Corporation Los Angeles, California Trustee Wells Fargo Bank, National Association Los Angeles, California Financial Advisor Del Rio Advisors, LLC Modesto, California Appraiser Capital Realty Analysts Palm Desert, California Special Tax Consultant MuniFinancial Temecula, California GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein 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 City, in any press release and in any oral statement made with the approval of an authorized officer of the City, 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 herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the City since the date hereof. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the City 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 reviewed the information in this Official Statement in accordance with, and as a part of, their 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. The information and expressions of opinions herein are subject to change without notice and neither 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 City since the date hereof. 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. 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 1 THE BONDS 4 Authority for Issuance 4 Description of the Bonds 5 Redemption 6 Transfer or Exchange of Bonds 8 ESTIMATED SOURCES AND USES OF FUNDS 8 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS 9 Special Taxes 9 Special Tax Methodology 11 Levy of Annual Special Tax;Maximum Annual Special Tax 12 Special Tax Fund 13 Deposit and Use of Proceeds of Bonds Delinquent Payments of Special Tax;Covenant for Superior Court Foreclosure 14 Reserve Account 15 Facilities Funds 16 Parity Bonds 17 DEBT SERVICE SCHEDULE 18 THE DISTRICT 19 Formation of the District 19 Location and Description of the District and the Immediate Area 19 Anticipated Development in the District 24 Environmental Matters 28 THE PROJECT 28 Eligible Project 28 Estimated Cost of the Project 29 Development Costs Not Funded From Bond Proceeds 29 Payment or Construction and Acquisition of the Project and Payment of Fees 30 OWNERSHIP OF PROPERTY WITHIN THE DISTRICT APPRAISAL OF PROPERTY WITHIN THE DISTRICT 34 The Appraisal 34 Value to Special Tax Burden Ratios 37 Overlapping Liens and Priority of Lien 42 Estimated Tax Burden on Single Family Home 45 SPECIAL RISK FACTORS 46 Limited Obligation of the City to Pay Debt Service 46 Concentration of Ownership 46 Appraised Values 46 Property Values and Property Development 47 Bankruptcy and Foreclosure Delays 49 Parity Taxes and Special Assessments;Private Debt 50 Tax Delinquencies 50 No Acceleration Provisions 51 Ballot Initiatives.. 51 Proposition 218 51 CONSTITUTIONAL LIMITATIONS ON TAXATION AND APPROPRIATIONS 52 CONTINUING DISCLOSURE 53 UNDERWRITING 53 FINANCIAL ADVISOR 53A LEGAL OPINION 54 TAX MATTERS 54 RATINGS 56 NO LITIGATION 56 EXECUTION 56 APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX APPENDIX B - THE APPRAISAL APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX D - THE CITYOF PALM DESERT AND RIVERSIDE COUNTY APPENDIX E - FORM OF OPINION OF BOND COUNSEL APPENDIX F FORM OF CONTINUING DISCLOSURE UNDERTAKINGS APPENDIX G - THE BOOK ENTRY SYSTEM OFFICIAL STATEMENT $50,000,000* CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS SERIES 2006A This Official Statement, including the cover page and all Appendices hereto, is provided to furnish certain information in connection with the issuance by the City of Palm Desert (the "City") by and through its Community Facilities District No. 2005-1 (University Park) (the "Community Facilities District" or the "District") of the bonds captioned above (the "Bonds"). 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 certain terms used herein and not defined herein have the meaning set forth in the Indenture. See `APPENDIX C—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE." INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and attached appendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Creation of the District. The Bonds are issued pursuant to the provisions of the Mello- Roos Community Facilities Act of 1982, as amended (Sections 53311, et seq., of the Government Code of the State of California) (the "Act")and pursuant to a Indenture dated as of April 1, 2006 (the "Indenture") between the City and Wells Fargo Bank, National Association, Los Angeles, California, as fiscal agent (the "Trustee") and Resolution No. (the "Resolution") adopted on , 2006 by the City Council of the City (the "City Council") which authorized the issuance of the Bonds payable from Special Taxes (as defined herein) levied on property within the District according to a methodology approved by the City. The Bonds represent the first series of a total of$70 million of bonds authorized by the District. * Preliminary, subject to change. -1- Bond Terms. The Bonds will be dated as of and bear interest from the date of delivery thereof at the rate or rates set forth on the cover page of this Official Statement. Interest on the Bonds is payable on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing September 1, 2006. The Bonds will be issued without coupons in denominations of$5,000 or any integral multiple thereof. Registration of Ownership of Bonds. The Bonds will be issued only as fully registered bonds in book-entry form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Owners will mean Cede & Co., and will not mean the ultimate purchasers of the Bonds. Payments of the principal, premium, if any, and interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co. so long as DTC or Cede&Co. is the registered owner of the Bonds. Disbursements of such payments to DTC's Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC's Participants and Indirect Participants, as more fully described herein. See"APPENDIX G—BOOK-ENTRY SYSTEM." Use of Proceeds. Proceeds of the Bonds will primarily be used to finance a portion of the costs of acquiring and constructing certain public infrastructure improvements (the "Project," as described herein), including traffic signals, landscaping, street improvements, water improvements, sewer improvements, storm drain improvements, utility improvements, public art improvements, park improvements, and park site land acquisition. Mass grading for construction of the improvements is substantially complete and a bid is expected to be awarded to a general contractor in mid-March 2006 for construction of the basic infrastructure to be financed by the Bonds. Parity Bonds are expected to be issued in the future primarily for certain in-tract improvements and non-construction items (such as payment of fees). See "THE PROJECT." Proceeds of the Bonds will also be used to establish a Reserve Account (described below) available for payment on the Bonds, to provide capitalized interest until March 1, 2007 and to pay costs of issuance of the Bonds. Source of Payment of the Bonds. The Bonds are payable from "Net Taxes," as described herein, which generally consist of special taxes (the "Special Tax" or "Special Taxes")which are to be levied by the City on taxable real property within the boundaries of the District, less certain administrative expenses. The Bonds are also payable from the proceeds of any foreclosure actions brought following a delinquency in payment of the Special Taxes, and from amounts held in certain funds and accounts pursuant to the Indenture, including a Reserve Account, all as more fully described herein. The Special Tax applicable to each taxable parcel in the District will be levied and collected according to the tax liability determined by the City Council through the application of a rate and method of apportionment of Special Tax for the District (the "Special Tax Formula") which has been approved by the City. The Special Tax Formula is set forth in APPENDIX A hereto. The Special Taxes represent liens on the parcels of land subject to a Special Tax and failure to pay the Special Taxes could result in proceedings to foreclose the delinquent property. The Special Taxes do not constitute the personal indebtedness of the owners of taxed parcels. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Special Tax Methodology" and "APPENDIX A — RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." The maximum authorized indebtedness for the District is $70 million; the Bonds are the first series of bonds being issued by the District and additional bonds are expected to be issued in the future. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Parity Bonds." In the Indenture, the City directs the Trustee to establish a Reserve Account (the "Reserve Account") from Bond proceeds in the amount of the Reserve Requirement, which amount is available to be transferred to the Bond Fund in the event of delinquencies in the -2- payment of the Special Taxes, to the extent of such delinquencies. The Reserve Account is required to be maintained at the Reserve Requirement from moneys available under the Indenture. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Reserve Account." If there are additional delinquencies after depletion of funds in the Reserve Account, the City is not obligated to pay the Bonds or supplement the Reserve Account. Property Subject to the Special Tax. The land in the District is also known as "University Park." The land is currently undeveloped and consists of approximately 267 acres currently comprising 17 parcels. Most of the acreage in the District (over 60%) is planned for residential use; a total of approximately 1,053 residential units and 268 condominium units are currently projected for the District, with the remainder of the taxable property expected to be developed for commercial uses. Construction of homes is not underway and no assurance can presently be given as to actual development which will occur. Parcel 9 has an approved Tentative Tract Map for 270 residential lots however several of the other parcels in the District need City approval of tentative and final subdivision maps prior to development. Initial homebuilding activity is currently projected to begin in late 2006. The residential use property is owned or under option to purchase by Palm Desert Funding Company L.P, which acquired the land for sale to merchant builders. The Bonds are being issued to finance the cost of backbone infrastructure improvements necessary for development of the parcels. Mass grading is complete on most of the parcels. See"THE DISTRICT." Appraised Value of Property. Property in the District is security for the Special Tax. The City authorized the preparation of an appraisal report for the real property within the District, which sets forth a total value estimate of property in the District of $227,480,000, as of January 10, 2006. The valuation is not a bulk sale valuation of all the property in the District. The valuation assumes completion of the infrastructure improvements funded by the Bonds and accounts for the impact of the lien of the Special Tax securing the Bonds. See 'THE PROJECT." In considering the estimates of value evidenced by the appraisal, it should be noted that the appraisal is based upon a number of standard and special assumptions which affected the estimates as to value, in addition to the assumption of completion of the Bond financed improvements, which do not yet exist. See "APPRAISAL OF PROPERTY WITHIN THE DISTRICT' and Appendix B. The appraised valuation of property in the District is 4.55* times the $50,000,000* aggregate principal amount of the Bonds. Risks of Investment. See the section of this Official Statement entitled "SPECIAL RISK FACTORS"for a discussion of special factors that should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds. * Preliminary, subject to change. -3- Limited Obligation of the City. The general fund of the City is not liable and the full faith and credit of the City is not pledged for the payment of the interest on, or principal of or redemption premiums, if any, on the Bonds. The Bonds are not secured by a legal or equitable pledge of or charge, lien or encumbrance upon any property of the City or any of its income or receipts, except the money in the Special Tax Fund (described herein) established under the Indenture, and neither the payment of the interest on nor principal of or redemption premiums, if any, on the Bonds is a general debt, liability or obligation of the City. The Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restrictions and neither the City Council, the City nor any officer or employee thereof are liable for the payment of the interest on or principal of or redemption premiums, if any, on the Bonds other than from the proceeds of the Special Taxes and the money in the Special Tax Fund, as provided in the Indenture. Summary of Information. Brief descriptions of certain provisions of the Indenture, the Bonds and certain other documents are included herein. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all its respective terms and conditions, copies of which are available for inspection at the City offices. All statements herein with respect to certain rights and remedies are qualified by reference to laws and principles of equity relating to or affecting creditors' rights generally. Capitalized terms used in this Official Statement and not otherwise defined herein have the meanings ascribed to such terms in the Indenture. 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, 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 City or the District since the date hereof. 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. For definitions of certain terms used herein and not defined herein, see `APPENDIX C — SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE." THE BONDS Authority for Issuance The Bonds are issued pursuant to the Indenture, approved by Resolution No. -06- adopted by the City Council on , 2006, and the Act. On January 12, 2006, the City Council adopted Resolution No. 06-6 (the "Resolution of Formation"), which formed the District. The District was established and authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $70 million at a special election in the District held on the same day. The Bonds are the first series to be issued under the authorization; additional bonds are expected to be issued as development in the District proceeds. Under the provisions of the Act, since there were fewer than 12 registered voters residing within the District at a point during the 90-day period preceding the adoption of the Resolution of Formation, the qualified electors entitled to vote in the special election consisted of the landowners at the time of formation. The landowners voted to incur the indebtedness and to approve the annual levy of Special Taxes to be collected within the District, for the purpose of paying for the Project, including repaying any indebtedness of the District, replenishing the -4- Reserve Account and paying the administrative expenses of the District. See "THE DISTRICT' herein. The Bonds are the first series of bonds of the $70 million authorized maximum indebtedness for the District; additional bonds are expected to be issued in the future. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Parity Bonds." Description of the Bonds Bond Terms. The Bonds will be dated as of and bear interest from the date of delivery thereof at the rates and mature in the amounts and years, as set forth on the cover page hereof. The Bonds are being issued in the denomination of$5,000 or any integral multiple thereof. Interest on the Bonds will be payable semiannually on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing September 1, 2006. The principal of the Bonds and premiums due upon the redemption thereof, if any, will be payable in lawful money of the United States of America at the principal corporate trust office of the Trustee in Los Angeles, California, or such other place as designated by the Trustee, to the person whose name shall appear in the Bond Register as the Owner of such Bond as of the close of business on the Record Date, upon presentation and surrender of the Bonds; provided that so long as any Bonds are in book-entry form, payments with respect to such Bonds will be made by wire transfer, or such other method acceptable to the Trustee, to DTC. Book-Entry Only System. The Bonds are being issued as fully registered bonds, registered in the name of Cede&Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), and will be available to ultimate purchasers under the book-entry system maintained by DTC. Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Owners will mean Cede & Co., and will not mean the ultimate purchasers of the Bonds. The Trustee will make payments of the principal, premium, if any, and interest on the Bonds directly to DTC, or its nominee, Cede & Co., so long as DTC or Cede & Co. is the registered owner of the Bonds. Disbursements of such payments to DTC's Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of DTC's Participants and Indirect Participants, as more fully described herein. See"APPENDIX G—BOOK ENTRY SYSTEM." below. Calculation and Payment of Interest. Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest on the Bonds (including the final interest payment upon maturity or earlier redemption). Interest is payable from the Interest Payment Date next preceding the date of authentication, unless (i) such date of authentication is an Interest Payment Date in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication, or (iii) the date of authentication is prior to the close of business on the first Record Date occurring after the issuance of such Bond, in which event interest shall be payable from the dated date of such Bond; provided, however, that if at the time of authentication of such Bond, interest is in default, interest on that Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available for payment or, if no interest has been paid or made available for payment on that Bond, interest on that Bond is payable from its dated date. Such interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, to such Bondowner at his or her address as it appears on the Bond Register. In addition, upon a request in writing received by the Trustee on or before the applicable Record Date from an Owner of $1,000,000 or more in principal amount of the Bonds or of any issue of Parity Bonds, payment shall be made on the Interest Payment Date by wire transfer in immediately available funds to an account designated by such Owner; provided that so long as any Bonds are in book-entry form, -5- payments with respect to such Bonds will be made by wire transfer, or such other method acceptable to the Trustee,to DTC. See"APPENDIX G—BOOK ENTRY SYSTEM" below. Redemption Optional Redemption. The Bonds maturing on or after September 1, 2017 may be redeemed, at the option of the District, from any source of funds on any Interest Payment Date on or after September 1, 2016, in whole, or in part from such maturities as are selected by the District and by lot within a maturity, at the following redemption prices expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Redemption Dates Price September 1, 2016 and March 1, 2017 102% September 1, 2017 and March 1, 2018 101 September 1, 2018 and Interest Payment Dates thereafter 100 Mandatory Redemption From Prepayments. The Bonds are subject to extraordinary redemption as a w hole, or in part on a pro rata basis among maturities, on any Interest Payment Date, and shall be redeemed by the Trustee, from Prepayments deposited to the Redemption Account pursuant to the Indenture, plus any related applicable amounts transferred from the Reserve Account, at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together w ith accrued interest to the redemption date: Redemption Redemption Dates Price Prior to September 1, 2016 103% September 1, 2016 and March 1, 2017 102 September 1, 2017 and March 1, 2018 101 September 1, 2018 and Interest Payment Dates thereafter 100 Mandatory Sinking Fund Redemption. The Term Bonds maturing on September 1, 20 and September 1, 20_shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account, on September 1, 20_ and September 1, 20_ respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Term Bonds so called for redemption shall be selected by the Trustee by lot and shall be redeemed at a redemption price for each redeemed Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows: Term Bonds of Mandatory Redemption Date Sinking Fund (September 1) Payment -6- Term Bonds of Mandatory Redemption Date Sinking Fund (September 1) Payment In the event of a partial optional redemption or extraordinary redemption of the Term Bonds, each of the remaining Sinking Fund Payments for such Term Bonds, as described above, w ill be reduced, as nearly as practicable, on a pro rata basis, in integral multiples of $5,000. Purchase In Lieu of Redemption. If during the Fiscal Year immediately preceding one of the redemption dates specified above the District purchases Term Bonds, at least 45 days prior to the redemption date the District shall notify the Trustee as to the principal amount purchased and the amount of Term Bonds so purchased shall be credited at the time of purchase, to the extent of the full principal amount thereof, to reduce such upcoming Sinking Fund Payment for the applicable maturity of the Term Bonds so purchased. Selection of Bonds for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Trustee shall treat such Bonds as representing that number of Bonds of $5,000 denominations w hich is obtained by dividing the principal amount of such Bonds to be redeemed in part by $5,000. Redemption Procedure by Trustee. The Trustee shall give notice, in the name of the District, of the redemption of such Bonds; provided, how ever, that a notice of a redemption to be made from other than from Sinking Fund Payments shall be conditioned on there being on deposit on the redemption date sufficient money to pay the redemption price of the Bonds to be redeemed. Such notice of redemption shall (a) specify the CUSIP numbers (if any), the bond numbers and the maturity date or dates of the Bonds selected for redemption, except that w here all of the Bonds are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the bond numbers of such issue need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; (c) state the redemption price; (d) state the place or places w here the Bonds are to be redeemed; (e) in the case of Bonds to be redeemed only in part, state the portion of such Bond w hich is to be redeemed; (f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the Trustee. