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Home My WebLink AboutSR - CFD 2005-01 - Special Tax Bonds Series 2007 CITY OF PALM DESERT STAFF REPORT REQUEST: CONSIDERATION OF THE AUTHORIZATION OF ISSUANCE OF SPECIAL TAX BONDS, SERIES 2007, 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 8, 2007 CONTENTS: RESOLUTION NO. 07-� FORM OF FIRST SUPPLEMENTAL INDENTURE FORM OF BOND PURCHASE AGREEMENT FIRST SUPPLEMENT TO ACQUISITION AGREEMENT FORM OF PRELIMINARY OFFICIAL STATEMENT (INCLUDES FORM OF CONTINUING DISCLOSURE AGREEMENT) Recommendation: It is the staff's recommendation that the City Council adopt the following resolution: • Resolution No. 07- i3 , 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 2007, in a principal amount not to exceed twenty million dollars ($20,000,000) and approving certain documents and taking certain other actions in connection therewith. • Approval of payment to Capital Realty Associates for $35,000 for the appraisal and absorption study 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 second series of special tax bonds (the "Series 2007 Bonds") to provide additional financing for the public infrastructure to serve the property within the University Park CFD. If the second series is issued in a principal amount equal to the remaining authorized but unissued bonds of the District ($20,000,000 remaining out of $70,000,000 authorized), the second series will be the final series issued by the District. Staff Report Consider Authorization of Issuance of Special Tax Bonds, Series 2007 for CFD No.2005-1 (University Park) Page 2 of 6 March 8, 2007 Backqround: 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, 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. On March 23, 2006, pursuant to Resolution No. 06-33, the City Council authorized the issuance of the first series bonds by the University Park CFD, Series 2006A, in an aggregate principal amount not to exceed $50,000,000. On May 9, 2006, the University Park CFD issued $50,000,000 in aggregate principal amount of its Series 2006A Bonds, with $42,979,972.88 of such amount available for the construction of facilities. The location of facilities to be financed by the Universiry 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 • College Drive: from Portola Avenue to Frank Sinatra Drive • In-tract streets G:\rda�Beth Longman\Staff Reports\Yrigoyen\CFD Spec Tax Bonds 030807.DOC Staff Report Consider Authorization of Issuance of Special Tax Bonds, Series 2007 for CFD No.2005-1 (University Park) Page 3 of 6 March 8, 2007 The previously approved and executed Acquisition Agreement, dated as of March 23, 2006 (the "Acquisition Agreement"), by and among the City, the University Park CFD, and certain developers of land within the University Park CFD (the "Developers") specifies certain of such authorized public facilities as "Backbone Infrastructure," which Backbone Infrastructure includes, among other facilities, four well sites (including land acquisition and improvements) to be located at 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 the City Council. In order to protect the City and University Park CFD against construction cost increases and to provide for the full cost of the Backbone Infrastructure from proceeds of bonds issued by the District, pursuant to Section 3.1 of the Acquisition Agreement, the parties agreed that the issuance of a second series of bonds by the district, if authorized by the City Council in its absolute discretion, would be subject to the prior receipt of bids for the construction of all Backbone Infrastructure (except for the Cook Street pedestrian bridge and the land acquisition components of the authorized park sites and the well sites), including but not limited to the costs of improving the four well sites. However, construction of the well sites improvements is contingent upon the construction of certain development within the University Park CFD by the owners of land. Based on an absorption study prepared for the University Park CFD as part of the appraisal required for the issuance of the Series 2007 Bonds under the Mello-Roos Act, and other factors, such development construction is reasonably expected to occur within one-half to four years. The Developers have requested the City and University Park CFD to expedite the issuance of the second series of bonds and authorize the issuance of such bonds prior to the receipt of bids for the construction of the well sites improvements but after the receipt of all other bids required pursuant to Section 3.1 of the Acquisition Agreement. Bids have been received the Backbone Infrastructure required pursuant to Section 3.1 of the Acquisition Agreement, other than for the well sites improvements. A waiver by the City and the University Park CFD as to the pre-condition of receiving bids as to the well sites (but not as to any other Backbone Infrastructure) would facilitate construction of the balance of the authorized public facilities to serve the District in a timely manner. An amount of bond proceeds from the Series 2006A Bonds has been set aside in an account held by the Trustee (Wells Fargo Bank, N.A.) for the costs of improving the wells sites, based on an engineer's report dated September 2005, as referenced in the Acquisition Agreement. However, recently the Coachella Valley Water District has altered the specifications of the well sites improvements to require such sites to be paved, and these alterations have significantly increased the costs of the well sites improvements. The engineers have prepared a revised cost estimate letter as to the well sites improvements, dated February 13, 2007. G:\rda\Beth Longman\Staff Reports\Yrigoyen\CFD Spec Tax Bonds 030807.DOC Staff Report Consider Authorization of Issuance of Special Tax Bonds, Series 2007 for CFD No.2005-1 (University Park) Page 4 of 6 March 8, 2007 Certain Developers (Palm Desert Funding Company, LP, and Sinatra & Cook Project, LLC) desire to amend the Acquisition Agreement to supplement the amounts currently deposited for the well site improvements by additional amounts from the proceeds of the Series 2007 Bonds, in order to take into account the cost increases. The proposed amendment/supplement provides that the amount to be deposited will be based upon the amounts for such facilities estimated and set forth in RBF Consulting's revised cost estimate letter dated February 13, 2007, rather than RBF Consulting's cost estimate report dated September 22, 2005. The other Developers (Palm Desert University Village, LLC, f/k/a The University Village Partnership, and Shaw/Palm Desert 1, LLC) are willing to supplement and amend the Acquisition Agreement in such a manner. If further cost increases arise with respect to the well sites, the owners of the land are obligated as conditions of regulatory approval to pay the costs of the well sites in order to develop their land, including any cost overruns on the well sites, regardless of the availability of proceeds of bonds issued by the University Park CFD. The proposed First Supplement to Acquisition Agreement would accomplish both (a) the waiver relating to the receipt of bids as to the well sites improvements as a pre-condition to the issuance of the Series 2007 Bonds, and (b) amendment of the Acquisition Agreement to supplement the amounts currently deposited for the well site improvements by additional amounts from the proceeds of the Series 2007 Bonds, based upon the engineer's revised cost estimate letter dated February 13, 2007. If adopted, Resolution No. 07- 13 will authorize the University Park CFD to issue bonds in an aggregate principal amount not to exceed $20,000,000 designated as the "City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2007" to additionally finance ihe proposed public facilities, provided the overall interest rate does not exceed 7% per annum and the discount paid to the underwriter for the bonds, exclusive of original issue discount, does not exceed 1.5% of the principal amount of the bonds. The special tax bonds of the University Park CFD have been issued in more than one 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 and 2007 Bonds are considered speculative in nature, due to the relationship of these bonds to real estate development. In addition, given the early stages of development and construction at the time of issuance of the 2006A Bonds, the 2006A Bonds were unrated and uninsured. Although there has been substantial infrastructure construction and certain building construction since the issuance of the 2006A Bonds, the residential portion remains largely unbuilt. Therefore, it is not foreseeable that the University Park CFD may be able to obtain a rating(s) andlor a municipal bond insurance policy to insure payment of principal, interest, and redemption premium, if any, on the Series 2007 Bonds. The market for special tax bonds is considered smaller than the market for insured tax allocation bond issues. The G:\rda\Beth Longman\Staff Reports\Yrigoyen\CFD Spec Tax Bonds 030807.DOC Staff Report Consider Authorization of Issuance of Special Tax Bonds, Series 2007 for CFD No.2005-1 (University Park) Page 5 of 6 March 8, 2007 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 2007 Bonds in a public offering to such investors. Resolution No. 07- 13 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) First Supplemental 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) First Supplement to Acquisition Agreement by and among the City of Palm Desert, the University Park CFD, Palm Desert Funding Company, LP, for itself and as successor to and assignee of Desert Wells 237, LLC and Albor Properties III, L.P., Palm Desert University Village, LLC, (formerly known as The University Village Partnership), Shaw/Pafm Desert 1, LLC, and Sinatra & Cook Project, LLC (waives the pre-condition of receiving bids on the well sites improvements and increases the amount deposited for the costs of the well sites improvements pursuant to the updated engineer's cost estimate letter). The Series 2007 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 G:\rda�Beth Longman\Staff Reports\Yrigoyen\CFD Spec Tax Bonds 030807.DOC Staff Report Consider Authorization of Issuance of Special Tax Bonds, Series 2007 for CFD No.2005-1 (University Park) Page 6 of 6 March 8, 2007 installments of the special taxes. In addition to the reserve account established under the previously executed Bond Indenture, as amended and supplemented by the First Supplemental Indenture (which is funded initially from bond proceeds and maintained thereafter at the prescribed amount with 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 Series 2007 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 Series 2007 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. 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. No future actions will be necessary. Staff recommends that the issuance of the Series 2007 Bonds to provide r the 4 construction of regional public improvements as outlined in the report be authoriz d. � -r w w Submitted by: Approval: o� � �- � r��._ _ �' �1 � -� � '� �!J� /��'�L C1` �je �' � David Yri � �' 9 J�astin` McCarthy � � Director edevelopment/Housing /'ACM edevelopmen W a � � DY:RC:mh �� z x � A o � .� Approval: o Q� � M H ' � � � �� ' w Carlos L. Orte , Cit Mana er Paul S. Gibson, �� w Y 9 Director of a c °� `� � o aaao .. A �, a � G:\rda\Beth Longman\Staff Reports\Yrigoyen\CFD Spec Tax Bonds 030807.DOC � 5 �� z� " HH � OHt� H .. .. � � (� •�-1 y+ tL' D� � HV1t/) WHH b� H a UCY' !Y7 W W t/) t1) a •�i Haw w � owww s� �.� � x � � � � aac� RESOLUTION NO. 07-� 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 2007, IN A PRINCIPAL AMOUNT NOT TO EXCEED TWENTY MILLION DOLLARS ($20,000,000) AND APPROVING CERTAIN DOCUMENTS AND TAKING CERTAIN OTHER ACTIONS IN CONNECTtON 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 DistricY'), 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, the District has heretofore issued and sold $50,000,000 of such authorized bonds; and WHEREAS, at this time, the legislative body of the District desires to issue and sell an additional 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 $20,000,000 as a series to be designated as the "City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2007" (the "Bonds"); and WHEREAS, the Acquisition Agreement, dated as of March 23, 2006 (the "Acquisition Agreement"), by and among the City of Palm Desert (the "City"), the District, and certain developers of land within the District (the "Developers") specifies certain of such authorized public facilities as "Backbone Infrastructure," which Backbone Infrastructure includes, among other facilities, four well sites (including land acquisition 9448411.4 and improvements) to be located at sites as determined by the Coachella Valley Water District concurrently with land plan, final tentative map(s), or similar document(s) (as appropriate) heretofore or to be approved by the City's Planning Commission and the City Council (collectively, the "Well Sites"); and WHEREAS, in order to protect the City and District against construction cost increases and to provide for the full cost of the Backbone Infrastructure from proceeds of bonds issued by the District, pursuant to Section 3.1 of the Acquisition Agreement, the parties thereto have heretofore agreed the issuance of a second series of bonds by the District, if authorized by the City Council in its absolute discretion, shall be subject to the prior receipt of bids, pursuant to the terms of the Acquisition Agreement, for the construction of all Backbone Infrastructure (except for the Cook Street pedestrian bridge and the land acquisition components of the authorized park sites and the Well Sites), including but not limited to the costs of improving the Well Sites (collectively, the "Well Sites Improvements"); and WHEREAS, construction of the Well Sites Improvements is not imminent and is contingent upon the construction of certain development within the District by the owners of land therein, which construction is, based on an absorption study contained within the appraisal prepared for the District and referenced in Section 2 below, reasonably expected to occur within one-half to four years from the date hereof; and WHEREAS, construction of the Well Sites Improvements in any event is required to be provided by the owners of land therein as a condition of regulatory approval (regardless of the availability of proceeds of bonds issued by the District); and WHEREAS, the Developers have requested the City and District to expedite the issuance of the second series of bonds and authorize the issuance of such bonds prior to the receipt of bids for the construction of the Well Sites Improvements but after the receipt of all other bids required pursuant to Section 3.1 of the Acquisition Agreement; and WHEREAS, heretofore, bids have been received for all facilities required pursuant to Section 3.1 of the Acquisition Agreement prior to the issuance of a second series of bonds, except for the Well Sites Improvements, for which no bids have yet been requested or received; and WHEREAS, in order to facilitate construction of the balance of the authorized public facilities to serve the District, other than the Well Sites Improvements, in a timely manner, the City and District are willing to waive the requirements of Section 3.1 of the Acquisition Agreement as to the Well Sites Improvements only, through a supplement to the Acquisition Agreement executed by the parties thereto; and WHEREAS, additionally, Section 3.3.A. of the Acquisition Agreement provides for the allocation and deposit of proceeds of the Bonds with a priority for allocating proceeds to, and depositing proceeds into, accounts designated for the estimated costs of Backbone Infrastructure; and 2 944844.4 WHEREAS, with respect to an authorized facility constituting Backbone Infrastructure for which no bids have been received nor any contract awarded (such as the Well Sites Improvements), the aforementioned provisions of the Acquisition Agreement provide that the amount to be deposited with respect to such a facility shall be based upon the amount for such facility estimated and set forth in a cost estimate report dated September 22, 2005 and prepared by RBF Consulting; and WHEREAS, subsequently, the Coachella Valley Water District has altered the specifications of the Wells Sites Improvements to require such sites to be paved, which alterations have significantly increased the costs of the Well Sites Improvements, and RBF Consulting has prepared a revised cost estimate letter as to the Well Sites Improvements, dated February 13, 2007; and WHEREAS, with respect to the Well Sites Improvements, certain Developers (Palm Desert Funding Company, LP, and Sinatra & Cook Project, LLC) desire to amend the Acquisition Agreement to provide that the amount to be deposited shall be based upon the amounts for such facilities estimated and set forth in RBF Consulting's revised cost estimate letter dated February 13, 2007, rather than RBF Consulting's cost estimate report dated September 22, 2005, and the other Developers, the City, and the District are willing to supplement and amend the Acquisition Agreement in such a manner and upon such terms and conditions as approved by the City Council; and WHEREAS, although certain forthcoming legislative approvals such as 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; 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 Supplemental Indenture, a Bond Purchase Agreement, a First Supplement to Acquisition Agreement, and a Continuing Disclosure Agreement for the Bonds, the forms of which are on file with the City Clerk. 