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least thirty (30) days but no more than forty-five (45) days prior to the redemption date, the Trustee shall mail a copy of such notice, by first class mail, postage prepaid, to the respective Ow ners thereof at their addresses appearing on the Bond Register, and to the original purchaser of the Bonds, as applicable. The actual receipt by the Ow ner of any Bond or the original purchaser of any Bond of notice of such redemption shall not be a condition precedent to redemption, and neither the failure to receive nor any defect in such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. -7- Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the Bonds so called for redemption are deposited in the Bond Fund, such Bonds so called will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest will accrue thereon on or after the redemption date specified in such notice. Transfer or Exchange of Bonds So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, transfers and exchanges of Bonds will be made in accordance with DTC procedures. See "Appendix G"below. Any Bond may, in accordance with its terms, be transferred or exchanged by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form approved by the Trustee. Whenever any Bond or Bonds are surrendered for transfer or exchange, the City will execute and the Trustee will authenticate and deliver a new Bond or Bonds, for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The cost for any services rendered or any expenses incurred by the Trustee in connection with any such transfer or exchange will be paid by the City. The Trustee will collect from the Owner requesting such transfer any tax or other governmental charge required to be paid with respect to such transfer or exchange. No transfers or exchanges of Bonds will be required to be made (i) within 15 days prior to the date established by the Trustee for selection of Bonds for redemption or (ii) with respect to a Bond after such Bond has been selected for redemption. ESTIMATED SOURCES AND USES OF FUNDS A summary of the estimated sources and uses of funds associated with the sale of the Bonds follows: Estimated Sources of Funds: Principal Amount of Bonds Less Original Issue Discount Total Estimated Uses of Funds: Deposit to City Facilities Fund Deposit to CVWD Fund Deposit to Reserve Account Deposit to Interest Account(1) Costs of Issuance (2) Total (1) Represents an amount sufficient to provide for interest up to and including March 1, 2007. (2) Includes fees of Bond Counsel, initial fees, expenses and charges of the Trustee, costs of printing the Official Statement, administrative fees of the City, special tax consultant , appraiser, Underwriter's discount, financial advisory fees, and other costs of issuance. -8- SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Special Taxes A Special Tax applicable to each taxable parcel in the District will be levied and collected according to the tax liability determined by the City Council through the application of the Special Tax Formula prepared by MuniFinancial, Temecula, California (the "Special Tax Consultant") and set forth in APPENDIX A hereto for all taxable properties in the District. Interest and principal on the Bonds is payable from the annual Net Taxes derived from the Special Taxes to be levied and collected on taxable property within the District, from amounts held in the funds and accounts established under the Indenture (other than the Rebate Fund) and from the proceeds, if any, from the sale of such property for delinquency of such Special Taxes. "Net Taxes" are defined in the Indenture as the Gross Taxes minus amounts set aside to pay Administrative Expenses not to exceed the Administrative Expenses Cap. "Gross Taxes" are the amount of all Special Taxes received by the District, together with the proceeds collected from the sale of property pursuant to the foreclosure provisions of this Indenture for the delinquency of such Special Taxes remaining after the payment of all costs related to such foreclosure actions. "Administrative Expenses" are the administrative costs with respect to the calculation and collection of the Special Taxes, including all attorneys' fees and other costs related thereto, the fees and expenses of the Trustee, any fees and related costs for credit enhancement for the Bonds or any Parity Bonds which are not otherwise paid as Costs of Issuance, any costs related to the District's compliance with state and federal laws requiring continuing disclosure of information concerning the Bonds and the District, and any other costs otherwise incurred by the City staff on behalf of the District in order to carry out the purposes of the District as set forth in the Resolution of Formation and any obligation of the District under the Indenture. Pursuant to the Act and this Indenture, the Bonds and any Parity Bonds shall be equally payable from the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account), without priority for number, date of the Bonds or Parity Bonds, date of sale, date of execution, or date of delivery, and the payment of the interest on and principal of the Bonds and any Parity Bonds and any premiums upon the redemption thereof, shall be exclusively paid from the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account), which are hereby set aside for the payment of the Bonds and any Parity Bonds. Amounts in the Special Tax Fund (other than the Administrative Expenses Account therein) shall constitute a trust fund held for the benefit of the Owners to be applied to the payment of the interest on and principal of the Bonds and any Parity Bonds and so long as any of the Bonds and any Parity Bonds or interest thereon remain Outstanding shall not be used for any other purpose, except as permitted by this Indenture or any Supplemental Indenture. Notwithstanding any provision contained in this Indenture to the contrary, Net Taxes deposited in the Rebate Fund and the Surplus Fund shall no longer be considered to be pledged to the Bonds or any Parity Bonds, and none of the Rebate Fund, the Surplus Fund, the City Facilities Fund, the CVWD Facilities Fund, or the Administrative Expenses Account of the Special Tax Fund shall be construed as a trust fund held for the benefit of the Owners. "Administrative Expenses Cap" is an amount equal to $75,000 per Bond Year, escalating by 2% each Bond Year commencing July 1, 2007. The Special Taxes are exempt from the property tax limitation of Article XIIIA of the California Constitution, pursuant to Section 4 thereof as a "special tax" authorized by a two- thirds vote of the qualified electors. The levy of the Special Taxes was authorized by the City pursuant to the Act in an amount determined according to the Special Tax Formula approved by the City. See "Special Tax Methodology" below and "APPENDIXA—RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." -9- The amount of Special Taxes that the District may levy in any year, and from which principal and interest on the Bonds is to be paid, is strictly limited by the maximum rates approved by the qualified electors within the District which are set forth as the "Maximum Annual Special Tax" in the Special Tax Formula. Under the Special Tax Formula, Special Taxes for the purpose of making payments on the Bonds will be levied annually in an amount, not in excess of the Maximum Annual Special Tax. The Special Taxes and any interest earned on the Special Taxes constitute a trust fund for the principal of and interest on the Bonds pursuant to the Indenture and, so long as the principal of and interest on these obligations remains unpaid, the Special Taxes and investment earnings thereon will not be used for any other purpose, except as permitted by the Indenture, and will be held in trust for the benefit of the owners thereof and will be applied pursuant to the Indenture. The Special Tax Formula apportions the Special Tax Requirement (as defined in the Special Tax Formula and described below) among the taxable parcels of real property within the District according to the rate and methodology set forth in the Special Tax Formula. See "Special Tax Methodology" below. See also "APPENDIXA—RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." The City may levy the Special Tax at the Maximum Annual Special Tax rate authorized by the qualified electors within the District, as set forth in the Special Tax Formula, if conditions so require. The City has covenanted to annually levy the Special Taxes in an amount at least sufficient to pay the Special Tax Requirement (as defined below). Because each Special Tax levy is limited to the Maximum Annual Special Tax rates authorized as set forth in the Special Tax Formula, no assurance can be given that, in the event of Special Tax delinquencies, the amount of the Special Tax Requirement will in fact be collected in any given year. See "SPECIAL RISK FACTORS—Tax Delinquencies" herein. The Special Taxes are collected for the City by the County of Riverside in the same manner and at the same time as ad valorem property taxes. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof other than the District is pledged to the payment of the Bonds or any Parity Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds or any Parity Bonds. The Bonds and any Parity Bonds are not general or special obligations of the City nor general obligations of the District, but are limited obligations of the District payable solely from certain amounts deposited by the District in the Special Tax Fund (exclusive of the Administrative Expenses Account), as described in the Indenture. The District's limited obligation to pay the principal of, premium, if any, and interest on the Bonds and any Parity Bonds from amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account) is absolute and unconditional, free of deductions and without any abatement, offset, recoupment, diminution or set-off whatsoever. No Owner of the Bonds or any Parity Bonds may compel the exercise of the taxing power by the District (except as pertains to the Special Taxes) or the City or the forfeiture of any of their property. The principal of and interest on the Bonds and any Parity Bonds and premiums upon the redemption thereof, if any, are not a debt of the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. The Bonds and any Parity Bonds are not a legal or equitable pledge, charge, lien, or encumbrance upon any of the District's property, or upon any of its income, receipts or revenues, except the Net Taxes and other amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account)which are, under the terms of this Indenture and the Act, set aside for the payment of the Bonds, any Parity Bonds and interest thereon and neither the members of the legislative body of the District or the City Council of the City nor any persons executing the Bonds or any Parity Bonds, are liable personally on the Bonds or any Parity Bonds, by reason of their issuance. Notwithstanding anything to the contrary contained in the Indenture, the District shall not be required to advance any money derived from any source of income other than the Net Taxes for the payment of the interest on or the principal of the Bonds or any Parity Bonds, or for the -10- performance of any covenants contained therein. The District may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose. Special Tax Methodology The Special Tax authorized under the Act applicable to land within the District will be levied and collected according to the tax liability determined by the City through the application of the appropriate amount or rate as described in the Special Tax Formula set forth in "APPENDIX A—RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." Capitalized terms set forth in this section and not otherwise defined have the meanings set forth in the Special Tax Formula. Determination of Special Tax Requirement. Each year, the City will determine the Special Tax Requirement of the District for the upcoming fiscal year. The "Special Tax Requirement" means that amount of Special Tax revenue required in any Fiscal Year for the District to: (i) pay annual debt service on all Outstanding Bonds due in the Bond Year beginning in such Fiscal Year; (ii) pay other periodic costs on Outstanding Bonds, including but not limited to, credit enhancement and rebate payment; (iii) pay Administrative Fees and Expenses; (iv) pay any amounts required to establish or replenish any Reserve Accounts for all Outstanding Bonds in accordance with the Indenture; (v) subject to the limitation that the Special Tax levied against any parcel of Residential Property shall not be increased by more than ten percent per year as a consequence of delinquency or default in the payment of Special Taxes by the owner of any other parcel in the District, to pay for reasonably anticipated Special Tax delinquencies based on the delinquency rates for the Special Tax levy in the previous Fiscal Year, and (vi) pay directly for acquisition and/or construction of public improvements which are authorized to be financed by CFD No. 2005-1 provided that the inclusion of such amount does not cause an increase in the levy of Special Tax on the Undeveloped Property; less (vii)a credit for Available Funds. The Special Tax Requirement is the basis for the amount of Special Tax to be levied within the District. In no event may the City levy a Special Tax in any year above the Maximum Annual Special Tax identified for each parcel in the Special Tax Formula. Parcels Subject to the Special Tax. The City will prepare a list of the parcels subject to the Special Tax using the records of the City and the County Assessor. The City will tax all parcels within the District except property which is exempt from the Special Tax pursuant to the Special Tax Formula. Annual Special Tax Levy. Property in the District has been categorized as being within Zone A, B, C, D or E, as shown on the map included in the Special Tax Formula. The Special Tax will be levied each year by Zone by calculating the Special Tax Requirement which needs to be generated by all Taxable Property in each Zone of the District; the Special Tax (up to maximum allowable amount)then will be levied annually until the amount of Special Taxes equals the annual Special Tax Requirement. The property in the District to be developed as single family residential is in Zone E. The Special Tax shall be levied each Fiscal Year as follows: First: The Special Tax shall be levied Proportionately on all Developed Property at a rate up to 100% of the applicable Assigned Special Tax to satisfy the Special Tax Requirement. Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on all Undeveloped Property within Zone A, Zone B, Zone C, Zone D, and Zone E, at a rate up to 100% of the Maximum Annual Special Tax for Undeveloped Property. In determining the -11- Acreage of an Assessor's Parcel of Undeveloped Property for purposes of determining the annual Special Tax to be levied on such Assessor's Parcels of Undeveloped Property, the CFD Administrator shall not include any Acreage shown on any applicable tentative subdivision map or other land use entitlement approved by the City that designates such Acreage for a use that would be classified as Open Space, Property Owner Association Property, or Public Property. Third: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax to be levied on each Assessor's Parcel of Developed Property whose Maximum Annual Special Tax is derived by the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Annual Special Tax for each such Assessor's Parcel. Fourth: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, then the Special Tax shall be levied Proportionately on all Provisional Undeveloped Property at a rate up to 100% of the Maximum Annual Special Tax for Undeveloped Property. Termination of the Special Tax. The Special Tax will be levied and collected (up to maximum allowable amount)for as long as needed to pay the principal and interest on the Bonds and other costs incurred in order to construct and acquire the authorized District-funded facilities and to pay the Special Tax Requirement. The Special Tax Formula provides that the Special Tax may not be levied on any parcel in the District after fiscal Year 2045-46. When all Special Tax Requirements incurred by the District have been paid, the Special Tax will cease to be levied. Prepayment of the Special Tax. The Special Tax Formula provides that landowners of Developed Property or Undeveloped Property for which a building permit has been issued, or Provisional Undeveloped Property, may permanently satisfy all or a portion of the Special Tax by a cash settlement with the City. The amount of the prepayment required is to be calculated according to a formula set forth in the Special Tax Formula, which is generally based on the Parcel's share of the outstanding Bonds and remaining facilities costs which have not been bonded, the Reserve Account, fees, call premiums, negative arbitrage and any expenses incurred by the City in connection with the prepayment and expected future facilities costs. Levy of Annual Special Tax; Maximum Annual Special Tax The annual Special Tax will be calculated by the City and levied to provide money for debt service on the Bonds and Parity Bonds, replenishment of the Reserve Account, anticipated Special Tax delinquencies, administration of the District, and for payment of pay-as-you-go expenditures (to the extent permitted by the City) of the Project or authorized District funded facilities not funded from Bond proceeds provided that the inclusion of such amount does not cause an increase in the levy of Special Tax on the Undeveloped Property. In no event may the City levy a Special Tax in any year above the Maximum Annual Special Tax identified for each parcel in the Special Tax Formula. The Maximum Annual Special Tax per Zone E property (detached single family residential unit) ranges from $1.38 to$1.67 per square foot of Residential Floor Area (as defined in the Special Tax Formula). See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX" and for a table showing the expected land uses and assigned Maximum Annual Special Taxes, see "Attachment 2" in such Appendix. The Annual Maximum Annual Special Tax is not allowed to escalate and decreases as property in the District transitions from undeveloped to developed. At the time the Bonds are issued, property in the District is undeveloped and the first year Maximum Special Tax, based on gross acreage, is estimated to be approximately $7.33 million; upon buildout of the District the Maximum Special Tax, based on projected net taxable acreage, is estimated to be approximately -12- $5.07 million. Assuming level debt service of approximately $3.42 million per year, the annual debt service coverage from the Maximum Special Tax is estimated to begin at approximately 2.144 and transition down to approximately 1.487 at buildout. The Special Tax will be levied in an amount at least equal to the Special Tax Requirement as described in the Special Tax Formula and may be levied in an amount up to the maximum rates, which is allowed to include a pay-as-you-go component to pay directly for acquisition and/or construction of public improvements which are authorized to be financed by the District, provided that the inclusion of such amount does not cause an increase in the levy of Special Tax on the Undeveloped Property, to pay for a portion of the cost of the Project not funded by proceeds of bonds issued for the District. See "APPENDIX A - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX"for a copy of the Special Tax Formula. Special Tax Fund When received, the Special Taxes are required under the Indenture to be deposited into a Special Tax Fund to be held by the Trustee in trust for the benefit of the District and the Owners of the Bonds. The Trustee shall, on each date on which the Special Taxes (other than Prepayments) are received, deposit the Special Taxes in the Special Tax Fund. The Trustee shall transfer the Special Taxes on deposit in the Special Tax Fund on the dates and in the amounts set forth in the following Sections, in the following order of priority, to: (i) the Administrative Expenses Account of the Special Tax Fund; (ii) the Interest Account of the Special Tax Fund; (iii) the Principal Account of the Special Tax Fund; (iv) the Redemption Account of the Special Tax Fund; (v) the Reserve Account of the Special Tax Fund; (vi) the Rebate Fund; and (vii)the Surplus Fund. At least 5 Business Days prior to each Interest Payment Date the Trustee shall transfer to the Interest Account, the Principal Account and the Redemption Account, as applicable, from the Special Tax Fund the amounts required for debt service on the Bonds and Parity Bonds on such Interest Payment Date. The amounts in the Surplus Fund are not pledged to the repayment of the Bonds or the Parity Bonds and may be used by the District for any lawful purpose. In the event that the District reasonably expects to use any portion of the moneys in the Surplus Fund to pay debt service on any Outstanding Bonds or Parity Bonds, the District will notify the Trustee and the Trustee is required to segregate such amount into a separate subaccount. After making the required prior transfers, as soon as practicable after each September 1, and in any event prior to each October 1, the Trustee shall transfer all remaining amounts in the Special Tax Fund to the Surplus Fund, unless on or prior to such date, it has received a Certificate of an Authorized Representative directing that certain amounts be retained in the Special Tax Fund because the District has included such amounts as being available in the Special Tax Fund in calculating the amount of the levy of Special Taxes for such Fiscal Year. Moneys deposited in the Surplus Fund will be transferred by the Trustee at the direction of an Authorized Representative of the District (i)to the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund to pay the principal of, including Sinking Fund Payments, premium, if any, and interest on the Bonds and any Parity Bonds when due in the event that moneys in the Special Tax Fund and the Reserve Account of the Special Tax Fund are insufficient therefor, (ii) to the Reserve Account in order to replenish the Reserve Account to the Reserve Requirement, (iii)to the Administrative Expenses Account of the Special Tax Fund to pay Administrative Expenses to the extent that the amounts on deposit in the Administrative Expenses Account of the Special Tax Fund are insufficient to pay Administrative Expenses, (iv)to the Backbone Infrastructure Account or Other Facilities Account of the City Facilities Fund to pay Project Costs required or expected to be funded from such account pursuant to the -13- Acquisition Agreement, (v)to the Backbone Infrastructure Account or Other Facilities Account of the CVWD Facilities Fund to pay Project Costs required or expected to be funded from such account pursuant to the Acquisition Agreement and the JCFA, or (vi) for any other lawful purpose of the District. Deposit and Use of Proceeds of Bonds The Bonds are additionally secured by amounts generated from proceeds of the Bonds, together with interest earnings thereon pledged under the Indenture. The proceeds of the Bonds will be paid to the Trustee, who will deposit such proceeds in the Reserve Account, Interest Account and Costs of Issuance Account established under the Indenture, and transfer to the City the amounts designated for deposit into the City Facilities Fund and the CVWD Facilities Fund for the payment of costs of the Project. See "APPENDIX C — SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE"for information on use of the moneys, including investment earnings thereon, in the various funds established under the Indenture. See also "Reserve Account" and "Facilities Funds" below. Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure The Special Tax will be collected in the same manner and the same time as ad valorem property taxes, except at the City's option, the Special Taxes may be billed directly to property owners. In the event of a delinquency in the payment of any installment of Special Taxes, the City is authorized by the Act to order institution of an action in superior court to foreclose the lien therefor. The City has covenanted in the Indenture with and for the benefit of the Owners of the Bonds that it (i) w ill commence judicial foreclosure proceedings against parcels w ith delinquent Special Taxes in excess of $10,000 by the October 1 following the close of each Fiscal Year in which such Special Taxes w ere due; and (ii)w ill commence judicial foreclosure proceedings against all parcels w ith delinquent Special Taxes by the October 1 follow ing the close of each Fiscal Year in which it receives Special Taxes in an amount w hich is less than 95% of the total Special Tax levied and the amount on deposit in the Reserve Account is at less than the Reserve Requirement, and (iii)w ill diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid. The District further covenants that it w ill deposit the net proceeds of any foreclosure in the Special Tax Fund and w ill apply such proceeds remaining after the payment of Administrative Expenses to make current payments of principal and interest on the Bonds and any Parity Bonds, to bring the amount on deposit in the Reserve Account up to the Reserve Requirement and to pay any delinquent installments of principal or interest due on the Bonds and any Parity Bonds. Under the Act, foreclosure proceedings are instituted by the bringing of an action in the superior court of the county in which the parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same manner as other civil actions. In such action, the real property subject to the special taxes may be sold at a judicial foreclosure sale for a minimum price which will be sufficient to pay or reimburse the delinquent special taxes. The owners of the Bonds benefit from the Reserve Account established pursuant to the Indenture; however, if delinquencies in the payment of the Special Taxes with respect to the Bonds are significant enough to completely deplete the Reserve Account, there could be a default or a delay in payments of principal and interest to the owners of the Bonds pending prosecution of foreclosure proceedings and receipt by the City of the proceeds of foreclosure sales. Provided that it is not levying the Special Tax at the Maximum Annual Special Tax rates set forth in the Special Tax Formula, the City may adjust (but not to exceed the Maximum Annual Special Tax)the Special Taxes levied on all property within the District subject to the Special Tax -14- to provide an amount required to pay debt service on the Bonds and to replenish the Reserve Account. Under current law, a judgment debtor (property owner) has at least 140 days from the date of service of the notice of levy in which to redeem the property to be sold. If a judgment debtor fails to redeem and the property is sold, his or her only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made (California Code of Civil Procedure Section 701.680). Foreclosure by court action is subject to normal litigation delays, the nature and extent of which are largely dependent upon the nature of the defense, if any, put forth by the debtor and the condition of the calendar of the superior court of the county. Such foreclosure actions can be stayed by the superior court on generally accepted equitable grounds or as the result of the debtor's filing for relief under the Federal bankruptcy laws. The Act provides that, upon foreclosure, the Special Tax lien will have the same lien priority as is provided for ad valorem taxes and special assessments. See "APPRAISAL OF PROPERTY WITHIN THE DISTRICT — Priority of Lien." No assurances can be given that the real property subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the District to purchase or otherwise acquire any lot or parcel of property foreclosed upon if there is no other purchaser at such sale. Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment in the foreclosure action, plus post- judgment interest and authorized costs, unless the consent of the owners of 75% of the outstanding Bonds is obtained. However, under Section 53356.6 of the Act, the District, as judgment creditor, is entitled to purchase any property sold at foreclosure using a "credit bid," where the District could submit a bid crediting all or part of the amount required to satisfy the judgment for the delinquent amount of the Special Tax. If the District becomes the purchaser under a credit bid, the District must pay the amount of its credit bid into the redemption fund established for the Bonds, but this payment may be made up to 24 months after the date of the foreclosure sale. Reserve Account A Reserve Account (the "Reserve Account") for the Bonds will be established under the Indenture, to be held by the Trustee. Upon delivery of the Bonds, the amount on deposit in the Reserve Account will be established by depositing certain proceeds of the Bonds in the amount of the "Reserve Requirement" for the Bonds, which is that amount as of any date of calculation equal to the lesser of(i) 10% of the initial principal amount of the Bonds and Parity Bonds, if any, (ii) Maximum Annual Debt Service on the then Outstanding Bonds and Parity Bonds, if any; and (iii) 125% of average Annual Debt Service on the then Outstanding Bonds and Parity Bonds, if any. Moneys in the Reserve Account shall be used solely for the purpose of paying the principal of, including Sinking Fund Payments, and interest on the Bonds and any Parity Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Special Tax Fund are insufficient therefor or moneys in the Redemption Account of the Special Tax Fund are insufficient to make a Sinking Fund Payment when due and for the purpose of making any required transfer to the Rebate Fund pursuant to the Indenture upon written direction from the City. If the amounts in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund are insufficient to pay the principal of, including Sinking Fund Payments, or interest on any Parity Bonds when due, or amounts in the Special Tax -15- Fund are insufficient to make transfers to the Rebate Fund when required, the Trustee shall withdraw from the Reserve Account for deposit in the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund or the Rebate Fund, as applicable, moneys necessary for such purposes. Whenever moneys are withdrawn from the Reserve Account, after making the required transfers referred for payment of the Bonds, the Trustee shall transfer to the Reserve Account from available moneys in the Special Tax Fund, or from any other legally available funds which the District elects to apply to such purpose, the amount needed to restore the amount of such Reserve Account to the Reserve Requirement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Account only if the Trustee determines that such amounts will not be needed to make the deposits required to be made to the Administrative Expenses Account, the Interest Account, the Principal Account or the Redemption Account of the Special Tax Fund on or before the next September 1. If amounts in the Special Tax Fund together with any other amounts transferred to replenish the Reserve Account are inadequate to restore the Reserve Account to the Reserve Requirement, then the District shall include the amount necessary fully to restore the Reserve Account to the Reserve Requirement in the next annual Special Tax levy to the extent of the maximum permitted Special Tax rates. In connection with a redemption of Bonds or Parity Bonds, or a partial defeasance of Bonds or Parity Bonds, amounts in the Reserve Account may be applied to such redemption or partial defeasance so long as the amount on deposit in the Reserve Account following such redemption or partial defeasance equals the Reserve Requirement. To the extent that the Reserve Account is at the Reserve Requirement as of the first day of the final Bond Year for the Bonds, amounts in the Reserve Account may be applied to pay the principal of and interest due on the Bonds, in the final Bond Year for such issue. Moneys in the Reserve Account in excess of the Reserve Requirement not transferred in accordance with the preceding provisions of this section shall be withdrawn from the Reserve Account on the Business Day before each March 1 and September 1, and the Pro Rata Agency Share (66.86% with respect to the City Facilities Fund and 33.14% with respect to the CVWD Facilities Fund) of such moneys shall be transferred and deposited into the respective Backbone Infrastructure Accounts of the Facilities Funds, then to the Other Facilities Account of the City Facilities Fund or CVWD Facilities Fund in accordance with the Indenture, and after completion of the Project, to the Interest Account of the Special Tax Fund, all in accordance with the further provisions set forth in the Indenture. Facilities Funds Under the Indenture, there is established a City Facilities Fund and a CVWD Facilities Fund, which are to be held in trust by the Trustee and will be disbursed as provided in the Indenture for the payment or reimbursement of the costs of the construction and acquisition of the Project in accordance with the Acquisition Agreement (as described herein). Interest earnings from the investment of amounts in the City Facilities Fund and a CVWD Facilities Fund will be retained in the Improvement Fund to be used for the purposes of the respective funds. Upon receipt of a City representative indicating moneys in either or both of the City Facilities Fund and a CVWD Facilities Fund are no longer needed to pay Project Costs, the Trustee shall transfer all or such specified portion, as applicable, of the moneys remaining on deposit in the such account to the Principal Account or Redemption Account to the Special Tax Fund or to the Surplus Fund, as directed by the City, provided that in connection with any direction to transfer amounts to the Surplus Fund there shall have been delivered to the Trustee with such Certificate an opinion of Bond Counsel to the effect that such transfer to the Surplus Fund will not adversely affect the exclusion from gross income for federal income tax purposes -16- of interest on the Bonds or any Parity Bonds which were issued on a tax-exempt basis for federal income tax purposes. Parity Bonds The District is authorized to issuance of up to $70 million of bonds, of which the Bonds represent the first series. The City expects that it will, by a Supplemental Indenture, authorize the issuance of one or more additional series of bonds or other similar evidences of indebtedness ("Parity Bonds") payable out of the Net Taxes and other amounts deposited in the Special Tax Fund (other than in the Administrative Expenses Account therein) and secured by a lien and charge upon such amounts equal to the lien and charge securing the Outstanding Bonds and any other Parity Bonds, in an amount authorized for the District, upon compliance by the City with the conditions set forth in the Indenture, including the condition that where the Parity Bonds are being issued other than to refund the Bonds or other Parity Bonds, a Certificate of the Special Tax Administrator certifying that (i) the Maximum Special Taxes that may be levied in each Fiscal Year is not less than 110% of the Annual Debt Service in the Bond Year that begins in such Fiscal Year plus Administrative Expenses; and (ii) the Value of District Property is not less than three (3) times the sum of Direct Debt for Value of District Property plus Overlapping Debt allocable to all property in the District subject to the Special Tax. "Value of District Property" is defined in the Indenture as all parcels of property in the District which are subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, either (i)the fair market value, as of the date of the appraisal provided for below of such parcels, including with respect to such parcels the value of the then existing improvements thereon, as estimated by an appraiser, who shall be a State of California certified general real estate appraiser selected and employed by the District, in an appraisal performed within ninety (90) days preceding the date of such determination based upon a methodology of valuation consistent with the City's policy for appraisals, provided that a mass appraisal methodology may be applied when valuing Developed Property; or (ii) the full cash value of any or all of such parcels, including with respect to such parcels the value of the improvements thereon, as set forth on the last equalized assessment roll of the County Assessor of the County of Riverside; or (iii) any combination of clauses (i) and (ii). For purposes of the foregoing Certificate of Special Tax Administrator, all calculations shall consider the Parity Bonds proposed to be issued to be Outstanding. If all or any portion of the proceeds of the Parity Bonds are deposited in an escrow account which are not secured by a pledge of the Net Taxes while on deposit therein ("Escrow Bonds"), each time that amounts are to be released from the escrow account, as a condition of such release, the Trustee shall have received a Certificate of the Special Tax Administrator certifying that (x) following such release, the requirements of (i), (ii) and (iii) above w ill be satisfied, and (y) the amount of Special Taxes levied in such Fiscal Year and to be levied in the following Fiscal Year, together w ith amounts on deposit in the Interest Account, w ill be sufficient to pay the principal of and interest on all Outstanding Bonds and Parity Bonds (other than the remaining Escrow Bonds). -17- DEBT SERVICE SCHEDULE The annual debt service on the Bonds, based on the interest rates and maturity schedule set forth on the cover of this Official Statement, is set forth below. COMMUNITY FACILITIES DISTRICT No. 2005-1 (UNIVERSITY PARK) SPECIAL TAX BONDS SERIES 2006A DEBT SERVICE Year Ending (Sept. 1) Principal Interest Total * * Paid from capitalized interest. -18- THE DISTRICT Formation of the District On October 13, 2005, the City Council adopted a Resolution of Intention to form a community facilities district under the Act, to levy a special tax and to incur bonded indebtedness for the purpose of financing the Project and making contributions to certain public facilities. After conducting a noticed public hearing, on January 12, 2006, the City Council adopted the Resolution of Formation, which established Community Facilities District No. 2005-1 (University Park), set forth the Special Tax Formula within the District and set forth the necessity to incur bonded indebtedness in a total amount not to exceed $70 million. On the same day, an election was held within the District in which the then-landowners unanimously approved the proposed bonded indebtedness and the levy of the Special Tax. See "OWNERSHIP OF PROPERTY WITHIN TI-E DISTRICT"below. Location and Description of the District and the Immediate Area The District boundaries comprise one contiguous area, which is generally north of Frank Sinatra Drive, south of Gerald Ford Drive, west of Cook Street, and east of Portola Avenue. The area is generally known as "University Park," due to the location of the property immediately west of the facilities and future facility expansion area of the satellite campus of the California State University, San Bernardino and the University of California at Riverside, at the northeast corner of Frank Sinatra Drive and Cook Street. The District area is generally referred to as the "North Sphere", or North Palm Desert, which is a developing area. The City has completed a General Plan revision for the University Park area located along the west side of Cook St., north of Frank Sinatra Drive. This area is likely to continue to evolve with residential and commercial uses. Major east/west arteries near to the District include the I-10 Freeway, Gerald Ford Drive, Frank Sinatra Drive, Country Club Drive, Hovley Lane/42nd Avenue and Fred Waring Drive. The property in the District has been divided into 5 zones: Zones A- E. Zones A through D are mixed use and commercially zoned parcels. Zone E is planned for single family residential use. All of the property is currently undeveloped. The zone designations have been used in the Special Tax Formula for purposes of application of the Special Taxes. See the Map below. The larger neighborhood boundaries encompassing the District historically developed around the several country clubs developed in the 1980's along Country Club Drive. These include Indian Ridge, Palm Valley Country Club, Desert Falls Country Club, and The Lakes. Currently, Del Webb's, Sun City Palm Desert, located at the northeast corner of Washington Street and Varner Road, is the largest residential development in the neighborhood, at 5,800 units. The neighborhood boundaries are considered to be the 1-10 Freeway to the north. State Highway 111 to the south, Washington Street to the east, and Monterey Avenue to the west. Washington Street is the main commercial corridor in the eastern part of the neighborhood. Country Club Dr. contains a mix of retail and light industrial uses. Cook Street is an office/light industrial corridor, with recently completed buildings and two currently under construction. Current County Assessor's Parcel numbers for the parcels in the District are reported to include 653-390-062, 064, 077, 079, 080, 082, 087, and 653-400-072 and 073, and a portion of APN's 653-390-081, 083-086, 088, 653-400-052, 054, 056 and 057. Property in the District is comprised of 17 parcels (designated 1-17) created by Parcel Map No. 31730 filed with the City. Some of the parcels will be subdivided and/or reconfigured as development occurs. According to the City's General Plan Land Use Map, approved in March 2004, the parcels in the District are included in the Zoning/General Plan designations shown in -19- the table below. For purposes of application of the Special Tax Formula, the District property is categorized into 5 zones, designated Zone A through E. Parcel No. Acres Zone Planned Use Zone E 1 5.462 E Residential 2 17.643 E Residential 3 27.481 E Residential 4 18.461 E Residential 5 9.748 E Residential 6 5.061 E Open Space, Public Park (1) 7 (portion) 6.973 E Residential 9 76.296 E Residential 10 19.758 E Residential 14 7.075 E Open Space, Public Park (1) 15 11.899 E Residential Subtotal 205.859 Zone C 11 9.746 C Community Commercial 12 10.560 C Community Commercial 13 3.243 C Community Commercial Subtotal 23.546 Zone B 16 19.604 B Mixed — Commercial/Office Professional Zone A 17 7.738 A Commercial Zone D 7 (portion) 3.200 D Community Commercial 8 7.447 D Community Commercial Subtotal 10.647 TOTAL 267.395 (1) Parcels 6 and 14 were originally planned for open space and parks, however subsequent planning has resulted in the open space and parks to be mixed into several other residential parcels, resulting in some residential uses planned for Parcels 6 and 14. A District boundary map and land use map are shown on the following pages. -20- [Reserved for tract map #31730] -21- [Reserved for boundary map] -22- [Reserved for land use map] -23- Anticipated Development in the District The owners of property in the District have provided the following information with respect to development within the District. No assurance can be given that all information is complete. No assurance can be given that development of the property will be completed, or that it will be completed in a timely manner. Since the ownership of the parcels is subject to change, the development plans outlined below may not be continued by any subsequent owner if the parcels are sold, although development by any subsequent owner will be subject to the policies and requirements of the City. No assurance can be given that the plans or projections detailed below will actually occur. Property in the District consists of approximately 267 acres, all of which is undeveloped. Palm Desert Funding Company LP, which owns or holds an option to purchase all of the Zone E property in the District will oversee construction of the "backbone" infrastructure required for development (including the improvements to be financed with proceeds of the Bonds). Mass grading for construction of the improvements is substantially complete and Palm Desert Funding Company LP expects construction of backbone infrastructure improvements to begin in April 2006. The cost of the construction portion of the Project will initially be paid by Palm Desert Funding Company LP and other owners of property in the District, all of whom will be reimbursed certain of the costs from proceeds of the Bonds, to the extent available for such purpose. Parity Bonds are expected to be issued in the future primarily for certain in-tract improvements to a portion of the property and for non-construction items (such as payment of fees). See 'THE PROJECT." Zoning. Property in the District is expected to be developed for both residential and commercial uses, as described herein. According to the City's General Plan Land Use Map, approved in March 2004, the parcels in the District are included in the Zoning/General Plan designations shown in the table below. These designations are subject to change as development progresses and currently only one parcel (Parcel 12) has construction underway. Parcel No. Zoning 1 Medium/High Density Residential 2 Medium/High Density Residential 3 Medium/High Density Residential 4 Medium/High Density Residential 5 Medium/High Density Residential 6 Open Space, Public Park 7 Medium/High Density Residential 8 Community Commercial 9 Low Density Residential 10 Medium/High Density Residential 11 Community Commercial 12 Community Commercial 13 Community Commercial 14 Open Space, Public Park 15 Medium/High Density Residential 16 Mixed Use—Commercial, Office Professional 17 Mixed Use—Commercial Subdivision Maps. The 17 parcels in the District were created in early 2005 by Parcel Map No. 31730 approved by the City. Parcel 9 has an approved Tentative Tract Map for 270 lots (however only 268 are expected to be developed) of approximate minimum 7,200 square feet -24- (low-density residential), and the remaining parcels in the District do not have approved tentative or final subdivision maps. Tentative and final map approval will be required for development of Parcels 1-7 (maps have been submitted to the City), 10, 14 and 15, and possibly for Parcels 16 and 17, depending upon the ultimate uses for such parcels. Zone E - Projected Residential Development (Parcels 1-6, 7 (portion), 9, 10, 14 8 15). Property in the District expected to be developed into single family residences consists of Parcels 1-6,7 (portion),9, 10, 14 and 15 (all comprising Zone "E") totaling approximately 205.86 acres. Most of the units will be detached, with a mixture of detached and attached currently contemplated for Parcels 10, 14 and 15. A total of 1,053 homes are currently contemplated. Parcels 9 and 15 are owned by Palm Desert Funding Company LP. Parcels 1-6, 7(portion), 10 and 14 are under an option to purchase by Palm Desert Funding Company LP from Desert Wells 237, LLC, a California limited liability company and Albor Properties III, LP, expected to be exercised in two transactions scheduled for March 15, 2006 and June 30, 2006. Palm Desert Funding Company LP plans to oversee construction of the backbone infrastructure improvements and sell all of its holdings to merchant homebuilders. See "OWNERSHIP OF PROPERTY IN THE DISTRICT'below. The Zone E land in the District is currently undeveloped. Palm Desert Funding Company LP has completed mass grading of all of the property other than Parcel 9 (which will be graded by others) and will oversee the general contractor that is awarded the bid for construction of the "backbone" infrastructure required for development (including the improvements to be financed with proceeds of the Bonds). Major streets and utilities to the perimeter of the site previously existed. Only Parcel 9 has received an approved tentative map, which is for 270 lots averaging 7,200 square feet (low-density residential). Three tentative maps for an additional 456 units (Parcels 1-7) have been submitted to the City and approvals are expected by June 2006. Tentative maps for Parcels 1-7 have been submitted to the City and approval is projected for June 2006. A tentative map for Parcel 15 is being prepared for submission to the City and the landowner projects City approval by September 2006. A tentative map for Parcels 10 and 14 is also being prepared for submission to the City and the landowner projects City approval by July 2006. An environmental impact report was completed in conjunction with the City's 2002 General Plan amendment impacting the site and "Phase 1" environmental reports have been completed. All of the parcels other than Parcel 9 (which is designated for low density) are designated in the General Plan for medium-density residential (4 to 10 units per acre). Parcels other than Parcel 9 comprise approximately 120.6 acres, indicating a maximum capacity of 1,206 per the present General Plan designation; however this property is also designated a "high density overlay" under the General Plan, which would allow up to 22 units per acre without a General Plan amendment. If the high density overlay were utilized, a maximum of 2,653 units could be built. The current owner's plans presently contemplate 783 units in addition to the 270 approved lots on Parcel 9, for a total expected residential lot count of 1,053. Palm Desert Funding Company LP is not a home builder and expects to sell all of its property in the District to various merchant builders for construction of homes and sales to homeowners. The pace of home construction and sales in the District will be determined in part by market conditions and demand for homes. Palm Desert Funding Company LP, in its capacity as master community developer, is processing a Master Development Plan with the City designed to result in a community with a mix of housing types, lot sizes, home sizes, and price ranges, however each merchant homebuilder will offer its own specific product line and establish its own pricing, and variances from current projections are likely to occur. According to the Master Development Plan, most home offerings are projected to be in the approximately 1,300 to 4,000 -25- square foot range, with pricing projected to start in the $300,000's. No assurance can presently be given as to actual future development. Possible Sales to Merchant Builders. Marketing of lots by Palm Desert Funding Company LP is underway. Approximately 198 units in Parcels 10 and 14 are the subject of a letter of intent for sale to John Laing Homes. Parcel 9, consisting of Approved Tentative Tract Map 32655 for 270 lots (268 are expected to be developed) is the subject of a letter of intent for sale to Toll Brothers. Parcels 4,5,6 and 7 (portion) (approximately 213 lots) are the subject of a letter of intent for sale to Lennar Homes. Parcels 1, 2, and 3 (approximately 243 lots) have not yet been marketed. Parcel 15 (approximately 98 units) is the subject of submitted offers currently being considered by Palm Desert Funding Company LP. No assurance can be given that any of these possible sales will occur. Zone C - Projected Commercial Development— (Parcels 11, 12 & 13). Parcel 11 — Office Space. Parcel 11 (approximately 9.624 acres) is owned by Shaw Palm Desert I, LLC, which purchased the property in April 2005. The owner plans to develop the parcel in two phases with a total of 14 single story buildings consisting of 130,000 square feet of office space, with plans to sell the property to one or more buyers. Initial construction of Phase I began in December 2005 and is expected to be completed by late 2006. Parcels 12 and 13 — Retail/Hotel Space. Parcels 12 and 13 are expected to be developed for approximately 115,000 square feet for retail uses plus a 127-room hotel. Construction is planned to occur in three phases. Phase I consists construction of 45,000 square feet of office and retail space plus required infrastructure for the site. Phase I is currently under construction and is expected to be completed by late 2006. Construction of the hotel is expected to start in summer 2006 and be completed in summer 2007. All construction on the parcels is expected to be complete by spring 2008. Originally the hotel parcel was parcel 13 in the final parcel map No. 31730 and was 3.24 acres. In November of 2005 Shaw Palm Desert I, LLC filed a new parcel map that revised lots 11, 12 and 13 in parcel map 31730 into a new map 31515. The hotel parcel size in Map No. 31515 is now 2.99 acres and is known as "parcel 9" in that map. The retail portions of Parcels 12 and 13 are currently owned by The University Village Partnership, a general partnership owned by entities related to the Evans family. See "OWNERSHIP OF PROPERTY IN THE DISTRICT"below. The owner does not currently plan to sell the retail property when complete. The hotel portion of the property (approximately 3 acres) was sold to InterMountain Management, LLC in February 2006. InterMountain Management, LLC expects to manage the development of the hotel property on behalf of Marriott International, Inc. Zone B - Projected Mixed Commercial/Office Development — (Parcel 16). Parcel 16 was purchased by Sinatra & Cook Project, LLC, a California limited liability company, in March 2005. The owner plans to develop the parcel for residential and retail uses. The residential project is planned to consist of 268 condominiums comprising approximately 286,000 square feet of living space in 42 buildings, and the commercial project is expected to consist of approximately 41,500 square feet in 3 buildings. Plans for both projects have been submitted to the City and construction is expected to begin in May 2006. Construction is projected to be complete by December 2007. Upon completion, the residential units may be rented or sold to individual homeowners. Zone A - Projected Commercial Development — (Parcel 17). Parcel 17 was purchased by Don McCoy and Marcellene McCoy in June 2005. The owners are currently holding the property as a passive investment. They may develop the property or may sell the property to one or more buyers. -26- Zone D - Projected Commercial Development— (Parcels 7 (portion), 8). Parcel 8 is owned by Palm Desert Forum, LLC, a California limited liability company, in June 2005. The owners are currently holding the property as a passive investment. They may develop the property or may sell the property to one or more