3 9aasaa.a NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT, ACT{NG 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 as 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. 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 $20,000,000 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 First Supplemental Indenture presented 4 944844.4 at this meeting, on file with the City Clerk and incorporated herein by reference (the "Supplemental Indenture"). The Supplemental 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 Supplemental 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 Supplemental 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 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 7.0% 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 1.5% 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 s 9A4844.4 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. 8. The form of the First Supplement to Acquisition Agreement by the City and the District (which Acquisition Agreement is dated as of March 23, 2006 and entered into by and among the City, the District, Palm Desert Funding Company, LP, a Delaware limited partnership, for itself and as successor to and assignee of Desert Wells 237, LLC and Albor Properties lll, L.P., Palm Desert University Vi{lage, LLC, a California limited liability company (formerly known as 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 "First Supplement to Acquisition Agreement"), is hereby approved, and any one of the Authorized Officers is hereby authorized and directed to execute the First Supplement to 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 First Supplement to 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 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 AgreemenY'), 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 6 944844.4 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 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 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 Supplemental Indenture, the Bond Purchase Agreement, the First Supplement to 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. 13. PASSED AND ADOPTED this 8th day of March, 2007, by the following vote: AYES: NOES: ABSENT: ABSTAIN: Richard S. Kelly, Mayor ATTEST: Rachelle D. Klassen, City Clerk � 944844.4 Jones Hall Draft 2/21/07 PRELIMINARY OFFICIAL STATEMENT DATED ,2007. 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 2007 Bonds and requirements of the Intemal Revenue Code of 1986, as amended (the "Code"), as described herein, interest on the 2007 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 2007 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 2007 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 2007 Bonds is exempt from personal income taxes imposed by the State of California. See "TAX MATTERS"herein." $20,000,000" CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS SERIES 2007 Dated: Date of Delivery Due: September 1,as shown below The bonds captioned above (the "2007 Bonds"), are being issued by the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "DistricY'). The 2007 Bonds are special tax obligations of the District, authorized pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, being Califomia Government Code Section 53311, et seq. (the"AcY'),and are issued pursuant to a Bond Indenture dated as of May 1,2006, as supplemented by a First Supplemental Indenture dated as of March 1, 2007 (the "Indenture") by and between the District and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The 2007 Bonds are the second and final series of bonds authorized to be issued by the District. In 2006,the District issued its$50,000,000 City of Palm Desert Community Facilities District No.2005- 1 (University Park), Special Tax Bonds, Series 2006A (the "2006 Bonds" and, together with the 2007 Bonds, the "Bonds"). The 2007 Bonds are issued to (i) construct and acquire certain public facilities authorized by the Act; (ii) provide for the establishment of a Reserve Account, (iii) provide capitalized interest, and (iv) pay the costs of issuance of the 2007 Bonds. Interest on the 2007 Bonds is payable on [September 1, 2007], and thereafter semiannually on March 1 and September 1 of each year. The 2007 Bonds are being issued as fully registered bonds, registered in the name of Gede 8� 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 2007 Bonds are secured by and payable, on a parity with the 2006 Bonds, from a pledge of Net Taxes (as defined herein) derived from Special Taxes to be levied by the District on real property within the boundaries of the District, from the net proceeds of any foreclosure actions brought following 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 2006 Bonds and the 2007 Bonds and the interest thereon as a result of any delinquent Special Taxes, the District will use proceeds of the 2007 Bonds to increase the amount in a parity Resenre Account established from 2006 Bond proceeds, as described herein. See "SECURITY AND SOURCES OF PAYMENT 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. Most of the land is currently undeveloped.See"THE DISTRICT"and"OWNERSHIP OF PROPERTY WITHIN THE DISTRICT." The 2007 Bonds are subject to optio�al and mandatory redemptio� prior to maturity as described herein. See"THE 2007 BONDS—Redemption." NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OF PALM DESERT(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 2007 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 2007 Bonds. MATURITY SCHEDULE Maturity Date Principal Interest Price or CUSIPt t m r 1 Amount Rat Yi I $ % Term Bond Due September 1,20 Price: % CUSIP: $ % Term Bond Due September 1,20 Price: %CUSIP: $ _% Term Bond Due September 1,20_ Price:_% CUSIP: t CUSIP copyright 2007, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. None of the City,ihe District,or the Underwriter assume any responsibility for the accuracy of these CUSIP data. The 2007 Bonds are offered when, as and if issued, subject to approval as to their legality by Richards, Watson & Gershon, a Professional Corporation, Los Angeles, Califomia, Bond Counsel. Certain lega/matters will be passed on by Jones Hall, a Professional Law Corporation, San Francisco, Califomia, as Disc/osure Counsel. Certain legal matters will be passed upon for the City by the City Attomey. It is anticipated that the 2007 Bonds will be available for delivery to DTC on or about , 2007 in New York, New York. Stinson Securities, LLC Kinsell Newcomb 8 DeDios, Inc. The date of this Official Statement is ,2007. 'Preliminary,subject to change. CITY OF PALM DESERT, CALIFORNIA City Council Richard S. Kelly, Mayor Jean M. Benson, Mayor Pro Tem Jim Ferguson, Councilman Cindy Finerty, Councilmember Robert A. Spiegel, Councilman City Staff Carlos L. Ortega, City Manager Justin McCarthy, Assisfant 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, Direcfor of Redevelopment& Housing Rachelle Klassen, City Clerk SPECIAL SERVICES Bond Counsel Richards, Watson 8� 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 2007 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 2007 Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City and/or the District, in any press release and in any oral statement made with the approval of an authorized officer of the City and/or the District, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecasY', "expecY', "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 or the District since the date hereof. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City or the District to give any information or to make any representations in connection with the offer or sale of the 2007 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, the District, 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 2007 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Invo/vement 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 or the District 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 2007 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 2007 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS Paqe Paae INTRODUCTION..................................................1 Construction and Acquisition ofthe THE 2007 BONDS...............................................5 Project and Payment of Fees.....................35 Authority for Issuance...................................5 OWNERSHIP OF PROPERTY WITHIN Description of the 2007 Bonds.....................5 THE DISTRICT..................................................36 Redemption....................................................6 APPRAISAL OF PROPERTY WITHIN Transfer or Exchange of Bonds....................9 THE DISTRICT..................................................41 ESTIMATED SOURCES AND USES OF The Appraisal..............................................41 FUNDS..................................................................9 Value to Special Tax Burden Ratios..........43 SECURITY AND SOURCES OF PAYMENT Overlapping Liens and Priority of Lien ......49 FOR THE BONDS..............................................10 Estimated Tax Burden on Single Family SpecialTaxes..............................................10 Home ...........................................................52 Special Tax Methodology ...........................12 SPECIAL RISK FACTORS ...............................53 Levy of Annual Special Tax; Maximum Limited Obligation of the District to Pay Annual Special Tax.....................................14 Debt Service................................................53 Special Tax Fund.........................................14 Concentration of Ownership.......................53 Deposit and Use of Proceeds of 2007 Appraised Values........................................53 Bonds ...........................................................15 Property Values and Property Delinquent Payments of Speciai Tax; Development...............................................54 Covenant for Superior Court Bankruptcy and Foreclosure Delays..........57 Foreclosure..................................................15 Parity Taxes and Special Assessments; Reserve Account.........................................17 Private Debt.................................................57 Facilities Funds............................................18 Tax Delinquencies......................................58 Outstanding Parity Bonds...........................18 No Acceleration Provisions........................59 DEBT SERVICE SCHEDULE ...........................20 Ballot Initiatives...........................................59 THE DISTRICT...................................................21 Proposition 21 .............................................59 Formation of the District..............................21 CONSTITUTIONAL LIMITATIONS ON Location and Description of the District TAXATION AND APPROPRIATIONS..............60 and the Immediate Area..............................21 CONTINUING DISCLOSURE,..........................61 Anticipated Development in the District.....27 UNDERWRITING ..............................................61 Environmental Matters................................31 FINANCIAL ADVISOR ......................................62 THE PROJECT...................................................32 LEGAL OPINION...............................................62 Eligible Facilities..........................................32 TAX MATTERS..................................................62 Estimated Cost of the Project.....................34 RATINGS............................................................64 Development Costs Not Funded From NO LITIGATION.................................................64 Bond Proceeds............................................35 EXECUTION ......................................................64 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 i OFFICIAL STATEMENT $20,000,000' CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS SERIES 2007 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 Community Facilities District No. 2005-1 (University Park) (the "Community Facilities DistricY' or the "DistricY')of the bonds captioned above (the "2007 Bonds"). Any sfatements 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 estimafes 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 nof a summary of this Otficial Statement. It is only a brief description of and guide to, and is quali�ed by, more complete and detailed information contained in fhe entire Official Statement, including fhe cover page and atfached appendices, and the documents summarized or described in fhis Official Statement. A full review should be made of the entire Official Statement. The offering of the 2007 Bonds to potential investors is made only by means of the entire Official Statement. Creation of the District. The 2007 Bonds are issued pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311, et seq., of the Government Code of the State of California) (the "Act") and pursuant to a Bond Indenture dated as of May 1, 2006, as supplemented by a First Supplemental Indenture dated as of March 1, 2007 (the "Indenture"), between the District and Wells Fargo Bank, National Association, Los Angeles, California, as trustee (the "Trustee") and Resolution No. 07-_ (the "Resolution") adopted on , 2007 by the City Council of the City of Palm Desert (the "City Council") as the legislative body of the District, which authorized the issuance of the 2007 Bonds payable from Special Taxes (as defined herein) levied on property within the District according to a methodology approved by the City Council and the qualified electors within the District. The 2007 Bonds represent the second and final series of a total of $70 million of bonds authorized by the District. The District previousVy issued its $50,000,000 City of Palm Desert Community � Preliminary, subject to change. 1 Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2006A (the "2006 Bonds" and, together with the 2007 Bonds, the "Bonds"). The 2007 Bonds are payable on a parity with the 2006 Bonds. Bond Terms. The 2007 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 2007 Bonds is payable on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing [September 1, 2007]. The 2007 Bonds will be issued without coupons in denominations of$5,000 or any integral multiple thereof. Registration of Ownership of Bonds. The 2007 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 2007 Bonds. So long as the 2007 Bonds are registered in the name of Cede 8� Co., as nominee of DTC, references herein to the Owners will mean Cede & Co., and will not mean the ultimate purchasers of the 2007 Bonds. Payments of the principal, premium, if any, and interest on the 2007 Bonds will be made directly to DTC, or its nominee, Cede 8� Co. so long as DTC or Cede & Co. is the registered owner of the 2007 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 2007 Bonds will primarily be used to finance a portion of the costs of acquiring and constructing certain in-tract improvements and non- construction items in the District {the "Project" as described herein). The 2006 Bonds were also issued to finance certain backbone infrastructure improvements in the District. See "THE PROJECT." Proceeds of the 2007 Bonds will also be used to increase the amount in a parity Reserve Account established from 2006 Bond proceeds, as described herein, to provide funds for payment of the 2006 Bonds and the 2007 Bonds in the event of delinquent Special Taxes, to provide capitalized interest until and to pay costs of issuance of the 2007 Bonds. Source of Payment of the Bonds. The 2006 Bonds and 2007 Bonds (together, 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 District on taxable real property within the boundaries of the District, less certain administrative expenses. The Bonds are also payable from the net 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, as the legislative body of the District, 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 Council and the qualified electors within the District. The Special Tax Formula is set forth in APPENDIX A hereto. The Special Taxes are secured by 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 Methodofogy" and "APPENDIX A— RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." The maximum authorized indebtedness for the District is $70 million; the 2007 Bonds are the second series of bonds being issued by the District. The District previously 2 issued the 2006 Bonds in the aggregate principal amount of$50,000,000 which are payable and secured on a parity with the 2007 Bonds. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Outstanding Parity Bo�ds." In connection with the issuance of the 2006 Bonds, the Trustee established a Reserve Account (the "Reserve Account") from 2006 Bond proceeds, which amount is available for payment of the Bonds, as described herein. The Reserve Account will be increased from proceeds of the 2007 Bonds to the amount of the Reserve Requirement, which amount is available to be transferred to the Interest Account, Principal Account, or the Redemption Account of the Special Tax Fund, as applicable, in the event of delinquencies in the 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 known locally as "University Park." The land is currently undeveloped and consists of approximately 267 acres comprising 17 parcels; further subdivision of several parcels is contemplated. Most of the acreage in the District (at least 75%) 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 may occur. Parcel 9 has an approved Tentative Tract Map for 270 residential lots. On April 4, 2006, the Planning Commission of the City approved the following tentative maps: TT 34055 which covers Parcels 1, 2 and 3 (for 240 single family lots); TT 34057 which covers a portion of Parcels 4, 5, 6 and 7 (for 141 single family lots); and TT 34074 which covers a portion of Parcels 4,5, 6 and 7 (for 72 single family lots). Under the City's municipal code, the approval of tentative maps by the planning commission becomes effective on the sixteenth day following the date of approval unless an appeal has been filed or the map has been called up for review by the City Council. 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 first quarter 2007. The majority of the residential use property is owned by Palm Desert Funding Company, LP, which acquired the land and intends to offer it for sale to merchant builders. The Bonds are issued to finance, among other things, the cost of backbone infrastructure improvements necessary for development 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 taxable real property within the District, which sets forth a total value estimate of property in the District of $241,855,000, as of December 31, 2006. The valuation is not a "bulk sale" valuation of all the property in fhe 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 12.09� � Preliminary, subject to change. 3 times the $20,000,000` aggregate principal amount of the 2007 Bonds and 3.46' times the $70,000,000' combined aggregate principal amount of the 2007 Bonds and the 2006 Bonds. Risks of Investmenf. 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 2007 Bonds. Limited Obligation of the District. 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 2007 Bonds. The 2007 Bonds are not secured by a legal or equitable pledge of or charge, lien or encumbrance upon any property of the City or the District or any of their respective income or receipts, except the money in the Special Tax Fund (described herein) established under the Indenture (exclusive of the Administrative Expenses Account therein), and neither the payment of the interest on nor principal of or redemption premiums, if any, on the 2007 Bonds is a general debt, liability or obligation of the City or the District. The 2007 Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restrictions and none of the City Council, the City, the District, or any officer or employee of the City or the District are liable for the payment of the interest on or principal of or redemption premiums, if any, on the 2007 Bonds other than from the proceeds of the Special Taxes and the money in the Special Tax Fund (exclusive of the Administrative Expenses Account therein), as provided in the Indenture. Summary of Information. Brief descriptions of certain provisions of the Indenture, the 2007 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 fhat any of the estimates will be realized. For definitions of certain terms used herein and not defined herein, see "APPEND/X C — SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE." 4 THE 2007 BONDS Authority for Issuance The 2007 Bonds are issued pursuant to the Indenture, approved by Resolution No. 07- _adopted by the City Councii on , 2007, and the Act. On January 12, 2006, the City Council adopted Resolution No. 06-6 (the "Resolution of Formation"), which formed the District. 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 (as defined herein), including repaying any indebtedness of the District, replenishing the Reserve Account and paying the administrative expenses of the District. See "THE DISTRICT" herein. 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 2007 Bonds are the second and final series to be issued under the authorization; the $50 million aggregate principal amount of 2006 Bonds were previously issued on May 9, 2006 under the authorization. The 2007 Bonds are the second and final series of bonds to be issued under the authorization. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Outstanding Parity Bonds." Description of the 2007 Bonds Bond Terms. The 2007 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 2007 Bonds are being issued in the denomination of $5,000 or any integral multiple thereof. Interest on the 2007 Bonds will be payab�e semiannually on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing [September 1, 2007J. The principal of the 2007 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 2007 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 2007 Bonds are being issued as fully registered bonds, registered in the name of Cede 8 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 2007 Bonds. So long as the 2007 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 2007 Bonds. The Trustee will make payments of the principal, premium, if any, and interest on the 2007 Bonds directly to DTC, or its nominee, Cede & Co., so long as DTC or Cede 8� Co. is the registered owner of the 2007 5 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 oflnterest Interest on the 2007 Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. 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 2007 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, 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 Optiona/ Redemption. The 2007 Bonds maturing on or before September 1, 20 are not subject to optional redemption by the District. The 2007 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 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, 2007 to March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and Interest Payment Dates thereafter 6 Mandatory Redemption From Prepayments. The 2007 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 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 with accrued interest to the redemption date: Redemption Redemption Dates Price September 1, 2007 to March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and March 1, 20_ September 1, 20_and Interest Payment Dates thereafter Mandatory Sinking Fund Redemption. The Term Bonds maturing on 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 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 20_ Mandatory Redemption Date Sinking Fund Leqtember 11 Pavment (maturity) 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. Purchase In Lieu of Redemption. If during the Fiscal Year immediately preceding one of the redemption dates specified above under the heading "Mandatory Sinking Fund Redemption", 