buyers. The owner of Parcel 8 holds an option to purchase approximately 3 acres of Parcel 7, which would most likely result in a change of land use of the 3 acres from mid-density residential to community commercial. Infrastructure Improvements. Significant basic (sometimes referred to as "backbone") infrastructure in-tract improvements are required before most of the planned development in the District can proceed. The basic infrastructure improvements include those public facilities described in the Resolution of Formation which are to be acquired or constructed within and outside of the District, including all engineering, planning and design services and other incidental expenses related to such facilities and other facilities, if any, authorized by the qualified electors within the District from time to time (collectively referred to in the Indenture as the "Project"). The basic infrastructure improvements portion of the Project are to be financed with proceeds of the Bonds. See'THE PROJECT"below. Bond proceeds are expected to cover the cost of all the backbone infrastructure for development in the District, estimated to be approximately $36.6 million. Additional moneys required for obligations of the landowners to the City and the Coachella Valley Water District such as water, sewer capacity, park and other development impact fees and certain required in- tract infrastructure improvements are expected to be paid in part from proceeds of the Bonds and Parity Bonds to be issued in the future. See "THE PROJECT- Construction and Acquisition of the Project" below. Pursuant to a bidding process, Palm Desert Funding Company LP will select a general contractor for construction of the improvements financed with Bond proceeds. Bid award is expected in March 2006 and completion is projected for early 2007. Palm Desert Funding Company LP will oversee the backbone infrastructure construction activities. The Project includes basic streets, sidewalks, water, sewer, drainage, concrete curb, gutter and paving and all of the relevant utilities in the basic streets. Completion of the Project will provide access to the land in the District. Within the residential development area (Zone E), to be sold by Palm Desert Funding Company LP, each merchant builder is expected to buy land with tentative map approval for development. Each property owner is responsible for overseeing its own construction activities relating to its in-tract facilities, some of which are to be paid for from Bond proceeds or proceeds of Parity Bonds to be issued in the future. Utilities. All typical urban utility services will be extended to the parcels. These utilities include electric power, natural gas, telephone, cable television, water, and sanitary sewer and storm water facilities. Southern California Edison provides electric, Southern California Gas Company provides natural gas, and the Coachella Valley Water District provides water and sewer and has issued a "will serve" letter for the development. -27- Environmental Matters Flood Hazard Map Information. The appraiser reported that according to the Federal Emergency Management Agency's flood insurance rate maps (Community Panel Number 060245- 1625C, with an effective date of November 20, 1996), the property in the District is located within Flood Zone C, described as areas of minimal flooding. Seismic Conditions. The appraiser reported that according to Plate IA of the Seismic Geologic Map, dated January 19, 1982, revised 1988, the property in the District is not located in an Alquist-Priolo Special Studies Zone, or in areas determined to be in a liquefaction hazard area. THE PROJECT Eligible Facilities The Bonds will provide a funding source for a portion of the cost of the Project and for certain City and Coachella Valley Water District development impact fees. The facilities eligible to be financed by the District are set forth in the Resolution of Intention and in the Community Facilities District Hearing Report (the "CFD Hearing Report") dated December 8, 2005 prepared for the City by MuniFinancial, Temecula, California, in connection with the formation of the District. The eligible facilities authorized (described herein as the "Project") are described in the CFD Hearing Report and include traffic signals, landscaping, street improvements, water improvements, park improvements, and park site land acquisition, a portion of a pedestrian bridge, together with all appurtenances and appurtenant work, such as related clearing and grubbing, grading, and any removal or temporary signage or markings related thereto. The cost of the Project includes incidental expenses, including costs associated with forming the District, issuance of bonds, determination of the amount of the Special Tax, collection of the Special Tax, payment of the Special Tax, costs incurred in order to carry out the authorized purposes of the District, and the costs of engineering, inspecting, coordinating, completing, planning and designing the Project, including the costs of environmental evaluations. The Project includes certain capital improvements to be owned by the local water district. In connection therewith, a Joint Community Facilities Agreement dated as of January 12, 2006, has been entered into by and among the City, the Coachella Valley Water District, Desert Wells 237, LLC, a California limited liability company, Palm Desert Funding Company LP, a Delaware limited partnership, The University Village Partnership, a California general partnership, Shaw/Palm Desert 1, LLC, a California limited liability company, and Sinatra &Cook Project, LLC, a California limited liability company. The agreement establishes the terms by which the City will finance the construction of water system improvements associated with the anticipated development within the District. The Project includes, but is not be limited to, the facilities listed below, and other facilities of the same type or types may be substituted in the place of one or more of the specific facilities listed below. The construction portion of the Project shall be constructed, whether or not acquired in completed component states, pursuant to plans and specifications approved by the City (or the Coachella Valley Water District, as applicable) and the officials thereof, including the City Engineer. The final nature and location of the Project will be determined upon the preparation of final plans and specifications. The Project may include facilities financed pursuant to public agency development impact fees. The Project may include the following: -28- • Street Facilities (including, but not limited to, street widening, excavation, signing and striping, access ramps, grading, median and parkway landscaping, curbs and gutters, sidewalks, street lights, dry utility infrastructure, bus stops, fringe toed lizard fee and City fees). • Water Facilities • Sewer Facilities • Traffic Signals • Storm Drain Facilities • Utilities Facilities • Park Facilities and Park Site Land Acquisition • Landscaping • Cook Street Pedestrian Bridge (including, but not limited to bridge, ADA access ramps, elevator, retaining walls, hand railing, pedestrian lighting, revised sidewalks and minor grading) Estimated Cost of the Project The total estimated construction cost of the Project and other project related public expenditures, as shown in the CFD Hearing Report, is approximately $57,775,000. Approximately $36.620 million of the total $57.775 million cost of construction of the backbone infrastructure improvements is projected to be financed by the Bonds. The remaining Project costs are comprised mostly of fees, park and in-tract improvements, some of which are anticipated to be funded by proceeds of Parity Bonds. The CFD Hearing Report summarizes the estimated total Project costs as follows. Community Facilities District No. 2005-1 (University Park) Summary of Authorized Facilities and Estimated Cost Estimated Facilities Cost Street Improvements and Grading $ 9,667,740 Sewer Improvements 598,937 Water Improvements 3,730,529 Traffic Signals 977,805 Park Site Acquisitions and Improvements 7,416,000 Utilities 1,191,010 Cook Street Pedestrian Bridge 1,504,315 Landscaping Cost 11,534,118 Fringed Toed Lizard Fee 142,200 Public Works — Drainage Fee 237,000 Public Works — Signal Fee 52,650 CVWD — Sewer Connection Fee 3,149,523 CVWD —Water Capacity Fee 2,769,390 CVWD — Supplemental Water Fee 2,278,755 TUMF Fee 837,135 Art in Public Places Fee 526,500 In-tract Sewer and Water Facilities 5,265,000 In-tract Streets 2,740,500 Commercial Sewer and Water Improvements 1,356,520 Parks 1,800,000 Total Public Fees and Improvements $57,775,627 -29- Development Costs Not Funded From Bond Proceeds In addition to the cost of construction of the Project and other project related public expenditures, each owner or developer of its property will need to expend moneys for the construction of in-tract improvements and other site improvement costs necessary for development and for obtaining approval from the City for construction of end-use structures. The costs vary with each parcel and are significant. For the residential parcels, Palm Desert Funding Company LP estimates that finished lot costs (including facilities and fees but not including building permits) will total approximately $30 million in excess of the improvements financed by the Bonds. The owner of Parcels 11, 12 and 13 estimates that as of February 2006, additional infrastructure, which includes all on-site construction (excluding buildings) will be approximately $11 million. The owner of Parcel 16 estimates $5.2 million of site work is necessary to improve that site. The owners of the remaining parcels do not have accurate current estimates. These figures are estimates and actual costs are likely to be higher. Construction and Acquisition of the Project and Payment of Fees In connection with the issuance of the Bonds, the City and Palm Desert Funding Company LP, a Delaware limited partnership ("PDFC"), Desert Wells 237, LLC, a California limited liability company (the seller of property to Palm Desert Funding Company LP), The University Village Partnership, a California general partnership, Shaw/Palm Desert 1, LLC, a California limited liability company and Sinatra & Cook Project, LLC, a California limited liability company (collectively, the "Developers") will enter into an Acquisition Agreement (the "Acquisition Agreement") which provides that the Developers will construct or cause to be constructed or funded certain portions of the Project for which each such Developer is responsible as a condition of any development agreement, improvement agreement, subdivision map, or other regulatory approval, and that each such Developer will use its own funds to pay all construction costs thereof in excess of amounts available in the City Facilities Fund and CVWD Facilities Fund, The Acquisition Agreement provides that the City, upon completion of construction and acceptance by the City, will acquire such portions of the Project. Upon completion and acceptance by the City, proceeds of the Bonds and Parity Bonds will be used to pay the purchase price of the facilities within the Project, to the extent funds are available in the City Facilities Fund and the CVWD Fund, pursuant to the terms of the Acquisition Agreement. To the extent funds are not available in the City Facilities Fund or the CVWD Fund, each Developer must bear the costs to complete its respective share of the Project. See "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT'and"SPECIAL RISK FACTORS"herein. The Developers and the City have entered into a Cost Sharing and Bond Proceeds Allocation Agreement dated January 25, 2006, which provides for the sharing of costs of the backbone infrastructure and other costs associated with developing the property in the District and the use of Bond proceeds in connection with such costs. Under the Cost Sharing Agreement, Palm Desert Funding Company LP, together with its optionor, Desert Wells 237, LLC and Albor Properties III, LP, a California limited partnership, is responsible for over 63% of the cost, with each of the 5 remaining Developers responsible for less than 10% each. -30- OWNERSHIP OF PROPERTY WITHIN THE DISTRICT Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels within the District. There is no assurance that the present property owners or any subsequent owners will have the ability to pay the Special Taxes or that, even if they have the ability, they will choose to pay the Special Taxes. An owner may elect to not pay the Special Taxes when due and cannot be legally compelled to do so. Neither the City nor any Bondowner will have the ability at any time to seek payment directly from the owners of property within the District of the Special Tax or the principal or interest on the Bonds, or the ability to control who becomes a subsequent owner of any property within the District. The landowners have provided the information set forth in this section entitled "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT." No assurance can be given that all information is complete. In addition, any Internet addresses included below are for reference only, and the information on those Internet sites is not a part of this Official Statement or incorporated by reference into this Official Statement. No assurance can be given that development of the property will be completed, or that it will be completed in a timely manner. The Special Taxes are not personal obligations of the developers or of any subsequent landowners; the Bonds are secured only by the Special Taxes and moneys available under the Indenture. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS"and "SPECIAL RISK FACTORS"herein. -31- The owners of parcels in the District as of February 2006 are summarized as follows: Parcel No. Owner of Record 1 Desert Wells 237 &ALBOR Properties III, L.P. (1) 2 Desert Wells 237 &ALBOR Properties III, L.P. (1) 3 Desert Wells 237 &ALBOR Properties III, L.P. (1) 4 Desert Wells 237 &ALBOR Properties III, L.P. (1) 5 Desert Wells 237 &ALBOR Properties III, L.P. (1) 6 Desert Wells 237&ALBOR Properties III, L.P. (1) 7 Desert Wells 237&ALBOR Properties III, L.P. (1) 8 Palm Desert Forum, LLC 9 Palm Desert Funding Company LP 10 Desert Wells 237&ALBOR Properties III, L.P. (1) 11 Shaw/Palm Desert 1, LLC 12 The University Village Partnership 13 The University Village Partnership(2) 14 Desert Wells 237 &ALBOR Properties III, L.P. (1) 15 Palm Desert Funding Company LP 16 Sinatra&Cook Project, LLC 17 Donald L. McCoy and Marcellene W. McCoy (1)Parcels 1-6,7(portion), 10 and 14 are under an option to purchase by Palm Desert Funding Company LP, expected to be exercised in two transactions scheduled for March 15,2006 and June 30,2006. Palm Desert Funding Company LP expects to sell all property it owns or acquires to merchant builders. (2)A portion of Parcel 13 was originally planned for hotel development;in November 2005 a new parcel map was filed which revised Parcels 11,12 and 13 into a new parcel map(No. 31515). The hotel parcel size in Map No. 31515 is known as"parcel 9"in that map and is 2.99 acres; it was transferred to InterMountain Management in February 2006. The percent of the Maximum Special Tax of the District is estimated to be allocated among the current owners as follows: Percent of Owner Maximum Special Tax Desert Wells 237/Albor 11i 45.91 Palm Desert Funding Company LP (2) 33.66 Sinatra &Cook Project, LLC 7.21 The University Village Partnership 131 5.08 Shaw/Palm Desert 1, LLC (Evans Family Entities) 3.59 Palm Desert Forum, LLC 2.33 Donald L. McCoy and Marcellene W. McCoy 2.21 11) All holdings subject to an option for purchase and sale. See footnote (2). la) Also holds an option to purchase holdings of Desert Wells 237/Albor Properties (Parcels 1-6, 7(portion), 10 and 14) expected to be exercised in two transactions scheduled for March 15, 2006 and June 30, 2006. 11) Approximately 3 acres (proposed hotel site) sold to InterMountain Management in February 2006. Palm Desert Funding Company LP. Palm Desert Funding Company LP is a Delaware limited partnership, and is comprised of Palm Desert Funding Co., LLC, its general partner, and Palm Desert Funding Company, Inc., its limited partner. Palm Desert Funding Company LP has a Development Agreement with Palm Desert Project Company, LLC, a California Limited Liability Company, to oversee all aspects of the development of the property. Palm Desert Project -32- Company, LLC is comprised of Palm Desert Residential, Inc., a Delaware Corporation, the financial partner, and Hover Development Company, Inc., a California Corporation, the development partner. Mr. Thomas Hover is the President of Hover Development Company, Inc. and has been the residential development business since 1977. He has been involved in the development of numerous new home communities throughout Southern California. In addition to the project planned in the District, Hover Development Company is currently involved in developing residential projects in Orange and San Diego counties. Mr. Hover is the managing member of Palm Desert Project Company, LLC, and is the authorized agent to act on behalf of Palm Desert Funding Company LP. He is responsible for all development decisions as it relates to these entities and the property in the District. Palm Desert Funding Company LP is not a merchant home builder and plans to sell all of the developable property it will own in the District to merchant builders. Palm Desert Funding Company LP has owned Parcels 9 and 15, totaling 88 acres, since August 2005. Parcels 1-6, 7(portion), 10 and 14, which are under an option to purchase by Palm Desert Funding Company L.P from Desert Wells 237 and ALBOR Properties III, L.P., expected to be exercised in two transactions scheduled for March 15, 2006 and June 30, 2006. In total, Palm Desert Funding Company LP expects to own 209 of the 267 total acres in the District for a short time while it oversees construction of backbone infrastructure and markets and sells all of its holdings to various merchant builders. As of February, 2006, Palm Desert Funding Company LP, reports that it has letters of intent for lot purchases from Lennar Homes (Parcels 4-7), Toll Brothers (Parcel 9) and John Laing Homes (Parcels 10 and 14). Lots in Parcels 1-3 and 15 have not yet been marketed. No assurance can be given that the options of Palm Desert Funding Company LP will be exercised or that any letter of intent will lead to an actual sale. Palm Desert Funding Company LP has provided approximately $42,300,000 of bank debt and approximately $40,000,000 of equity to purchase Parcels 9 and 15, to mass grade the property it owns or will own, to process plans and to otherwise develop the property as planned. The bank debt is with Rabobank, which holds a promissory note secured by a first lien deed of trust on Parcels 9 and 15. Palm Desert Funding Company LP reports that it will exercise its options to complete the purchase and development of the remaining property being purchased from Desert Wells 237 and ALBOR Properties III, L.P. using additional funds from the projected sale of sites to merchant builders and from equity and bank debt not yet incurred. Desert Wells 237, LLC and Albor Properties Ill, LP. Property in Zone E of the District currently owned by Desert Wells 237, LLC and Albor Properties III, LP. (Parcels 1-6, 7(portion), 10 and 14) is expected to be transferred to Palm Desert Funding Company LP in two transactions scheduled for March 15, 2006 and June 30, 2006. Desert Wells 237, LLC is a California limited liability company and owns an 80.2% undivided interest in the property, with the remainder owned by Al Borstein. Desert Wells 237, LLC is managed and majority owned by entities controlled by the Mike Marix family. Mike Marix has been in the real estate business since 1960. Subsequent to founding and operating (from 1971 to 1986) Marix Housing Corporation, a land development and construction firm, in 1986 Mr. Marix founded Cornerstone Developers, Inc., a homebuilding operation which he operated until the assets of the company were sold to Lennar related entities in 2003. He is currently President of Cornerstone Investors, Inc. of Palm Springs. The University Village Partnership. The University Village Partnership is a California general partnership whose equal partners are entities affiliated with the Evan family: Evans University Village, LLC, a California limited liability company, and Edward University Village, LLC, a California limited liability company. Evans University Village, LLC, is owned by The Evans Company which is controlled by the Evans Family Trust and F.O. Evans (Fred) Ill. Edward University Village, LLC, is controlled by Edwards Affiliated Holdings, LLC and Bridgeport -33- Investment Company, Inc. The managing partner is Rick Evans of Palm Desert. Frederick Oliver Evans, Jr. (F.O. (Rick) Evans) spent the past decade at The Irvine Company as President of the Retail Division and he has experience in retail development, marketing and leasing. Frederick Oliver Evans III (F.O. (Fred) Evans) graduated from the University of Southern California in 1994 and has worked in various capacities in the real estate business since that time. The University Village Partnership purchased Parcels 12 and 13 in February 2005 and currently has a loan from Bank Midwest outstanding in the approximate amount of $600,000 secured by a deed of trust. Construction financing for the initial phase has been obtained from Wells Fargo Bank in the amount of $9,350,000, also secured by a deed of trust. The purchase loan and the construction loan are due in February 2008. The construction loan is expected to cover Phase I of construction. Shaw Palm Desert I, LLC. Shaw Palm Desert I, LLC, a California limited liability company, is the owner of Parcel 11. The sole member of Shaw Palm Desert I, LLC is Shaw-CDK Properties, LLC and the members of Shaw-CDK Properties, LLC are Charles E. Crookall and Kevin M. Klemm. The company is operated out of Newport Beach, California. Mr. Klemm has been with Shaw Industrial Property Services since 1997 and has a background in construction, development and property management and was the Vice President of Finance and Acquisitions for a Newport Beach based commercial real estate development and holding firm prior to joining Shaw related entities. Mr. Crookall is affiliated with Shaw Industrial Property Services as a specialist in industrial property development, corporate real estate consulting, and as the designated real estate broker who oversees the firm's asset management division. He has been active in southern California commercial and industrial real estate for 25 years. Shaw Palm Desert I, LLC purchased Parcel 11 in April 2005. Construction and purchase financing has been obtained from California National Bank in the amount of $4,475,000 and is secured by a deed of trust. The construction loan is due in November 2007 and is expected to cover the first phase of construction, which is currently underway. Each Developer is not under legal obligation of any kind to expend funds for the development of property in the District and will expend such funds only if it determines that doing so is in its best interests. All expectations of the owners described above are based on the current and actual knowledge of the respective Developer and present facts and circumstances. Such expectations may change as the result of facts and circumstances occurring, or discovered, after the date of this Official Statement. There is no assurance that the Developer's expectations described above will actually materialize or that the money necessary in order to implement the planned development will in fact be available for such purpose. See "SPECIAL RISK FACTORS." APPRAISAL OF PROPERTY WITHIN THE DISTRICT The Appraisal General. Capital Realty Analysts, Palm Desert, California (the "Appraiser") prepared an appraisal report dated January 15, 2006, with a date of value of January 10, 2006 (the "Appraisal"). The Appraisal was prepared at the request of the City. The Appraisal is set forth in APPENDIX B hereto. The description herein of the Appraisal is intended for limited purposes only; the Appraisal should be read in its entirety. The complete Appraisal is on file with the City and is available for public inspection at the City offices at 73-510 Fred Waring Drive, Palm Desert California 92260-2578 or from the Underwriter during the initial -34- marketing period. The conclusions reached in the Appraisal are subject to certain assumptions and qualifications which are set forth in the Appraisal. Value Estimates. The Appraisal valued the fee simple estate of the taxable property in the District to estimate the hypothetical (in light of the fact that the improvements financed by the Bonds were not in place as of the date of valuation) market value of the property (not as a bulk sale), assuming completion of the backbone infrastructure improvements to be financed by the Bonds (based on a total projected cost of $37,976,868). The valuation accounts for the impact of the lien of the Special Tax. The property appraised excludes property in the District designated for public and quasi public purposes. The value estimate for the property as of the January 10, 2006 date of value, using the methodologies described in the Appraisal and subject to the limiting conditions and special assumptions set forth in the Appraisal, and based on the ownership of the property as of that date is $227,480,000. The valuation is not a "bulk sale" valuation of all of the property in the District. The valuation is determined as a sum or individual parcel valuations, summarized as follows: Value Value Parcel Estimate, Estimate, Total No. Residential Commercial Value