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 2007 Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be 7 redeemed shall be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such 2007 Bonds for redemption, the Trustee shall treat such Bonds as representing that number of 2007 Bonds of $5,000 denominations which is obtained by dividing the principal amount of such 2007 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 2007 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 2007 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 2007 8onds selected for redemption, except that where all of the 2007 Bonds are subject to redemption, or all the 2007 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 2007 Bonds to be redeemed; (c) state the redemption price; (d) state the place or places where the 2007 Bonds are to be redeemed; (e) in the case of 2007 Bonds to be redeemed only in part, state the portion of such 2007 Bond which is to be redeemed; (f) state the date of issue of the 2007 Bonds as originally issued; (g) state the rate of interest borne by each 2007 Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the 2007 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 2007 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 2007 Bonds, as applicable. The actual receipt by the Owner of any 2007 Bond or the original purchaser of any 2007 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 2007 Bonds, or the cessation of interest on the redemption date. 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 2007 Bonds so called for redemption are deposited in the Interest Account, Principal Account, and Redemption Account of the Special Tax Fund as applicable, such 2007 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. 8 Transfer or Exchange of Bonds So long as the 2007 Bonds are registered in the name of Cede & Co., as nominee of DTC, transfers and exchanges of 2007 Bonds will be made in accordance with DTC procedures. See "Appendix G" below. Any 2007 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 2007 Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form approved by the Trustee. Whenever any 2007 Bond or Bonds are surrendered for transfer or exchange, the District will execute and the Trustee will authenticate and deliver a new 2007 Bond or Bonds, for a like aggregate principal amount of 2007 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 District. 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 2007 Bonds will be required to be made (i) within 15 days prior to the date established by the Trustee for selection of 2007 Bonds for redemption or (ii) with respect to a 2007 Bond after such 2007 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 2007 Bonds follows: Estimated Sources of Funds: Principal Amount of 2007 Bonds Less Original Issue Discount Less Underwriter's Discount Total Estimated Uses of Funds: Deposit to Facilities Funds Deposit to Reserve Account Deposit to Interest Account �'� Costs of Issuance �2� Total �'�Represents an amount sufficient to provide for interest up to and including 1,200_ �2�Includes fees of Bond Counsel,Disclosure Counsel,initiaf fees,expenses and charges of the Trustee,costs of printing the Official Statement,administrative fees of the City,special tax consultant,appraiser,financial advisory fees,and other costs of issuance. 9 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, as the legislative body of the District, through the application of the Special Tax Formula prepared by MuniFinancial, Temecula, California (the "Special Tax ConsultanY') and set forth in APPENDIX A hereto for all taxable properties in the District. Interest and principal on the 2007 Bonds is payable, on a parity with the 2006 Bonds, 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 Special Tax Fund established under the Indenture (other than the Administrative Expenses Account therein) and from the net 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 the Indenture for the delinquency of such Special Taxes remaining after the payment of all costs ralated 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 refated thereto, the fees and expenses of the Trustee, any fees and related costs for credit enhancement for the 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. "Administrative Expenses Cap" is an amount equal to $75,000 per Bond Year, escalating by 2% each Bond Year commencing July 1, 2007. Pursuant to the Act and the Indenture, the Bonds shall be equally payable from the Net 7axes and other amounts in the Special Tax Fund (exclusive of the Administrative Expenses Account), without priority for number, date of the 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 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 set aside for the payment of the 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 so long as any of the Bonds or interest thereon remain Outstanding shall not be used for any other purpose, except as permitted by the Indenture or any Supplemental Indenture. Notwithstanding any provision contained in the 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, 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, or any accounts or subaccounts within any such funds, shall be construed as a trust fund held for the benefit of the Owners. 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 10 Council and the qualified electors within the District pursuant to the Act in an amount determined according to the Special Tax Formula approved by the City. See "Special Tax Methodology" below and "APPENDIX A— RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." 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. Amounts in the Special Tax Fund, other than the Administrative Expenses Account therein, including interest earnings thereon, 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, such amounts 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 "APPENDIX A— 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 5tate of California or any political subdivision thereof other than the District is pledged to the payment of the Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds. The 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 DistricYs limited obligation to pay the principal of, premium, if any, and interest on the 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 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 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 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 the Indenture and the Act, set 11 aside for the payment of the 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, are liable personally on the 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 for the 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 availabfe 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 Council, as the legislative body of the District, 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 Specia/ Tax Requirement Each year, the City Council, as legislative body of the District, will determine the Special Tax Requirement of the District for the upcoming fiscal year. The "Special Tax RequiremenY' 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 7axes 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 the District 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 cause the District to tax all parcels within the District except property which is exempt from the Special Tax pursuant to the Special Tax Formula. Annua/Specia/ 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 calculating the Special Tax Requirement which needs to be generated by all Taxable Property in the District; the Special Tax (up to maximum allowable amount) then will be levied annually until the amount of Special Taxes equals the annual 12 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 foliows: 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 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 Annua� 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 Specia/ 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 Specia/ 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 prepayment of the special taxes attributable to the applicable parcels. 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. 13 Levy of Annual Special Tax; Maximum Annual Special Tax The annual Special Tax will be calculated by the CFD Administrator and levied to provide money for debt service on the Bonds, replenishment of the Reserve Account, anticipated Special Tax delinquencies, administration of the District, and for direct payment 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 Assigned Annual Special Tax per Zone E property (detached single family residential unit) when developed 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. This is due to the difference between the Undeveloped Property and Developed Property Maximum Annual Special Tax rates and anticipated decrease in taxable acreage. At the time the 2007 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 $7.07 million; upon buildout of the District the Maximum Special Tax, based on Maximum Annual Special Tax rates for Developed Property, is estimated to be approximately $5.1 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 2.067 and transition down to approximately 1.491 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 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 the text 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 14 the Special Tax Fund the amounts required for debt service on the on such Interest Payment Date. The amounts in the Surplus Fund are not pledged to the repayment of the 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, 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 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. Deposit and Use of Proceeds of 2007 Bonds The proceeds of the 2007 Bonds will be paid to the Trustee, who will deposit such proceeds in the Reserve Account, Capitalized Interest Subaccount, 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 DistricYs option, the Special Taxes may be billed directly to property owners, at a different time or in a different manner, if necessary to meet its financial obligations. 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. 15 The City has covenanted in the Indenture with and for the benefit of the Owners of the 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 foreciosure 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 further covenants that it wifl 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, 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. 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, including interest, penalties, and other authorized charges. 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 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 between 40 and 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 — Overlapping Liens and 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 16 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 53356.5 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 In connection with the issuance of the 2006 Bonds, the City in the Indenture directed the Trustee to establish a Reserve Account (the "Reserve Account") from 2006 Bond proceeds in the amount of the Reserve Requirement (described below), which amount is available for payment of the Bonds in the event of delinquencies in the payment of the Special Taxes to the extent of such delinquencies. The Reserve Account will be increased from proceeds of the 2007 Bonds and be available, on a parity basis with the 2006 Bonds, for payment of the 2007 Bonds. 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. Upon issuance of the 2007 Bonds, proceeds of the 2007 Bonds will be used to increase the amount in the Reserve Account to the amount of the "Reserve Requirement", 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, (ii) Maximum Annual Debt Service on the then Outstanding Bonds; and (iii) 125°/a of average Annual Debt Service on the then Outstanding Bonds. 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 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 District. Whenever moneys are withdrawn from the Reserve Account, after making the required transfers for Administrative Expenses and, prior to each Interest Payment Date, for payment of the Bonds pursuant to the terms of the Indenture, 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 17 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 a partial defeasance of 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 finai 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 (as defined below), and after completion of the Backbone Infrastructure (as defined herein), 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 (collectively, the "Facilities Funds"), 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) and, as applicable, the JCFA (as defined herein). Interest earnings from the investment of amounts in the City Facilities Fund and the CVWD Facilities Fund will be retained in the respective City Facilities Fund and CVWD Facilities Fund, to be used for the purposes of the respective funds. Within the City Facilities Fund and the CVWD Facilities Fund, there are several subaccounts for various purposes associated with financing the Project. The Indenture allows the transfer of amounts between the various subaccounts, and between the City Facilities Fund and the CVWD Facilities Fund, under certain circumstances and upon completion of the appropriate documentation. Upon receipt of a certificate 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 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 of interest on the Bonds. Outstanding Parity Bonds 7he District is authorized to issue up to $70 million of bonds, of which the 2007 Bonds represent the second and final series. The District previously issued the 2006 Bonds in the 18 aggregate principal amount of $50,000,000. Following the issuance of the 2007 Bonds, the District is not authorized to issue additional parity bonds (other than refunding bonds.) 19 DEBT SERVICE SCHEDULE The annual debt service (including Sinking Fund Payments) on the 2006 Bonds and the 2007 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 and Series 2007 Debt Service Year Series Series Series Series Ending 2006A 2007 2007 2007 Se t. 1 Total Principal Interest Total Total 2006 $ 805,116.67 2007 2,587,875.00 2008 3,412,875.00 2009 3,414,875.00 2010 3,414,615.00 2011 3,411,577.50 2012 3,410,657.50 2013 3,412,007.50 2014 3,410,317.50 2015 3,410,497.50 2016 3,412,772.50 2017 3,411,270.00 2018 3,410,270.00 2019 3,411,270.00 2020 3,414,020.00 2021 3,413,270.00 2022 3,414,020.00 2023 3,412,120.00 2024 3,411,020.00 2025 3,410,457.50 2026 3,410,170.00 2027 3,409,895.00 2028 3,411,925.00 2029 3,413,050.00 2030 3,412,990.00 2031 3,411,487.50 2032 3,413,270.00 2033 3,412,800.00 2034 3,411,275.00 2035 3,411,500.00 2036 3,412,925.00 Total $102,342,191.67 " Paid from capitalized interest. 20 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 THE 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 locally 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. In connection with calculating the Special Tax, 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 constructio�. Property in the District is comprised of 17 parcels (designated 1-17), not including some recent changes described herein, created by Parcel Map No. 31730 approved by the City. Some of the parcels will be subdivided and/or reconfigured as development occurs. Such reconfiguration of Parcels 11, 12 and 13 occurred in late 2005. According to the City's General Plan Land Use Map, approved in March 2004, the parcels in the District are included in the 21 Zoning/General Plan designations shown in 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�'� 7 6.973 E Residential 9 76.296 E Residential 10 19.758 E Residential 14 7.075 E Open Space, Public Park�� 15 11.899 E Residential S u btotal 205.857 Zone C 11 9.746 C Community Commercial 12 10.560 C Community Commercial 13 3.243 C Community Commercial Subtotal 23.549 Zone B 16 19.604 B Mixed—Commercial/Office Professional Zone A 17 7.738 A Commercial Zone D 8 10.647 D Community Commercial�2� TOTAL 267.395 �'� 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 parceis, resuiting in some residential uses planned for Parcels 6 and 14. A District boundary map, parcel map and land use map are shown on the following pages. 22 This page has been intentionally left blank. 