Estimate 1 $ 4,175,000 - $ 4,175,000 2 13,485,000 - 13,485,000 3 21,005,000 - 21,005,000 4 15,035,000 - 15,035,000 5 7,940,000 - 7,940,000 6 4,120,000 - 4,120,000 7 9,300,000 - 9,300,000 8 - $ 6,000,000 $ 6,000,000 9 68,590,000 - 68,590,000 10 19,055,000 - 19,055,000 11 - 8,190,000 8,190,000 12 - 9,535,000 9,535,000 13 - 2,950,000 2,950,000 14 4,345,000 - 4,345,000 15 12,070,000 - 12,070,000 16 - 14,945,000 14,945,000 17 - 6,740,000 6,740,000 Total $179,120,000 $48,360,000 $227,480,000 The appraisal methodology used in the Appraisal is based on the sales comparison approach to estimate the aggregate value for the property's various land components. The approach to value was conducted as set forth below. See "Aggregate Value; Not a Bulk Value or Market Value of the District" below. See also "Assumptions and Limiting Conditions" below. Aggregate Value; Not a Bulk Value or Market Value of the District. The valuation set forth in the Appraisal is not a bulk sale value, which would represent the most probable price of all the parcels within District to a single purchaser or sales to multiple buyers, over a reasonable absorption period discounted to present value. The retail value for the property presented in the appraisal represents the aggregate total estimates of what separate end users would pay for each parcel under conditions requisite to a fair sale. This value estimate was determined by applying the sales comparison approach to each parcel, as described in the Appraisal. The aggregate value presented in the Appraisal is the sum of the individual parcel valuations. The valuation does not represent a bulk valuation of all the property in the District or a sum or bulk valuations based on ownership or projected property uses. This value estimate excludes all discounts or allowances for carrying costs and is not equal to the market value of all the subject properties as a whole. See"APPENDIX B—THE APPRAISAL." -35- No Property Absorption Study. No absorption study was conducted by the Appraiser or by an independent source in connection with determining the value of the property in the District. Hypothetical Condition. Improvements estimated to cost approximately 37.9 million to be financed by the Bonds were not in place as of the date of inspection but included in the valuation as if they were in place; thus, the value estimate is subject to a hypothetical condition (of such improvements being in place), defined as that which is contrary to what exists but is supposed for the purposes of analysis. Assumptions and Limiting Conditions. In considering the estimate of value evidenced by the Appraisal, the Appraisal is based upon a number of standard and special assumptions which affect the estimates as to value, some of which include the following. See "APPENDIX B—THE APPRAISAL." • The value estimates assume the completion of the public facilities to be financed by the Bonds (based on a total backbone infrastructure cost of $37,976,868). See'THE PROJECT." • The Appraiser has also assumed that there is no hazardous material on or in the property that would cause a loss in value. Should future conditions and events reduce the level of permitted development or delay the completion of any projected development, the value of the undeveloped land would likely be reduced from that estimated by the Appraiser. See "APPENDIX B—THE APPRAISAL" hereto for a description of certain assumptions made by the Appraiser. Accordingly, because the Appraiser arrived at an estimate of current market value based upon certain assumptions which may or may not be fulfilled, no assurance can be given that should the parcels become delinquent due to unpaid Special Taxes, and be foreclosed upon and offered for sale for the amount of the delinquency, that any bid would be received for such property or, if a bid is received, that such bid would be sufficient to pay such delinquent Special Taxes. Limitations of Appraisal Valuation. Property values may not be evenly distributed throughout the District; thus, certain parcels may have a greater value than others. This disparity is significant because in the event of nonpayment of the Special Tax, the only remedy is to foreclose against the delinquent parcel. No assurance can be given that the foregoing valuation can or will be maintained during the period of time that the Bonds are outstanding in that the City has no control over the market value of the property within the District or the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, may be on a parity with the Special Taxes. See "Overlapping Liens and Priority of Lien" below. For a description of certain risks that might affect the assumptions made in the Appraisal, see"SPECIAL RISK FACTORS"herein. -36- Value to Special Tax Burden Ratios The Appraisal sets forth the estimated value, subject to the Special Tax lien, of all taxable property within the District to be $227,480,000 subject to the limiting conditions stated therein. (See "The Appraisal" above and Appendix B hereto.) The principal amount of the Bonds is $50,000,000*. Consequently, the estimated value, subject to the Special Tax lien, of the real property within the District, is approximately 4.55* times the principal amount of the Bonds and the other Overlapping Debt. The following tables summarize certain value to lien data for the District based on gross acreage and based on net taxable acreage, using a lien amount based on the proportion of Special Tax allocable to each property in the District. VALUE TO LIEN TABLES BASED ON GROSS ACREAGE ($7,336,506 Maximum Annual Special Tax) Value to Lien Ratios by Property Type (Based on gross acreage - $50,000,000 of Bonds) Projected Percentage of Property Appraised Bonded Maximum Special Projected Value to Lien Type (') Value (2) Indebtedness(3) Tax (4) Special Tax Ratio Commercial $51,285,000 $10,717,023 $1,572,510 21.43% 4.79:1 Residential 176,195,000 39,282,977 5,763,996 78.57 4.49:1 All $227,480,000 $50,000,000 $7,336,506 100.00% 4.55:1 (1) Based on Zones A-D as Commercial and Zone E as Residential. (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Residential and Commercial acreage is based on gross acreage defined in the appraisal. Value to Lien Ratios by Zone (Based on gross acreage - $50,000,000 of Bonds) Projected Percentage of Property Appraised Bonded Maximum Projected Value to Lien Type (1) Value° Indebtedness(3) Special Tax(4) Special Tax Ratio Zone A $ 6,740,000 $ 1,107,462 $ 162,498 2.21% 6.09:1 Zone B 14,945,000 3,607,358 529,308 7.21 4.14:1 Zone C 20,675,000 4,333,282 635,823 8.67 4.77:1 Zone D 8,925,000 1,168,921 244,281 3.34 5.35:1 Zone E 176,195,000 39,282,977 5,763,996 78.57 4.49:1 All $227,480,000 $50,000,000 $7,336,506 100.00% 4.55:1 (1) Based on Zones A-D as Commercial and Zone E as Residential. (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Residential and Commercial acreage is based on gross acreage defined in the appraisal. -37- Value to Lien Ratios by Parcel (Based on gross acreage - $50,000,000 of Bonds) Projected Percentage of Parcel Appraised Maximum Projected Value to Number(1) Value�1 Bonds(3) Special Tax(4) Special Tax Lien Ratio 1 $4,175,000 $1,042,295 $152,936 2.08% 4.01:1 2 13,485,000 3,366,753 494,004 6.73 4.01:1 3 21,005,000 5,244,104 769,468 10.49 4.01:1 4 15,035,000 3,522,849 516,908 7.05 4.27:1 5 7,940,000 1,860,177 272,944 3.72 4.27:1 6 4,120,000 965,773 141,708 1.93 4.27:1 7 6,375,000 1,330,633 195,244 2.66 4.79:1 7 2,925,000 501,601 73,600 1.00 5.83:1 8 6,000,000 1,167,320 171,281 2.33 5.14:1 9 68,590,000 14,559,301 2,136,288 29.12 4.71:1 10 19,055,000 3,770,351 553,224 7.54 5.05:1 11 8,190,000 1,793,374 263,142 3.59 4.57:1 12 9,535,000 1,943,159 285,120 3.89 4.91:1 13 2,950,000 596,749 87,561 1.19 4.94:1 14 4,345,000 1,350,098 198,100 2.70 3.22:1 15 12,070,000 2,270,645 333,172 4.54 5.32:1 16 14,945,000 3,607,358 529,308 7.21 4.14:1 17 6,740,000 1,107,462 162,498 2.21 6.09:1 All $227,480,000 $50,000,000 $7,336,506 100.00% 4.55:1 (1) Parcel 7 is shown with a portion in Zone E (6.973 acres) and a portion Zone D (3.2 acres), respectively. (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the RMA. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the RMA. Parcel acreage is based on gross acreage defined in the appraisal. Value to Lien Ratios by Owner (Based on gross acreage - $50,000,000 of Bonds) Projected Percentage Value Appraised Bonded Maximum of Projected to Lien Current Owner(') Value ) Indebtedness(3) Special Tax(')Special Tax Ratio Desert Wells 237 & ALBOR Properties III, L.P. $98,460,000 $22,954,633 $3,368,136 45.91% 4.29 :1 Palm Desert Forum, LLC 6,000,000 1,167,320 171,281 2.33 5.14 :1 Palm Desert Funding Company LP 80,660,000 16,829,946 2,469,460 33.66 4.79 :1 Shaw/Palm Desert 1, LLC 8,190,000 1,793,374 263,142 3.59 4.57 :1 The University Village Partnership 12,485,000 2,539,908 372,681 5.08 4.92 :1 Sinatra & Cook Project, LLC 14,945,000 3,607,358 529,308 7.21 4.14 :1 Donald L. McCoy and Marcellene W. McCoy 6,740,000 1,107,462 162,498 2.21 6.09 :1 All $227,480,000 $50,000,000 $7,336,506 100.00% 4.55 :1 -38- (1) Based on current ownership (does not account for unexercised options). (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Parcel acreage is based on gross acreage defined in the appraisal. -39- VALUE TO LIEN TABLES BASED ON NET ACREAGE ($5,087,040 Maximum Annual Special Tax) Value to Lien Ratios by Property Type (Based on minimum net taxable acreage - $50,000,000 of Bonds) Projected Percentage of Property Appraised Bonded Maximum Special Projected Value to Type) Value1�1 Indebtedness131 Tax141 Special Tax Lien Ratio Commercial $ 51,285,000 $14,360,414 $1,461,040 28.72% 3.57:1 Residential 176,195,000 35,639,586 3,626,000 71.28% 4.94:1 All $227,480,000 $50,000,000 $5,087,040 100.00% 4.55:1 (1) Based on Zones A-D as Commercial and Zone E as Residential. (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Residential and Commercial acreage is based on minimum net acreage defined in the Special Tax Formula. Value to Lien Ratios by Zone (Based on net taxable acreage - $50,000,000 of Bonds) Projected Percentage of Property Appraised Bonded Maximum Special Projected Value to Lien Type 11 Value(2) Indebtedness131 Tax (4) Special Tax Ratio Zone A $ 6,740,000 $ 1,459,297 $ 148,470 2.92% 4.62:1 Zone B 14,945,000 4,681,308 476,280 9.36 3.19:1 Zone C 20,675,000 5,936,556 603,990 11.87 3.48:1 Zone D 8,925,000 2,283,253 232,300 4.57 3.91:1 Zone E 176,195,000 35,639,586 3,626,000 71.28 4.94:1 All $227,480,000 $50,000,000 $5,087,040 100.00% 4.55:1 (1) Based on Zones A-D as Commercial and Zone E as Residential. (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Residential and Commercial acreage is based on minimum net acreage defined in the Special Tax Formula. -40- Value to Lien Ratios by Parcel (Based on net taxable acreage - $50,000,000 of Bonds) Projected Percentage of Parcel Appraised Bonded Maximum Projected Value to Number(') Value) Indebtedness") Special Tax(4) Special Tax Lien Ratio 1 $4,175,000 $945,624 $96,209 1.89% 4.42 :1 2 13,485,000 3,054,495 310,767 6.11 4.41 :1 3 21,005,000 4,757,727 484,055 9.52 4.41 :1 4 15,035,000 3,196,1 14 325,175 6.39 4.70 :1 5 7,940,000 1,687,651 171,703 3.38 4.70 :1 6 4,120,000 876,200 89,145 1.75 4.70 :1 7 6,375,000 1,207,221 122,824 2.41 5.28 :1 7 2,925,000 686,241 69,819 1.37 4.26 :1 8 6,000,000 1,597,012 162,481 3.19 3.76 :1 9 68,590,000 13,208,965 1,343,891 26.42 5.19 :1 10 19,055,000 3,420,661 348,021 6.84 5.57 :1 11 8,190,000 2,457,421 250,020 4.91 3.33 :1 12 9,535,000 2,661,764 270,810 5.32 3.58 :1 13 2,950,000 817,371 83,160 1.63 3.61 :1 14 4,345,000 1,224,880 124,620 2.45 3.55 :1 15 12,070,000 2,060,049 209,591 4.12 5.86 :1 16 14,945,000 4,681,308 476,280 9.36 3.19 :1 17 6,740,000 1,459,297 148,470 2.92 4.62 :1 All $227,480,000 $50,000,000 $5,087,040 100.00% 4.55 :1 (1) Parcel 7 is shown with a portion in Zone E (6.973 acres) and a portion Zone D (3.2 acres), respectively. Tax is calculated on Net Minimum Net Taxable Acreage defined in Special Tax Formula. For Residential Zone E parcels: individual net taxable acreage is not available as of 2/23/06 and is estimated on proportion of gross acreage. For Commercial Zone D: net tax taxable acreage is allocated between Parcels 7 and 8 based on proportion of gross acreage. (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Parcel acreage is based on minimum net acreage defined in the Special Tax Formula. -41- Value to Lien Ratios by Owner (Based on net taxable acreage - $50,000,000 of Bonds) Projected Percentage Value Appraised Bonded Maximum of Projected to Lien Current Owner(" Value) Indebtedness') Special Tax(4)Special Tax Ratio Desert Wells 237 & ALBOR Properties Ill, L.P. $98,460,000 $21,056,814 $2,142,337 42.11% 4.68:1 Palm Desert Forum, LLC 6,000,000 1,597,012 162,481 3.19 3.76:1 Palm Desert Funding Company LP 80,660,000 15,269,013 1,553,482 30.54 5.28:1 Shaw/Palm Desert 1, LLC 8,190,000 2,457,421 250,020 4.91 3.33:1 The University Village Partnership 12,485,000 3,479,135 353,970 6.96 3.59:1 Sinatra & Cook Project, LLC 14,945,000 4,681,308 476,280 9.36 3.19:1 Donald L. McCoy and Marcellene W. McCoy 6,740,000 1,459,297 148,470 2.92 4.62:1 All $227,480,000 $50,000,000 $5,087,040 100.00% 4.55:1 (1) Based on current ownership (does not account for unexercised options). (2) Source: Appraisal by Capital Realty Analysts, dated January 24, 2006. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Special Tax Formula. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Special Tax Formula. Parcel acreage is based on minimum net acreage defined in the Special Tax Formula. In comparing the appraised value of the real property within the District and the principal amount of the Bonds, it should be noted that only the real property upon which there is a delinquent Special Tax can be foreclosed upon, and the real property within the District cannot be foreclosed upon as a whole to pay delinquent Special Taxes of the owners of such parcels within the District unless all of the property is subject to a delinquent Special Tax. In any event, individual parcels may be foreclosed upon separately to pay delinquent Special Taxes levied against such parcels. Other public agencies whose boundaries overlap those of the District could, without the consent of the City and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the land within the District. The lien created on the land within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the Special Tax. In addition, construction loans may be obtained by the landowners or home loans may be obtained by ultimate homeowners. The deeds of trust securing such debt on property within the District, however, will be subordinate to the lien of the Special Tax. Overlapping Liens and Priority of Lien The principal of and interest on the Bonds are payable from the Special Tax authorized to be collected within the District, and payment of the Special Tax is secured by a lien on certain real property within the District. Such lien is co-equal to and independent of the lien for general taxes and any other liens imposed under the Act, regardless of when they are imposed on the property in the District. The imposition of additional special taxes, assessments and general property taxes will increase the amount of independent and co-equal liens which must be satisfied in foreclosure. The City, the County and certain other public agencies are authorized by the Act to form other community facilities districts and improvement areas and, under other -42- provisions of State law, to form special assessment districts, either or both of which could include all or a portion of the land within the District. -43- Set forth below is an overlapping debt table showing the existing authorized indebtedness payable with respect to property within the District as of . This table has been prepared by California Municipal Statistics Inc. as of the date indicated, and is included for general information purposes only. The City has not reviewed the data for completeness or accuracy and makes no representations in connection therewith. City of Palm Desert Community Facilities District No. 2005-1 (University Park) Overlapping Bonded Debt as of [ordered] Property in the District is also subject to an annual non-bonded special tax of the City's Emergency Services Special Assessment of approximately $48 per parcel. The property is not subject to any other special tax or assessment liens (other than the lien of the Special Tax). There can be no assurance that the landowners or any subsequent owner will not petition for the formation of other community facilities districts and improvement areas or for a special assessment district or districts and that parity special taxes or special assessments will not be levied by the County or some other public agency to finance additional public facilities. Private liens, such as deeds of trust securing loans obtained by a landowner, may be placed upon property in the District at any time. Under California law, the Special Taxes have priority over all existing and future private liens imposed on property subject to the lien of the Special Taxes. -44- Estimated Tax Burden on Single Family Home The following table sets forth the estimated total tax burden on a hypothetical single family home in the District, based on estimated Special Tax rates for Fiscal Year 2005-06. City of Palm Desert Community Facilities District No. 2005-1 (University Park) Sample Property Tax Bill - Fiscal Year 2005-06 Single Family Residence of 2,100 Square Feet* Percent of Total Assessed Assessed Valuation and Property Taxes Valuation Amount Value Land plus Improvements $543,500.00 Homeowner'Exemption 7,000.00 Subtotal Basis for Tax $536,500.00 Ad Valorem Estimated Existing Ad-Valorem Tax Rate 1.00000% $ 5,365.00 Desert Community College 0.01994% 106.98 Palm Springs Unified B & I 1992A 0.05715% 306.61 CVWD Imp District 54 0.01910% 102.47 Coachella Valley Water District 0.02080% 111.59 Subtotal Ad Valorem Taxes 1.11699% $ 5,992.65 Special Taxes and Assessments Coachella Valley Recreation& Park AD 97-1 $ 36.84 Coachella Valley Mosquito Assessment 4.00 City of Palm Desert Emg Svcs Special Asmt 48.00 Proposed New CFD 2005-1 Tax 3,507.00 Subtotal Special Assessments $ 3,595.84 Total Taxes $ 9,588.49 Total Tax Rate 1.76% * Based on FY 2005-06 tax rates, for TRA 18-073. Single family residence of 2,100 sq ft priced at $534,500 based on DPFG Land Use Information dated January 9, 2006. Sources: County of Riverside; DPFG; MuniFinancial. -45- SPECIAL RISK FACTORS The purchase of the Bonds described in this Official Statement involves a degree of risk that may not be appropriate for some investors. The following includes a discussion of some of the risks which should be considered before making an investment decision. Limited Obligation of the City to Pay Debt Service The City has no obligation to pay principal of and interest on the Bonds in the event Special Tax collections are delinquent, other than from amounts, if any, on deposit in the Reserve Account or funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent, nor is the City obligated to advance funds to pay such debt service on the Bonds. The Bonds are not general obligations of the City but are limited obligations of the City and the District payable solely from the proceeds of the Special Tax and certain funds held under the Indenture, including amounts deposited in the Reserve Account and investment income thereon, and the proceeds, if any, from the sale of property in the event of a foreclosure. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS." Any tax for the payment of the Bonds will be limited to the Special Tax to be collected within the jurisdiction of the District. Concentration of Ownership Land within the District is primarily owned by a small number of landowners. An owner of property in the District is not personally obligated to pay the Special Tax attributable to the owner's property. Rather, the Special Tax is an obligation only against the parcel of property, secured by the amount which could be realized in a foreclosure proceeding against the property, and not by any promise of the owner to pay. If the value of the property is not sufficient, taking into account other obligations also constituting a lien against the property, the City, Trustee and owners of the Bonds have no recourse against the owner, such as filing a lawsuit to collect money. Failure of a major landowner or any future owner of significant property subject to the Special Taxes in the District to pay installments of Special Taxes when due could cause the depletion of the Reserve Account prior to reimbursement from the resale of foreclosed property or payment of the delinquent Special Tax and, consequently, result in the delinquency rate reaching a level that would cause an insufficiency in collection of the Special Tax to meet the District's obligations on the Bonds. See "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT." In that event, there could be a delay or failure in payments on the Bonds. See "SPECIAL RISK FACTORS - Bankruptcy and Foreclosure Delays" below and "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS - Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure." Appraised Values The Appraisal in APPENDIX B estimates the value of the taxable property within the District. This value estimate is merely the present opinion of the Appraiser, and is subject to the assumptions and limiting conditions stated in the Appraisal. The City has not sought the present opinion of any other appraiser of the value of the taxed parcels. A different present opinion of value might be rendered by a different appraiser. The valuation set forth in the Appraisal is not a bulk sale value, which would represent the most probable price of all the parcels within District to a single purchaser or sales to multiple buyers, over a reasonable absorption period discounted to present value. The Appraisal estimates the aggregate value of property in the District expressed as the sum of the individual -46- parcel valuations. This value estimate was determined by applying the sales comparison approach to each parcel, as described in the Appraisal. The valuation does not represent a bulk valuation of all the property in the District or a sum or bulk valuations based on ownership or projected property uses. This value estimate excludes all discounts or allowances for carrying costs and is not equal to the market value of all the subject properties as a whole. The opinion of value relates to sale by a willing seller to a willing buyer of each parcel as of the date of valuation, each having similar information and neither being forced by other circumstances to sell or to buy. Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information. In addition, the opinion is a present opinion. It is based upon present facts and circumstances. Differing facts and circumstances may lead to differing opinions of value. The appraised market value is not evidence of future value because future facts and circumstances may differ significantly from the present. No assurance can be given that any of the appraised property in the District could be sold in a foreclosure for the estimated market value contained in the Appraisal. Such sale is the primary remedy available to Bondowners if that property should become delinquent in the payment of Special Taxes. Property Values and Property Development The value of Taxable Property within the District is a critical factor in determining the investment quality of the Bonds. If a property owner defaults in the payment of the Special Tax, the District's only remedy is to foreclose on the delinquent property in an attempt to obtain funds with which to pay the delinquent Special Tax. Land development and land values could be adversely affected by economic and other factors beyond the District's control, such as: a general economic downturn; adverse judgments in future litigation that could affect the scope, timing or viability of development; relocation of employers out of the area; stricter land use regulations; shortages of water, electricity, natural gas or other utilities; destruction of property caused by earthquake, flood or other natural disasters; environmental pollution or contamination. The Appraisal information included as APPENDIX B sets forth certain assumptions of the Appraiser in estimating the market value of the property within the District as of the date indicated. No assurance can be given that the land values are accurate if these assumptions are incorrect or that the values will not decline in the future if one or more events, such as natural disasters or adverse economic conditions, occur. See "Appraised Values" above. Neither the District nor the City have evaluated development risks. Since these are largely business risks of the type that property owners customarily evaluate individually, and inasmuch as changes in land ownership may well mean changes in the evaluation with respect to any particular parcel, the District is issuing the Bonds without regard to any such evaluation. Thus, the creation of the District and the issuance of the Bonds in no way implies that the District or the City has evaluated these risks or the reasonableness of these risks. The following is a discussion of specific risk factors that could affect the timing or scope of property development in the District or the value of property in the District. Land Development. Land values are influenced by the level of development in the area in many respects. -47- First, undeveloped or partially developed land is generally less valuable than developed land and provides less security to the owners of the Bonds should it be necessary for the District to foreclose on undeveloped or partially developed property due to the nonpayment of Special Taxes. Second, failure to complete development on a timely basis could adversely affect the land values of those parcels that have been completed. Lower land values would result in less security for the payment of principal of and interest on the Bonds and lower proceeds from any foreclosure sale necessitated by delinquencies in the payment of the Special Tax. See "APPRAISAL OF PROPERTY WITHIN THE DISTRICT—Value to Special Tax Burden Ratios." No assurance can be given that the proposed development within the District will be completed, and in assessing the investment quality of the Bonds, prospective purchasers should evaluate the risks of noncompletion. Risks of Real Estate Investment Generally. Continuing development of land within the District may be adversely affected by changes in general or local economic conditions, fluctuations in the real estate market, increased construction costs, development, financing and marketing capabilities of individual property owners, water or electricity shortages, and other similar factors. Development in the District may also be affected by development in surrounding areas, which may compete with the District. In addition, land development operations are subject to comprehensive federal, state and local regulations, including environmental, land use, zoning and building requirements. There can be no assurance that proposed land development operations within the District will not be adversely affected by future government policies, including, but not limited to, governmental policies to restrict or control development, or future growth control initiatives. There can be no assurance that land development operations within the District will not be adversely affected by these risks. Natural Disasters. The value of the parcels in the District in the future can be adversely affected by a variety of natural occurrences, particularly those that may affect infrastructure and other public improvements and private improvements on the parcels in the District and the continued habitability and enjoyment of such private improvements. For example, the areas in and surrounding the District, like those in much of California, may be subject to earthquakes or other unpredictable seismic activity, however, the District is not located in a seismic special studies zone. Other natural disasters could include, without limitation, landslides, floods, droughts or tornadoes. One or more natural disasters could occur and could result in damage to improvements of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances there could be significant delinquencies in the payment of Special Taxes, and the value of the parcels may well depreciate. Legal Requirements. Other events that may affect the value of a parcel include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures. Development in the District may also be adversely affected by the application of laws protecting endangered or threatened species. Hazardous Substances. Any discovery of a hazardous substance detected on property within the District would affect the marketability and the value of some or all of the property in the District. In that event, the owners and operators of a parcel within the District may be required by law to remedy conditions of the parcel relating to releases or threatened -48- releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws. California laws with regard to hazardous substances are also applicable to property within the District and are as stringent as the federal laws. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the parcels be contaminated by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. The values set forth in the Appraisal do not take into account the possible reduction in marketability and value of any of the parcels within the District by reason of the possible liability of the owner (or operator) for the remedy of a hazardous substance condition on a parcel. Although the City is not aware that the owner (or operator) of any of the property within the District has a current liability for a hazardous substance with respect to any of the parcels, it is possible that such liabilities do currently exist and that the City is not aware of them. Further, it is possible that liabilities may arise in the future with respect to any of the parcels within the District resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel within the District that is realizable upon a foreclosure sale. Endangered and Threatened Species. It is illegal to harm or disturb any plants or animals in their habitat that have been listed as endangered species by the United States Fish & Wildlife Service under the Federal Endangered Species Act or by the California Fish & Game Commission under the California Endangered Species Act without a permit. Although the landowners believe that no federally listed endangered or threatened species would be affected by the proposed development within the District, other than any that are permitted by the entitlements already received, the discovery of an endangered plant or animal could delay development of vacant property in the District or reduce the value of undeveloped property. Bankruptcy and Foreclosure Delays The payment of the Special Tax and the ability of the District to foreclose the lien of a delinquent unpaid tax, as discussed in "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS— Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure," may be limited by bankruptcy, insolvency or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion)will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases. Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings and could result in the possibility of delinquent Special Tax installments not being paid in full. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds. To the extent that property in the District continues to be owned by a limited number of property owners, the chances are increased that -49- the Reserve Account established for the Bonds could be fully depleted during any such delay in obtaining payment of delinquent Special Taxes. As a result, sufficient moneys would not be available in the Reserve Account for transfer to the Bond Fund to make up shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis. To the extent that bankruptcy or similar proceedings were to involve a large property owner, the chances would increase the likelihood that the Bond Reserve Account could be fully depleted during any resulting delay in receiving payment of delinquent Special Taxes. As a result, sufficient monies would not be available in the Bond Reserve Account for transfer to the Bonds Redemption Account to make up any shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis. Parity Taxes and Special Assessments; Private Debt The City, the County and certain other public agencies are authorized by the Act to form other community facilities districts and improvement areas and, under other provisions of State law, to form special assessment districts, either or both of which could include all or a portion of the land within the District. In general, as long as the Special Tax is collected on the County tax roll, the Special Tax and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securing the Bonds, the Special Tax will be subordinate only to existing prior governmental liens, if any. Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro-rata basis. Although the Special Taxes will generally have priority over non-governmental liens on a parcel of Taxable Property, regardless of whether the non-governmental liens were in existence at the time of the levy of the Special Tax or not, this result may not apply in the case of bankruptcy. See "— Bankruptcy and Foreclosure Delays" above. There can be no assurance that property owners within the District will not petition for the formation of other community facilities districts and improvement areas or for a special assessment district or districts and that parity special taxes or special assessments will not be levied by the County or some other public agency to finance additional public facilities. In addition to liens for special taxes or assessments to finance public improvements of benefit to land within the District, owners of property may obtain loans from banks or other private sources which loans may be secured by a lien on the parcels in the District. Such loans would increase amounts owed by the owner of such parcel with respect to development of its property in the District. However, the lien of such loans would be subordinate to the lien of the Special Taxes. Tax Delinquencies Under provisions of the Act, the Special Taxes will be billed to the properties within the District on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for nonpayment, as do regular property tax installments. Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and Special Tax payments in the future. -50- The annual Special Tax will be billed and collected in two installments payable without penalty by December 10 and April 10. In the event such Special Taxes are not timely paid, moneys available to pay debt service on the Bonds becoming due on the subsequent respective March 1 and September 1 may be insufficient, except to the extent moneys are available in the Reserve Account. In the event of non-payment of Special Taxes, funds in the Reserve Account, if available, may be used to pay principal of and interest on the Bonds. If funds in the Reserve Account for the Bonds are depleted, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid to the Bond holders pursuant to the Indenture. However, no replenishment from the proceeds of a Special Tax levy can occur as long as the proceeds that are collected from the levy of the Special Tax against property within the District at the maximum Special Tax rates, together with other available funds, remains insufficient to pay all such amounts. Thus it is possible that the Reserve Account will be depleted and not be replenished by the levy of the Special Tax. See"SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Delinquent Payments of Special Tax; Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the City is obligated to follow, in the event of delinquency in the payment of Special Taxes. No Acceleration Provisions The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Indenture. Under the Indenture, a Bond holder is given the right for the equal benefit and protection of all Bond holders similarly situated to pursue certain remedies. See "APPENDIX C — Summary of Certain Provisions of the Indenture." So long as the Bonds are in book-entry form, DTC will be the sole Bond holder and will be entitled to exercise all rights and remedies of Bond holders. Ballot Initiatives From time to time, initiative measures qualify for the State ballot pursuant to the State's constitutional initiative process and those measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the City, the County or other local districts to increase revenues or to increase appropriations or on the ability of the landowners to complete the development of the District. See "Property Values and Property Development—Land Development"above. See also "Proposition 218" below. Proposition 218 On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments and property related fees and charges. Article XIIIC removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. Article XIIIC does not define the term "local taxes" and it is unclear whether this term is intended to include special taxes levied under the Act. This provision with respect to the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218. In the case of the Special Taxes which are pledged as security for payment of the Bonds, the laws of the State provide a mandatory, statutory duty of -51- the City and the County Auditor to post the Special Taxes on the property tax roll of the County each year while any of the Bonds are outstanding. Additionally, on July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code 5854, which states: Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996 general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protection by Section 10 of Article I of the United States Constitution. The Special Taxes and the Bonds were each authorized by not less than a two-thirds vote of the landowners within the District, who constituted the qualified electors of the District at the time of such voted authorization. The City believes, therefore, that issuance of the Bonds does not require the conduct of further proceedings under the Act or Proposition 218. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. CONSTITUTIONAL LIMITATIONS ON TAXATION AND APPROPRIATIONS Article XIIIA of the California Constitution, commonly known as "Proposition 13," provides that each county will levy the maximum ad valorem property tax permitted by Proposition 13 and will distribute the proceeds to local agencies in accordance with an allocation formula based in part on pre-Proposition 13 ad valorem property tax rates levied by local agencies. Article XIIIA limits the maximum ad valorem tax on real property to 1% of "full cash value," which is defined as 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 increases of no more than 2% per year or decreases in the consumer price index or comparable local data, or declining property value 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 requires a vote of two-thirds of the qualified electorate to impose Special Taxes or any additional ad valorem, sales, or transaction taxes on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. On June 3, 1986, California voters approved an amendment to Article XIIIA of the California Constitution to allow local governments and school districts to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approved by two-thirds of the votes cast by the qualified electorate. If any such voter-approved debt is issued, it may be on a parity with the lien of the Special Tax on the parcels within the District. State and local government agencies in the State, and the State itself are subject to annual appropriation limits, imposed by Article XIIIB of the State Constitution. Article XIIIB prohibits government agencies and the State from spending "appropriations subject to limitation" in excess of the appropriations limits imposed. "Appropriations subject to limitation" are authorizations to spend "proceeds of taxes," which consist of tax revenues, certain state subventions and -52- certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed the cost reasonably borne by such entity in providing the regulation, product or service. No limit is imposed on appropriations of funds which are not "proceeds of taxes" such as debt service on indebtedness existing or authorized before January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, reasonable user charges or fees and certain other non-tax funds. CONTINUING DISCLOSURE The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the District by not later than the next January 15th after the end of the City's fiscal year (presently June 30) in each year (the "City Annual Report") commencing with its report for the 2005-06 fiscal year (due January 15, 2007) and to provide notices of the occurrence of certain enumerated events. Palm Desert Funding Company LP and have each also covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the property it owns, or its affiliates or subsidiaries, or entities it has an interest in or controls owns, in the District by not later than April 1 of each year (reflecting reported information as of December 31 of the prior year) beginning with the report due (the "Developer Annual Report") and to provide notices of the occurrence of certain enumerated events. The obligation of each such respective landowner to provide such information is in effect only so long as each such respective landowner and its affiliates, or their successors, are collectively responsible for a certain percentage of the Special Taxes, as described in the Developer Annual Report. The City Annual Report and the Developer Annual Report will be filed with each Nationally Recognized Municipal Securities Information Repository. The notices of material events will be filed with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the "Rule"). The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized in "APPENDIX F—FORM OF CONTINUING DISCLOSURE UNDERTAKINGS." The City has had no instance in the previous five years in which it failed to comply in all material respects with any previous continuing disclosure obligation under the Rule. UNDERWRITING The Bonds were purchased through negotiation by Stinson Securities, LLC and Kinsell Newcomb & DeDios, Inc. (together, the "Underwriter"). The Underwriter agreed to purchase the Bonds at a price of $ (which is equal to the par amount of the Bonds, less an original issue discount of$ and less the Underwriter's discount of $ ). The initial public offering prices set forth on the cover page hereof may be changed by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at a price lower than the public offering prices set forth on the cover page hereof. FINANCIAL ADVISOR The City has retained Del Rio Advisors, LLC, of Modesto, California, as financial advisor -53- (the "Financial Advisor") in connection with the issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. Del Rio Advisors, LLC, is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. LEGAL OPINION The validity of the Bonds and certain other legal matters are subject to the approving opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix E to this Official Statement, and the final opinion will be made available to registered owners of the Bonds at the time of delivery. Certain legal matters will be passed on by Jones Hall, a Professional Law Corporation, San Francisco, California, as Disclosure Counsel. The fees of Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. TAX MATTERS 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 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 District 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 District 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 District has covenanted to take the actions required of it 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. -54- 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 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 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 cover of this Official Statement should consult their own tax advisers regarding other tax considerations such as the consequences of market discount. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix E -55- RATINGS The City has not applied to a rating agency for the assignment of a rating to the Bonds and does not contemplate applying for a rating. NO LITIGATION At the time of delivery of and payment for the Bonds, the City Attorney will deliver his opinion that to the best of its knowledge there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or regulatory agency pending against the City affecting its existence or the titles of its officers to office or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indenture, or the collection or application of the Special Tax to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the Bonds or any action of the City contemplated by any of said documents. EXECUTION The execution and delivery of this Official Statement by the City has been duly authorized by the City Council on behalf of the District. CITY OF PALM DESERT By: City Manager -56- APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX APPENDIX B THE APPRAISAL APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX D THE CITY OF PALM DESERT AND RIVERSIDE COUNTY The District is located in the City of Palm Desert in Southwestern Riverside County. The financial and economic data for the City are presented for information purposes only. The Bonds are not a debt or obligation of the City or the County, but are a limited obligation of the City secured solely by the funds held pursuant to the Indenture. General Description The City of Palm Desert(the "City") is located in the central portion of 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 is bounded by Indian Wells to the east, Rancho Mirage to the west, the Santa Rosa mountains to the south and Interstate 10 to the north. Palm Desert is approximately 250 feet above sea level and is the point of termination for State Highway 74, the most direct access to the San Diego area. 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. The City occupies an area of 24.75 square miles. Government The City was incorporated on November 26, 1973, as a general law city, governed under California's State regulations. In 1997, voters approved changing Palm Desert's designation from general law to a charter city in order to preserve the historic principles of self-governance and derive the resulting social, economic, and fiscal benefits from local control. Those charged with governing according to the charter are the five members of Palm Desert's City Council. The Mayor is appointed from within the City Council for a one-year term. All City Council members are elected at large for four-year terms, staggered every two years. General Municipal Elections are conducted in November of even-numbered years, consolidated with the Statewide General Election. The City Council enacts City ordinances, establishes policies, represents the public, maintains intergovernmental relations, and exercises general oversight over the affairs of City government, the Redevelopment Agency, Financing Authority, Housing Authority, and Parking Authority. The City Council appoints a City Manager to conduct the day-to-day business of the City. Population The following sets forth the City, the County and the State population estimates as of January 1 for the years 2000 to 2004: D-1 CITY OF PALM DESERT, RIVERSIDE COUNTY AND STATE OF CALIFORNIA Estimated Population Year City of Riverside State of (January 1) Palm Desert County California 2000 41,000 1,533,800 33,753,000 2001 41,950 1,584,300 34,367,000 2002 42,900 1,645,300 35,000,000 2003 44,300 1,719,000 35,612,000 2004 44,800 1,776,700 36,144,000 Source: State of California Department of Finance, Demographic Research Unit. Taxable Transactions Total taxable sales reported during the first quarter of calendar year 2003 in the City were reported to be $344,832,000, a 4.9% increase over the total taxable sales of $328,630,000 reported during the first quarter of calendar year 2002. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City is presented below. Annual figures are not yet available for 2003. CITY OF PALM DESERT Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transaction s 1998 1,109 768,553 2,363 923,979 1999 1,256 912,663 2,549 1,098,211 2000 1,376 1,020,025 2,627 1,217,986 2001 1,529 1,015,932 2,833 1,211,069 2002 1,532 1,019,327 2,979 1,209,385 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. Annual figures are not yet available for 2003. D-2 COUNTY OF RIVERSIDE Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands) Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transaction s 1998 13,408 $ 9,276,448 33,623 $13,140,854 1999 14,676 10,685,724 34,117 15,076,945 2000 16,309 12,190,474 36,117 16,979,449 2001 17,403 13,173,281 38,011 18,231,555 2002 17,646 14,250,733 38,767 19,498,994 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Employment and Industry The City is included in the Riverside-San Bernardino labor market area. The unemployment rate in the Riverside-San Bernardino MSA was 5.3 percent in April 2004, down from a revised 5.8 percent in March 2004, and below the year-ago estimate of 5.7 percent. This compares with an unadjusted unemployment rate of 6.1 percent for California and 5.4 percent for the nation during the same period. The unemployment rate was 5.3 percent for Riverside County and 5.4 percent in San Bernardino County. 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. D-3 RIVERSIDE-SAN BERNARDINO METROPOLITAN STATISTICAL AREA (RIVERSIDE COUNTY) Civilian Labor Force, Employment and Unemployment (Annual Averages) 1999 2000 2001 2002 2003 Civilian Labor Force(1) 1,436,300 1,508,000 1,562,300 1,639,700 1,688,300 Employment 1,362,900 1,430,800 1,484,100 1,543,400 1,588,700 Unemployment 73,400 77,200 78,200 96,300 99,600 Unemployment Rate 5.1% 5.1% 5.0% 5.9% 5.9% Wage and Salary Employment: (2) Agriculture 21,300 21,700 20,900 20,300 20,400 Natural Resources and Mining 1,300 1,300 1,200 1,200 1,300 Construction 71,700 80,100 88,400 90,900 97,500 Manufacturing 115,300 120,100 118,600 115,400 113,500 Wholesale Trade 34,900 38,300 41,600 41,900 43,800 Retail Trade 121,800 127,400 132,200 137,500 141,700 Transportation, Warehousing and Utilities 44,800 46,400 45,600 46,000 47,500 Information 12,800 12,900 14,600 14,100 13,800 Finance and Insurance 21,000 20,600 22,900 23,500 25,300 Real Estate and Rental and Leasing 13,800 14,200 15,300 15,900 16,800 Professional and Business Services 89,400 97,000 101,700 106,800 113,100 Educational and Health Services 99,700 102,200 106,000 112,400 115,300 Leisure and Hospitality 89,100 91,000 94,200 99,800 102,200 Other Services 95,800 100,800 104,400 107,200 108,300 Federal Government 33,600 35,000 37,100 38,100 38,400 State Government 17,500 18,200 16,900 16,900 17,000 Local Government 23,500 24,600 25,800 26,600 26,600 Total All Industries 142,100 149,300 157,600 169,300 167,800 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers,and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers,and workers on strike. Source: State of California Employment Development Department. D-4 Major Employers The following table lists the largest employers within the County: COUNTY OF RIVERSIDE Major Employers (As of June 2003) Employer Name Location Industry County of Riverside Riverside Public Administration (Government) University of California, Riverside . Riverside Higher Education Stater Brothers Markets Colton Grocery Retailer Corona Norco Unified School District Norco School District Riverside Unified School District Riverside School District Wal-Mart Stores Inc. Bentonville, Arkansas Retailer Riverside Community College Riverside Higher Education Guidant Corp. Indianapolis, Indiana Medical Technology Kaiser Permanente Medical Center Riverside Health Maintenance Organization Moreno Valley Unified School District Moreno Valley School District City of Riverside Riverside Municipal Government Murrieta Valley Unified School District Murrieta School District Hemet Valley Health System Hemet Health Care Hemet Unified School District Hemet School District Eisenhower Medical Center Rancho Mirage General Acute Care Hospital Source:County Economic Development Agency. Construction Activity The following is a five-year summary of the valuation of building permits issued in the City and the County. CITY OF PALM DESERT Building Permit Valuation (Valuation in Thousands of Dollars) 1999 2000 2001 2002 2003 Permit Valuation New Single-family $150,772.0 $65,066.1 New Multi-family 0.0 14,548.3 28,885.0 27,001.6 11,992.5 Res. Alterations/Additions 6,610.8 7,684.4 9,043.2 12,957.5 9,328.9 Total Residential 157,382.9 158,422.0 120,073.2 100,486.0 86,387.6 New Commercial 7,583.4 19,855.9 11,177.0 14,707.5 7,272.6 New Industrial 2,238.2 7,561.9 5,438.4 3,012.0 712.6 New Other 1,017.0 316.0 1,264.2 1,160.0 1,249.8 Corn. Alterations/Additions 6,408.3 10,686.2 18,439.4 22,534.2 10,888.0 Total Nonresidential 17,247.0 38,419.9 36,319.0 41,413.7 20,123.0 New Dwelling Units Single Family 504 417 255 221 237 Multiple Family 0 116 411 310 101 TOTAL 504 533 666 531 338 Source: Construction Industry Research Board,Building Permit Summary D-5 COUNTY OF RIVERSIDE Building Permit Valuation (Valuation in Thousands of Dollars) 1999 2000 2001 2002 2003 Permit Valuation New Single-family $2,275,765.9 $2,519,841.4 $3,051,190.4 $3,670,371.4 $4,665,675.7 New Multi-family 130,795.9 125,296.2 174,628.0 165,413.0 406,483.0 Res. Alterations/Additions 65,796.0 67,303.7 70,849.7 87,842.9 106,855.8 Total Residential 2,472,357.8 2,712,441.4 3,296,668.2 3,923,627.4 5,179,014.5 New Commercial 255,646.1 393'509.9 287,068.6 297,963.6 360,707.4 New Industrial 112,238.5 98,621.8 74,766.3 80,881.6 112,706.6 New Other 117,198.1 119,978.4 152,854.0 187,510.6 261,793.6 Corn. Alterations/Additions 126,079.4 157,802.1 143,351.7 174,785.7 173,165.5 Total Nonresidential 611,162.1 769,912.2 658,040.6 741,141.5 908,373.1 New Dwelling Units Single Family 12,659 13,630 16,556 20,591 25,137 Multiple Family 1,920 1,780 2,458 2,073 5,224 TOTAL 14,579 15,410 19,014 22,664 30,361 Source: Construction Industry Research Board,Building Permit Summary 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." D-6 COUNTY OF RIVERSIDE Effective Buying Income 1998 through 2002 Total Effective Median Household Buying Income Effective Buying Year Area (000's Omitted) Income 1998 Riverside County $ 20,543,675 $33,089 California 524,439,600 36,483 United States 4,399,998,410 34,618 1999 Riverside County $ 22,453,426 $35,145 California 590,376,663 39,492 United States 4,877,786,658 37,233 2000 Riverside County $ 25,144,120 $39,293 California 652,190,282 44,464 United States 5,230,824,904 39,129 2001 Riverside County $ 23,617,301 $37,480 California 650,521,407 43,532 United States 5,303,481,498 38,365 2002 Riverside County $ 25,180,040 $38,691 California 647,879,427 42,484 United States 5,340,682,818 38,035 Source: Sales & Marketing Management Survey of Buying Power 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. D-7 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 also located in the City. 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-8 APPENDIX E FORM OF OPINION OF BOND COUNSEL E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE UNDERTAKINGS CONTINUING DISCLOSURE AGREEMENT (City) THIS CONTINUING DISCLOSURE AGREEMENT(the"Disclosure Agreement") is dated as of , 2006, is by and between the City of Palm Desert, a public body, corporate and politic, organized and existing under and by virtue of the laws of the State of California (the "Issuer" or the "City"), and MuniFinancial, Temecula, California, in its capacity as Dissemination Agent (the "Dissemination Agent"). WITNESSETH : WHEREAS, pursuant to a Indenture dated as of April 1, 2006 (the "Indenture") by and between the City and Wells Fargo Bank, National Association, as the Trustee, the City has issued its City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds Series 2006A (the "Bonds"), in the aggregate principal amount of$ ; and WHEREAS, this Disclosure Agreement is being executed and delivered by the City and the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW,THEREFORE,for and in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: SECTION 1. Definitions. In addition to the definitions set forth in the Agreement, 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 City pursuant to, and as described in, Sections 2 and 3 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. "Disclosure Representative" shall mean the designees of the City to act as the disclosure representative. "Dissemination Agent" shall mean MuniFinancial, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City. F-1 "Listed Events" shall mean any of the events listed in Section 4(a) of this Disclosure Agreement and any other event legally required to be reported pursuant to the Rule. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Any filing under this Disclosure Agreement with a National Repository may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. "Official Statement" means the Official Statement, dated , 2006, relating to the Bonds. "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with 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, 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 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than January 15 after the end of the City's fiscal year, commencing with the fiscal year ending June 30, 2006 (for the report due January 15, 2007), provide to each Repository an Annual Report which is consistent with the requirements of Section 3 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 3 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the City shall provide the Annual Report to the Dissemination Agent. The City shall provide an Officer's Certificate with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder. The Dissemination Agent may conclusively rely upon such Officer's Certificate of the City. (b) If by fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the Repositories, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with subsection (a). (c) 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 provide to (i)each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository (with a copy to the Trustee) a notice, in substantially the form attached as Exhibit A. F-2 (d) With respect to the Annual Report, 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 the State Repository, if any; and (i) (if the Dissemination Agent is other than the City), to the extent appropriate information is available to it, file a report with the City 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 3. Content of Annual Reports. The City's Annual Report shall contain or include by reference the following: (a) The following information: 1. Principal amount of Bonds outstanding. 2. Balance in the improvement fund or construction account. 3. Balance in debt service Reserve Account, and statement of the Reserve Account requirement. Statement of projected Reserve Account draw, if any. 4. Balance in other funds and accounts held by Issuer or fiscal agent related to the Bonds. 5. Additional debt authorized by the City and payable from or secured by assessments or special taxes with respect to property within the District. 6. The Special Tax levy, the delinquency rate, total amount of delinquencies, number of parcels delinquent in payment for the five most recent fiscal years. 7. Notwithstanding the June 30th reporting date for the Annual Report, the following information shall be reported as of the last day of the month immediately preceding the date of the Annual Report rather than as of June 30th. Identity of each delinquent taxpayer responsible for 5 percent or more of total special tax/assessment levied, and the following information: assessor parcel number, assessed value of applicable properties, amount of Special Tax levied, amount delinquent by parcel number and status of foreclosure proceedings. If any foreclosure has been completed, summary of results of foreclosure sales or transfers. 8. Most recently available total assessed value of all parcels subject to the special tax or assessment. 9. List of landowners and assessor's parcel number of parcels subject to 20% or more of the Special Tax levy including the following information: development status to the extent shown in City records , land use classification, assessed value (land and improvements). (b) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City's audited financial statements are not F-3 available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to that used for the City's audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; provided, that in each Annual Report or other filing containing the City's financial statements, the following statement shall be included in bold type: THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15C2-12. NO FUNDS OR ASSETS OF THE CITY OF PALM DESERT(OTHER THAN THE PROCEEDS OF THE SPECIAL TAXES LEVIED FOR THE COMMUNITY FACILITIES DISTRICT AND SECURING TI-E BONDS)ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS AND THE CITY IS NOT OBLIGATED TO ADVANCE AVAILABLE FUNDS FROM THE CITY TREASURY TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the City is an "obligated person" (as defined by the Rule), which have been filed with each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. SECTION 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 4, the City shall give an Officer's Certificate including 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. Modifications to rights of Bondholders. 4. Optional, contingent or unscheduled Bond calls. 5. Defeasances. 6. Rating changes. 7. Adverse tax opinions or events affecting the tax-exempt status of the Bonds. 8. Unscheduled draws on the debt service reserves, if any, reflecting financial difficulties. 9. Unscheduled draws on credit enhancements reflecting financial difficulties. 10. Substitution of credit or liquidity providers, or their failure to perform. 11. Release, substitution, or sale of property securing repayment of the Bonds. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would constitute material information for Holders of Bonds, provided, that any event under subsection (a)(6)will always be defined to be material. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall, or by written direction cause the Dissemination Agent (if not the City) to, promptly file a notice of such occurrence with (i) F-4 each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository with a copy to the Trustee, together with written direction to the Trustee whether or not to notify the Bond holders of the filing of such notice. In the absence of any such direction, the Trustee shall not send such notice to the Bond holders. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and 5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates pursuant to the Indenture. (d) If in response to a request under subsection (b), the City determines that the Listed Event would not be material under applicable federal securities laws, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e). (e) If the Dissemination Agent has been instructed by the City to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Repository. Notwithstanding the foregoing: SECTION 5. Termination of Reporting Obligation. The obligations of the City, the Dissemination Agent 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 City shall give notice of such termination in the same manner as for a Listed Event under Section 4(e) hereof. If the City's obligations under the Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the City, and the City shall have no further responsibility hereunder. SECTION 6. Dissemination Agent. The City 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 Dissemination Agent may resign at any time by providing at least 30 days' notice in writing to the Issuer and the City. SECTION 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Issuer, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of either such party) and any provision of this Disclosure Agreement may be waived if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to the Issuer, the City and the Dissemination Agent to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule. SECTION 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City 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 City 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 City 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. F-5 SECTION 9. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their respective 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 negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City 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 shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Bondholders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 10. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: City: City of Palm Desert 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: Bank of New York Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, CA 90017-4104 (213) 630-6237 (213) 630-6215 Fax Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 12. 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. F-6 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. CITY OF PALM DESERT, for and on behalf of City of Palm Desert Community Facilities District No. 2005-1 (University Park) By: Authorized Officer MUNIFINANCIAL as Dissemination Agent By: Authorized Officer F-7 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palm Desert Nameof Bond Issue: $ City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds Series 2006A Date of Issuance: , 2006 NOTICE IS HEREBY GIVEN that the City of Palm Desert (the "City") on behalf of City of Palm Desert Community Facilities District No. 2005-1 (University Park) has not provided an Annual Report with respect to the above-named Bonds as required by the Indenture dated as of April 1, 2006 (the "Indenture") by and between the City and Wells Fargo Bank, National Association, as Trustee. The City anticipates that the Annual Report will be filed by . Dated: MUNIFINANCIAL, as Dissemination Agent, on behalf of City of Palm Desert Community Facilities District No. 2005-1 (University Park) By: Authorized Officer cc: City of Palm Desert F-8 CONTINUING DISCLOSURE AGREEMENT (Developer) THIS CONTINUING DISCLOSURE AGREEMENT(the"Disclosure Agreement")dated as of , 2006, is by and between (the "Developer") and MuniFinancial, Temecula, California, in its capacity as Dissemination Agent (the "Dissemination Agent"). WITNESSETH: WHEREAS, pursuant to the Indenture dated as of April 1, 2006 (the "Indenture"), by and between the City and the Dissemination Agent, in its capacity as Trustee thereunder, the City has issued its City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds Series 2006A (the "Bonds"), in the aggregate principal amount of $ and WHEREAS,this Disclosure Agreement is being executed and delivered by the Developer and the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the Bonds; NOW, THEREFORE,for and in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: SECTION 1. Definitions. In addition to the definitions set forth in the Agreement, 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 Developer pursuant to, and as described in, Sections 2 and 3 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, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City. "Issuer" shall mean the City of Palm Desert, Riverside County, California. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Any filing under this Disclosure Agreement with a National Repository may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.disclosureusa.orq unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. "Official Statement" means the Official Statement, dated, , 2006, relating to the Bonds. "Participating Underwriter" shall mean any of the original underwriters of the Bonds. F-9 "Project" shall mean the proposed subdivision within the District, as described in the Official Statement. "Repository" shall mean each National Repository and each State Repository. "State"shall mean the State of California. SECTION 2. Provision of Annual Reports. (a) The Developer shall, not later than April 1st of each year (reflecting reported information as of December 31st of the prior year) beginning with the report due April 1, 2007 and continuing while this agreement is in effect, provide to the Dissemination Agent an Annual Report which is consistent with the requirements of Section 3 of this Disclosure Agreement with a copy to the Issuer. The Developer shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Issuer to the effect that the Annual Report is being provided pursuant to this Disclosure Agreement. 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. If the Developer's fiscal year changes, it shall give notice of such change in the manner set forth under Section 4(c). Additionally, the Developer shall provide to any party that so requests by a written request made within 30 days prior to any July 1, October 1 or January 1, beginning July 1, 2006, a quarterly report which is consistent with the requirements of Section 3 of this Disclosure Agreement, except that the reported information shall cover only the period from the April 1 next preceding the quarterly reporting date. Such quarterly report shall be delivered to the address given in the notice requesting such report, within 30 days after such applicable July 1, October 1 or January 1 requested report date. (b) If by fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the Repositories, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Developer to determine if the Developer is in compliance with subsection (a). (c) If the Developer is unable to provide to the Dissemination Agent an Annual Report by the date required in subsection (a), the Developer shall send a notice to the Dissemination Agent substantially the form attached as Exhibit A. (d) 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 the State Repository, if any; and (ii) (if the Dissemination Agent is other than the Developer), to the extent appropriate information is available to it, file a report with the Developer 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 3. Content of Annual Reports. The Developer's Annual Report shall contain or incorporate by reference the following, if material: F-10 (a) Any significant changes in the information contained in the Official Statement under the headings: "THE DISTRICT-Anticipated Development in the District" and the status of completion of the Project(as defined in the Official Statement). (b) A general description of the development status of the parcels within the District. (c) A summary of property within the District sold by the Developer since the date of the Official Statement. (d) A description of any change in the legal structure of the Developer which is material to Bond investors. (e) Material changes in Project costs, status of any construction loans and any permanent financing received by the Developer with respect to the Project that could have a significant impact on the Developer's ability to complete the construction and sale of homes within the District. (f) Any denial of credit, lines of credit, loans or loss of source of capital that could have a significant impact on the Developer's ability to pay the Special Tax or other taxes or assessments or to comply with its obligations under the Development Agreement. (g) Any failure by the Developer to pay when due general property taxes, assessments or special taxes with respect to its property in the District. (h) Any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that are necessary to complete the development plan. (I) A description of any changes to the Development Agreement which materially adversely affect the development of the property within the District as set forth in the Official Statement. SECTION 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 4, the Developer shall give, to the Dissemination Agent, notice of the occurrence of any of the following events with respect to the Bonds, if material: (I) failure to pay any real property taxes (including any assessments or special taxes) levied within the District on a parcel owned by the Developer. (ii) the discovery of toxic material or hazardous waste which will require remediation on any property owned by the Developer subject to the Special Tax. (iii) default by the Developer on any loan with respect to the construction or permanent financing of public or private improvements with respect to the Project. (iv) Initiation of Dissemination bankruptcy proceedings (whether voluntary or involuntary) by the Developer or any related entity. F-11 (b) Whenever the Developer obtains knowledge of the occurrence of an event described in section (a), the Developer shall as soon as possible determine if such event would be material to Bond investors under applicable federal securities laws. (c) If the Developer determines that knowledge of the occurrence of such event would be material under applicable federal securities laws, the Developer shall promptly provide a notice of such occurrence to the Dissemination Agent, with a copy to the Issuer. SECTION 5. Termination of Reporting Obligation. The obligations of the Developer and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. In addition the Developer shall have no obligations hereunder if the Special Tax of the District on all property within the District owned by the Developer and affiliates or partners thereof is less than twenty percent (20%) of the total Special Tax for the entire District. If such termination occurs prior to the final maturity of the Bonds, the Developer shall give notice of such termination in the manner set forth under Section 4(c). SECTION 6. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Developer and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Developer, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of either such party), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 2(a), 3, or 4(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements or change in law; (b) The amendment or waiver either(i) is approved by the Bondholders of the Bonds in the same manner as provided in the Agreement for amendments to the Agreement with the consent of Bondholders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondholders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Developer shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type of information being presented by the Developer. SECTION 7. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Developer 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 material event, in addition to that which is required by this Disclosure Agreement. If the Developer chooses to include any information in any Annual Report or notice of occurrence of a material event in addition to that which is specifically required by this Disclosure Agreement, the Developer 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 material event. SECTION 8. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Developer agrees to indemnify and save the Dissemination Agent, its F-12 officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their respective 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 negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Developer 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 shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Bondholders, or any other party. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 9. Subsequent Developers. The Developer will require, as a condition of sale of any property which the Developer sells within the Project resulting in a new owner who, together with affiliates or partners thereof, owns at least twenty percent (20%) of the total assessments for the entire District, that such purchaser execute an agreement substantially in the form of this Disclosure Agreement, unless this Disclosure Agreement, as it may be amended from time to time, by its own terms would not require the purchaser to provide any disclosure. SECTION 10. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Developer City: City of Palm Desert 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: Bank of New York Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, CA 90017-4104 (213)630-6237 (213)630-6215 Fax Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. F-13 SECTION 12. 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. IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. [[Developer]] By: Its: MUNIFINANCIAL, as Dissemination Agent By: Authorized Officer F-14 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palm Desert Name of Bond Issue: $ City of Palm Desert, Community Facilities District No. 2005-1 (University Park), Special Tax Bonds, Series 2006A Date of Issuance: , 2006 NOTICE IS HEREBY GIVEN that (the "Developer") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement of the Developer dated as of the date of issuance of such Bonds. The Developer anticipates that the Annual Report will be filed by . Dated: on behalf of the Dissemination Agent By: Its: cc: Developer F-15 APPENDIX G THE BOOK ENTRY SYSTEM Book-Entry System DTC will act as securities depository for the Bonds. The Bonds will be issued as fully- registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). One fully- registered certificate will be issued for each maturity of the Bonds, each 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 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 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, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, 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 and www.dtc.org. Purchases of the 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. Beneficial Owners are, however, 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 certificates representing their ownership interests in the 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 Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede &Co. or such other name as may be 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 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 G-1 securities 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. 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 the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to an issuer 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 the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, mandatory redemption 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 City or Trustee on payment dates 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, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be responsibility of Direct and Indirect Participants. The City cannot and does not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium with respect to the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The City is not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto. The in formation in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. Discontinuance of Book-Entry System DTC may discontinue providing its services with respect to the Bonds at any time by giving notice to the Trustee and discharging its responsibilities with respect thereto under applicable law or the City may terminate participation in the system of book-entry transfers through DTC or any other securities depository at any time. In the event that the book-entry system is discontinued, the City will execute, and the Trustee will authenticate and make available for delivery, replacement Bonds in the form of registered bonds. In addition, the principal of and redemption premium, if any, on the Bonds will be payable as set forth in the Indenture and summarized above under the caption "Description of the Bonds." Bonds will be transferable and exchangeable on the terms and conditions provided in the Indenture. See "Transfer or Exchange of Bonds" above. G-2 FIRST AMENDMENT TO COST SHARING AND BOND PROCEEDS ALLOCATION AGREEMENT by and among DESERT WELLS 237,LLC, ALBOR PROPERTIES HI,L.P., PALM DESERT FUNDING COMPANY,LP, THE UNIVERSITY VILLAGE PARTNERSHIP, SHAW/PALM DESERT 1,LLC, SINATRA & COOK PROJECT,LLC, PALM DESERT FORUM,LLC, AND DONALD L.MCCOY AND MARCELLENE W.MCCOY RELATING TO CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) Dated as of March 15,2006 FIRST AMENDMENT TO COST SHARING AND BOND PROCEEDS ALLOCATION AGREEMENT BY AND AMONG DESERT WELLS 237,LLC, ALBOR PROPERTIES III,L.P., PALM DESERT FUNDING COMPANY,LP, THE UNIVERSITY VILLAGE PARTNERSHIP, SHAW/PALM DESERT 1,LLC, SINATRA&COOK PROJECT,LLC, PALM DESERT FORUM,LLC, AND DONALD L. MCCOY AND MARCELLENE W. MCCOY City of Palm Desert Community Facilities District No.2005-1 (University Park) THIS FIRST AMENDMENT TO COST SHARING AND BOND PROCEEDS ALLOCATION AGREEMENT ("First Amendment") is made and entered into as of the 15th day of March, 2006 (the "Effective Date"), by and among DESERT WELLS 237, LLC, a California limited liability company ("DW 237"), ALBOR PROPERTIES III, L.P., a California limited partnership ("Albor"), PALM DESERT FUNDING COMPANY, LP, a Delaware limited partnership ("PDFC"), THE UNIVERSITY VILLAGE PARTNERSHIP, a California general partnership ("UV Partnership"), SHAW/PALM DESERT 1, LLC, a California limited liability company ("Shaw"), SINATRA & COOK PROJECT, LLC, a California limited liability company ("S&C"), PALM DESERT FORUM, LLC, a California limited liability company ("Forum"), and DONALD L. MCCOY and MARCELLENE W. MCCOY, husband and wife as joint tenants("McCoy,"and each of DW 237,Albor, PDFC, UV Partnership, Shaw, Forum,and McCoy,individually,a"Property Owner"and,collectively,the"Property Owners"). RECITALS: A. The Property Owners previously executed the Cost Sharing and Bond Proceeds Allocation Agreement,dated as of January 25,2006(the"Original Agreement"). B. All capitalized terms used in this First Amendment shall have the meanings given such terms in the Original Agreement. C. In order to finance the full cost of the Backbone Infrastructure from the proceeds of the Bonds,the Property Owners desire to make certain amendments to the Original Agreement. 1 AGREEMENT SECTION 1. Shortfall. Section 1.2 of the Original Agreement is hereby amended by (i) the replacement in its entirety of Section 1.2(c)with the language below and(ii)the addition the following as (pp)and renumbering the remaining definitions accordingly: "(c) "Actual Backbone Costs"shall mean the estimated cost of a Facility determined in one of the following manners,in the following order of priority: (i)as set forth in any contract for such Facility which as of the applicable Calculation Date has been awarded in accordance with the Acquisition Agreement to a contractor by PDFC (or its successor or assign to the extent permitted hereunder and under the Acquisition Agreement), plus an amount equal to 15% of such contract as a contingency for change orders and an additional amount equal to 13%of such contract to cover costs of consultants and fees; (ii) as set forth in the lowest responsible and responsive bid received for such Facility if as of the applicable Calculation Date no contract has been awarded to a contractor for the construction of such Facility but bids have been received, plus an amount equal to 15% of such bid as a contingency for change orders and an additional amount equal to 13%of such bid to cover costs of consultants and fees; or(iii)as set forth in the RBF Report(including without limitation the contingencies set forth therein and the proportionate share of consultant costs and fees attributable to such Facility) if as of the applicable Calculation Date no bids have been received nor any contract awarded for such Facility. (pp) "Shortfall"means(i) on the Calculation Date for the first Series of Bonds,the difference between the amount of the Actual Backbone Costs and the Backbone Limit, and (ii) on the Calculation Date for the second Series of Bonds,the difference between the amount of the Actual Backbone Costs and the Backbone Limit, plus the total amount of Additional Allocation allocated in the first Series of Bonds to the payment of Backbone Infrastructure pursuant to Section 4.3(e)." SECTION 2: Application of Additional Allocation. Sections 4.3(d)and 4.3(e)of the Original Agreement are hereby replaced in their entirety with the following: "(d) Determine the Actual Backbone Infrastructure Costs. Determine the Actual Backbone Costs for all of the Backbone Infrastructure. (e) Apply Additional Allocation. On any Calculation Date, (i) if the amount of the Actual Backbone Costs is greater than the Backbone Limit,and(ii)the actual amount of Net Bond Proceeds for the current Series of Bonds and any prior Series of Bonds is greater than the Backbone Limit,then each Maximum Property Owner shall allocate a portion of the Net Bond Proceeds that would have been used to finance some or all of that Maximum Property Owner's Maximum Other Facilities Costs to the financing of Backbone Infrastructure. The amount additionally allocated to finance Backbone Infrastructure pursuant to Section 4.3(e) (herein, the "Additional Allocation") for each Maximum Property Owner shall be calculated by multiplying the Maximum Property Owner's Other Facilities Percentage by the Shortfall. The amount of the Additional Allocation may not exceed the Maximum Other Facilities Costs attributable to the applicable Maximum Property Owner which were to be financed by the Net Bond Proceeds. The Property Owners understand that the Additional Allocation does not mean that the Maximum Property Owner is agreeing to be responsible for additional Backbone Infrastructure. Instead, it allows the Maximum Property Owner to be reimbursed for a portion of the Backbone Infrastructure not otherwise financed by the Net Bond Proceeds because of the Backbone Limit, with a corresponding reduction in the amount of Other Facilities that may be financed by the Maximum Property Owner." 2 SECTION 3. Reimbursement for Additional Allocation. Section 5.1(g)and Section 5.1(i) of the Original Agreement are hereby replaced in their entirety with the following: "(g) All Net Bond Proceeds used for Backbone Infrastructure in excess of the Backbone Limit shall be payable to, or for the benefit of, the Maximum Property Owners who applied the Additional Allocation to the reimbursement of Backbone Infrastructure pursuant to Section 4.3(e), in the amount of each such Maximum Property Owner's Additional Allocation. Amounts payable for Additional Allocation shall be made after all payments to the Property Owners up to the Backbone Limit. For any distribution of Net Bond Proceeds in which the amounts to be distributed to the Maximum Property Owners for Additional Allocation is less than the total of the Additional Allocation for all Maximum Property Owners,then each distribution shall be in proportion to the Other Facilities Percentage." "(i) Notwithstanding the Assumed Backbone Costs, the actual costs of the Backbone Infrastructure may exceed the estimate, and PDFC shall continue to send, and the Property Owners shall be obligated to pay amounts set forth in, Requests for Contributions until all Invoices Due and Administrative Costs associated with the construction of the Backbone Infrastructure are paid in full. The Property Owners understand and agree that if the actual costs of the Backbone Infrastructure exceed the Backbone Limit,the purchase price paid by the CFD from the Net Bond Proceeds for all of the Backbone Infrastructure(i)will not be sufficient to cover all of the amounts paid by a Minimum Property Owner for Backbone Infrastructure, in which case the Minimum Property Owners will receive only a partial reimbursement of their contributions for Backbone Infrastructure, and (ii) will not be sufficient to cover all of the amounts paid by a Maximum Property Owner, even after the application of Additional Allocation pursuant to Section 4.3(e), if the Actual Backbone Costs exceed the Net Bond Proceeds, in which case the Maximum Property Owners will receive only a partial reimbursement of their contributions for Backbone Infrastructure. In addition,the Net Bond Proceeds will not pay any portion of the Administrative Costs." SECTION 4. Funding Other Facilities. Section 6.1(c) of the Original Agreement is hereby replaced in its entirety with the following: "(c) Notwithstanding the amounts set forth in subparagraph(b)above,(i)the amounts set forth in subparagraph (b) shall be reduced (in proportion to each Maximum Property Owner's Other Facilities Percentage)if the Net Bond Proceeds of the first Series of Bonds are not sufficient to fund such amounts after any required application of the Additional Allocation in Section 4.3(e), and (ii) for any Series of Bonds,the maximum amount that may be deposited into an Other Facilities Subaccount shall not exceed the Maximum Property Owner's Other Facilities Percentage multiplied by the Maximum Other Facilities Costs,less any Additional Allocation attributable to the applicable Maximum Property Owner." SECTION 5. Land Acquisition Prices. The Original Agreement is amended by adding the following as Section 7.7: "Section 7.7 Well Sites and Park Sites. (a) The Property Owners acknowledge and agree that the proposed development of the property within the CFD as described in the Recitals hereto requires (i) the provision by one or more Property Owners,as applicable,of certain land to the CVWD to be developed as four(4)well sites(each, a"Well Site")to serve the development within the CFD, all in accordance with the CVWD's Plans and Specifications (as defined in the JCFA), and (b) the provision by one or more Property Owners, as applicable,of certain land to the City to be developed as four(4)park sites(each,a"Park Site")primarily 3 to serve the residential development within the CFD,all in accordance with the City's Plans(as defined in the Acquisition Agreement). The Well Sites and Park Sites are considered`Backbone Infrastructure"and are generally identified on Exhibit`B"hereto as Items III.E. 1.through 4.and Items VIII.A.through D. (b) Pages 43 and 44 of the RBF Report set forth the aggregate costs of land acquisition for the Well Sites ($1,200,000) and the Park Sites($7,200,000). Exhibit B of the Acquisition Agreement is substantiated by the RBF Report and identifies the specific prices to which the City has agreed verbally prior to the date hereof, and will agree in writing pursuant to the terms of the Acquisition Agreement (including without limitation Section 5.6.F. of the Acquisition Agreement), is payable from Net Bond Proceeds for the cost of land acquisition for each Well Site and Park Site. (c) The Property Owners acknowledge the final Well Sites and Park Sites have not yet been approved by the CVWD and/or City, as applicable, and therefore, the particular Property Owners who may be providing Well Sites or Park Sites are subject to change. To the extent that a Property Owner may be required by the CVWD or the City to provide a Well Site or Park Site, each Property Owner agrees to the following schedule of prices for the land constituting Well Sites and Park Sites: TABLE 4 LAND ACQUISITION COSTS Well Sites (each approx. 1/2 Price Park Sites Price acre) Well Site No. 1 $ 300,000.00 Park A(approx.2 acres) $1,285,714.00 Well Site No. 2 300,000.00 ' Park B(approx.4.5 acres) 2,700,000.00 Well Site No. 3 300,000.00 Park C(approx.2.3 acres) 1,607,143.00 Well Site No.4 300,000.00_ Park D(approx.2.8 acres) 1,607,143.00 Total: $1,200,000.00 Total: $7,200,000.00 (d) The foregoing prices are identical to the respective prices set forth in Exhibit B of the Acquisition Agreement for Items IX.A., IX.C., IX.E.,and IX.G. on Exhibit B(Land Acquisition for Well Sites)and Items X.A.,X.C.,X.E.,and X.G. on Exhibit B(Land Acquisition for Parks A through D). The Property Owners agree that such respective prices shall constitute the "Actual Cost" of such Discrete Components (as defined in the Acquisition Agreement), which consist solely of the land acquisition portion of the Well Sites and Park Sites, and that payment for such Actual Costs shall be made in accordance with the terms of the Acquisition Agreement. (e) Notwithstanding anything in this Agreement to the contrary, the Property Owner that conveys, or causes to convey, property to the City or CVWD for a Well Site or a Park Site shall be entitled to requisition the CFD for the payment of the land acquisition costs shown above;provided that any payment for any such Well Site or Park Site land acquisition to be made by the CFD, or the City on behalf of the CFD, shall be made only from the Net Bond Proceeds and in accordance with,and possibly limited by,the provisions of the Acquisition Agreement. If the Property Owners have contributed funds to the payment of such land acquisition costs pursuant to Section 3.1 of this Agreement, such Property Owners shall be entitled to reimbursement in accordance with Section 5.1 of this Agreement from the Net Bond Proceeds received by PDFC or the Property Owner that conveyed or caused to be conveyed property to the City or CVWD for a Well Site or a Park Site.. If the Property Owners have not contributed funds to the payment of such land acquisition costs pursuant to Section 3.1 of this Agreement, 4 then the Property Owner that conveys,or causes to convey,the property to the City or CVWD for a Well Site or a Park Site shall be entitled to requisition the CFD directly for the full amount of the purchase price of such land, in accordance with and subject to the terms and conditions of the Acquisition Agreement. At the present time, the Property Owners anticipate that PDFC will convey, or cause to convey (through arrangements with merchant builders), all of the Park Sites and three of the four Well Sites,and that the fourth Well Site will be conveyed by Sinatra&Cook. (f) The amounts set forth in Table 4 above are for the cost of the land acquisition only, and do not include the costs of any of the improvements that may be constructed on such land (i.e., park improvements or well facilities). In addition, notwithstanding anything herein to the contrary, the obligation to construct improvements on the Well Sites or Park Sites may be assigned by PDFC to a merchant builder, and if any such assignment by PDFC is made, the obligations under the Acquisition Agreement with respect to these improvements shall also be assigned to the merchant builder(but subject to the terms and conditions of the Acquisition Agreement governing assignment). The consent of any other Property Owner shall not be required to effectuate such assignments. If the Property Owners have contributed funds to the payment of such improvement costs pursuant to Section 3.1 of this Agreement, such Property Owners shall be entitled to reimbursement from the Net Bond Proceeds received by PDFC or the merchant builder assignee in accordance with Section 5.1 of this Agreement when and if the Net Bond Proceeds are used to acquire such improvements in accordance with the Acquisition Agreement. If the Property Owners have not contributed funds to the payment of such improvement costs pursuant to Section 3.1 of this Agreement,then the party for whom the obligation to construct such improvements was assigned shall be entitled to requisition the CFD directly for the purchase price for such improvements out of the Net Bond Proceeds in accordance with and subject to the terms and conditions of the Acquisition Agreement and, if the requisition is submitted by a merchant builder, so long as the assignment is made and the improvements are constructed in accordance with the Acquisition Agreement." SECTION 6. Conflict. This First Amendment amends the Original Agreement. Where this First Amendment conflicts with the terms of the Original Agreement,this First Amendment shall control. SECTION 7. Governing Law. This First Amendment shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts made and performed in such State. SECTION 8. Signatories. The signatories hereto represent that they have been appropriately authorized to enter into this First Amendment on behalf of the party for whom they sign. SECTION 9. Execution in Counterparts. This First Amendment may be executed in counterparts,each of which shall be deemed an original. SECTION 10. Construction. The language in all parts of this First Amendment shall in all cases be construed as a whole according to its fair meaning and not strictly for or against any Party. All provisions and any variations thereof shall be deemed to refer to the masculine,feminine,neuter,singular or plural, as the identification of the person or persons, firm or firms, corporation or corporations may require. This First Amendment is the product of mutual negotiation and drafting efforts. Accordingly, the rule of construction that ambiguities in a document are to be construed against the drafter of that document shall have no application to the interpretation or enforcement of this First Amendment. 5 MAR-16-2006 THU 11:48 AM CORNERSTONE INVESTORS FAX NO. 760 778 4417 P. 08 • IN WITNESS WHEREOF,the Parties hereto have executed this First Amendment to Cost Sharing and Bond Proceeds Allocation Agreement as of the Effective Date. DESERT WELLS 237,LLC, a California limited liability company By: Palm Desert 237,LLC, a California limited liability company Its: Manager By Marix Family Limited Partnership, a Delaware limited partnership Its: Manager DW 237 By: Marix Family Trust dated as of October 12,2000,as amended Its: General Partner By: Michael ix Its: Sole Trustee ALBOR PROPERTIES I11,L.P., A CALIFORNIA LIMITED PARTNERSHIP By: Albor Properties,Inc., A California corporation, Albor Its General Partner By: Alan S.Borstein President 6 . 03/16/2006 09:31 3105821999 BORSTEIN ENTERPRISES PAGE 09/12 IN WITNESS WHEREOF,the Parties hereto have executed this First Amendment to Cost Sharing and Bond Proceeds Allocation Agreement as of the Effective Date. DESERT WELLS 237,LLC, a California limited liability company By: Palm Desert 237,LLC, a California limited liability company Its: Manager By: Marix Family Limited Partnership, r a Delaware limited partnership Its: Manager DW 237 By: Marix Family Trust dated as of October 12,2000,as amended Its: General Partner By: Michael S.Marix Its: Sole Trustee ALBOR PROPERTIES HI,L.P., A CALIFORNIA LIMITED PARTNERSHIP By: Alhor Properties, Inc., A California co ration, Albor Its General ner n . orstein President 6 PALM DESERT FUNDING COMPANY,LP, a Delaware limited partnership By: Palm Desert Funding Company,LLC, a Delaware limited liabilityy company Its: General Partmer By: Palm Desert Funding Company,Inc., • Delaware corporation PDFC Its: cm • .•t •mar I. over Authorized Agent THE UNIVERSITY VILLAGE PARTNERSHIP, a California general partnership By: Evans University Village LLC, a California limited liability company its: Partner By: The Evans Company LLC, a California limited liability company Its: Manager UV Partnership By: Frederick Oliver Evans,Ill its: Member By: Edwards University Village LLC, a California limited liability company lts: Partner By: James W.Edwards,111 its: Manger 7 Z0/Z0 39tid 00 A31 N3ACH 0Z9L171596h6 t3:ZT 900L/91/E0 PALM DESERT FUNDING COMPANY,LP, : a Delawarelimited partnership By: Palm Desert Funding Company,LLC;' a Delaware limited Iiability eampany Its: General Partner . i. By Palm Desert Funding Company,Inc., a Delaware corporation PDFC " . Its: Member • By: Name: Thomas 1.Hover Title: Authorized Agent THE UNIVERSITY VILLAGE PARTNERSHIP, a California general partnership By: Evans University Village LLC, .. a California limited liability company Its: Partner By: The Evans Company LLC, a California limite liability company Its: Managt r. LTV Partnership By r' Fred k ]�ti r Evans, �,� Its: Mernb; By: Edwards Univ }lage LLC, a California hatted liability company Its: Partner By: James W.Edwards;III Its: Manager ::: SIIAW/PALM DESERT 1,LLC, :...: . .... a Califuirlia limited liability company • By: Shaw-CDK Properties,LLC;. a Califon is limited liabilityconip'any Shaw Its: Manag ' B tH-' • f . Charles E.Crvbi 11 .. Its Manager • .... . SINATRA.&CQOK.:FROJECI,:LLC, A California limited liability company By: The Rancho Mirage Trust. .:° . : • lts: Manager and Member By: . Steven Gilfenbain Its: :m.t.!e By: . ! : Ryan Oguinick Its: Member arid Manager . ..: ... • By. Fordar, LLC, S&C . • A:Califoriiia htu ited liabilitycompany Its. Member and Manager By: Kambiz Kamdar Its:Manager By:; ,Fred.Kamdar • Its: Iyletnlier By: ,.. ._ Joseph Foroosh,I]. Its: Member 8 • MAR-16-2006 10:48 FROM: 0000000000000 TO:12136260078 P.1 03-16-06 11:23am From-PILLSBURY WINTHROP SHAW PITTMAN LIP 310 216 6673 T-1TB P.010/011 F-200 SHAW/PALM DESERT 1,LLC, a California limited liability company By: Shaw-CDK Propenies, LLC, a California limited liability company Slaw Its: Manager By: Charles E. Crookall Its: Manager SINATRA& COOK PROJECT,LLC, A California limited liability company By: The Rancho Mirage T t Its: Manager an ember • B . Steven Crilfenbain Its:t41 — & , stee BY: Ay: •:ulnick Its: M.. b.r and By: Fordar,LLC, S&C A California limite bil. Its: Member and M er By: iz Ka Its: Manager By: Fred Kamdar Its: Member By: V1-°\7461(74-0-erZ-----*"..--..---Joseph 1~oroos , D. Its: Member 8 Received at RWG Law 3/16/2006 9:57:06 PM r . MAR-16-2006 THU 11:49 AM CORNERSTONE INVESTORS FAX NO. 760 778 4417 P. 11 PALM DESERT FORUM,LLC, a California limited liability company By: Cornerstone Desert Properties I,LLC, a California limited liability company Its: Manager By: Marix Family Limited Partnership, a Delaware limited partnership Its: Manager Forum By: Marix Family Trust dated as of October 12,2000,as amended Its: General Partn ay: Michel S.Mat-ix Its: Sole Trustee DONALD L.MCCOY, as joint tenant McCoy MARCELLENE W.MCCOY, as joint tenant CONSENTED TO BY THE CITY OF PALM DESERT,ON BEHALF OF ITSELF AND THE CFD: Mayor 9 03/16/2006 18:02 9494599188 THE DON MCCOY CORP PAGE 02/02 PALM DESERT FORUM,LLC, a California limited liability company By: Cornerstone Desert Properties 1,LLC, a California limited liability company Its: Manager By: Marix Family Limited Partnership, a Delaware limited partnership Its: Manager Forum By: Marix Family Trust dated as of October 12,2000,as amended Its: General Partner By: Michael S.Marix Its: Sole Trustee DONALD L.MCCOY, as joint tenant McCoy1, 'CELLENE • OY, as joint tenant CONSENTED TO BY THE CITY OF PALM DESERT,ON BEHALF OF ITSELF AND THE CFD: Mayor 9 Received at RWG Law 3/16/2006 6:02:03 PM