23 [Reserved for tract map #31730] 24 [Reserved for boundary map] 25 [Reserved for land use map] 26 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 fhaf all informafion 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 fhe parcels is subject to change, the development plans outlined be/ow may not be continued by any subsequenf owner if the parcels are sold, although development by any subsequent owner will be subject to the policies and requirements of the Cify. No assurance can be given that the plans or projections detailed below will actually occur. Property in the District consists of approximately 267 acres, most of which is undeveloped. Palm Desert Funding Company, LP, which owns or owned all of the Zone E property in the District, is overseeing construction of the "backbone" infrastructure required for development (the "Backbone Infrastructure"), all of which is being financed with proceeds of the Bonds. Construction of Backbone Infrastructure improvements began in May 2006. The Backbone Infrastructure is being constructed through four separate contracts awarded pursuant to the Acquisition Agreement and the JCFA. T'he first Backbone Infrastructure contract was for street, storm drain, sewer, water, street grading, curb and gutter, street base and asphalt, traffic signals, traffic signs, and stripping. Work on this contract commenced in May 2006 and is expected to be complete by April 2007. Contracts for the remaining Backbone Infrastructure have been bid out as follows: dry utilities in August 2006; retaining walls and landscaping, February 2007. All Backbone Infrastructure is expected to be complete by the end of the fourth quarter of 2007, except the four well sites, which are expected to be improved and provided in connection with construction of homes in the residential development. The cost of the Backbone Infrastructure will initially be shared 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. A portion of the proceeds of the 2007 Bonds will be used to finance certain in-tract improvements to a portion of the property and non-construction items (such as payment of fees). See "THE PROJECT." 27 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 Parcels 11, 12 and 13 have construction underway. Parcel No. Zonins� 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. Tentative maps were approved for development of Parcels 1-7, 10 and 14. 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 (low-density residential). On April 4, 2006, the Planning Commission of the City approved the following tentative maps for Parcels 1-7: TT 34055 which covers Parcels 1, 2 and 3 (for 240 single family lots); TT 34057 which covers a portion of Parcels 4, 5, 6 and 7 (for 141 single family lots); and TT 34074 which covers a portion of Parcels 4, 5, 6 and 7 (for 72 single family lots). Under the City's municipal code, the approval of tentative maps by the planning commission becomes effective on the sixteenth day following the date of approval unless an appeal has been filed or the map has been cailed up for review by the City Council. The remaining parcels in the District do not have approved tentative or final subdivision maps. Parcels 11, 12 and 13 have been reconfigured as described below. Zone E- Projected Residentia/ Deve/opment(Parce/s 1-7, 9, 10, 14 8 15). Property in the District expected to be developed into single-family residences consists of Parcels 1-7, 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 1-7, 9 and 15 are owned by Palm Desert Funding Company, LP. Palm Desert Funding Company, LP is overseeing construction of the backbone infrastructure improvements and sell all of its holdings to merchant homebuilders. Palm Desert Funding Company, LP 28 recently sold its interest in Parcel 10 and 14 to John Laing Homes for development. 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 in Parcels 1-7, 10, 14, 15 and a portion of Parcel 9. Backbone Infrastructure for the parcels is expected to be complete in the first quarter of 2007. Major streets and utilities to the perimeter of the site previously existed but were improved as part of the Backbone Infrastructure. Parcel 9 has received an approved tentative map, which is for 270 lots averaging 7,200 square feet (low-density residential). Parcels 1-7 have three approved tentative maps for an additional 456 units, and Parcels 10 and 14 have an approved tentative map for 196 units. 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 units 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 on this land, 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. Marketing of lots by Palm Desert Funding Company, LP is underway. Land planned for 195 units in Parcels 10 and 14 has been sold to John Laing Homes, and land planned for 71 homes in Parcel 9 are in escrow with another homebuilder. 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, received approval of its Master Development Plan on May 10, 2006, resulting 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 square foot range, with pricing projected to start in the $300,000's. No assurance can presenfly be given as to acfual fufure development, home sizes or prices. Zone C - Projected Commercial Development— (Parce/s 11, 12 8 13 of Parcel Map 31730). In November of 2005 Shaw/Palm Desert I, LLC ("Shaw") and Palm Desert University Village, LLC ("PDUV") (formerly known as The University Village Partnership) recorded Parcel Map 31515 which subdivided Parcels 11, 12 8� 13 into twelve parcels. Parcel 11 of Parcel Map 31730 became Parcels 10, 11 8� 12 of new Parcel Map 31515 and is owned by Shaw. Parcel 12 of Parcel Map 31730 became parcels 1-8 of Parcel Map 31515 and are owned by PDUV. Parcel 13 of Parcel Map was revised from 3.24 to 2.99 acres and became parcel 9 of Parcel Map 31515. See "OWNERSHIP OF PROPERTY IN THE DISTRICT" below. 29 Oriqinal Parcel 11 — Office Space. Parcel 11 (approximately 9.624 acres) is owned by Shaw Palm Dese►t I, LLC, which purchased the property in April 2005. The owner plans to develop the parcel in two phases with a total of 40 office condominium units totaling 130,000 square feet of office space housed in 14 free standing single story office buildings. Phase 1 consists of 8 free standing office buildings containing 23 units. As of January 17, 2006, construction of Phase 1 is almost complete, and 11 of the units are in escrow. Oriqinal Parcel 12— Retail Space. Original parcel 12 is being developed in three phases by PDUV as an approximately 100,000 square foot multi-tenant retail center. Phase 1 consists of approximately 46,312 square feet of multi-tenant retail space plus required infrastructure for development. As of January 2007, approximately 70% of Phase 1 has been pre-leased and the improvements are approximately 60% complete. Construction of all three phases is expected to be complete by spring 2008. Oriqinal Parcel 13 — Hofe/ Space. Parcel 9 of Parcel Map 31515 (adjusted original Parcef 13) was sold to Palm Desert Hospitality, LLC, a Louisiana limited liability company, as to an undivided 75% interest, and Mountain Run, LLC, a Louisiana limited liability company, as to an undivided 25% interest, in March 2006, for development as a hotel. As of January 2007, construction of the hotel was underway and is expected to be complete in summer 2007. InterMountain Management, LLC, an affiliate of the owners, expects to operate the hotel property pursuant to a license agreement with Hilton Homewood Suites. Zone B - Projected Mixed Commercial/Office Deve/opment— (Parce/ 16). Parcel 16 was purchased by Sinatra 8 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 260 condominiums comprising approximately 286,000 square feet of living space in 32 buildings, and the commercial project is expected to consist of approximately 37,500 square feet in 3 buildings. Plans for both projects have been approved by the City and construction is expected to be complete in March 2008. Upon completion, the residential units may be rented or sold to individual homeowners. Zone A - Projected Commercia/ Deve/opment— (Parce/ 17). Parcel 17 (7.738 acres) 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. Zone D - Projected Commercia/ Deve/opment — (Parce/ 8). The original Parcel 8 is owned by Palm Desert Forum, LLC, a California limited liability company, who acquired the property in June 2005. A lot line adjustment has resulted in approximately 3.2 acres of property that was part of Parcel 7 becoming part of Parcel 8. The 3.2 acre parcel is currently owned by Desert Wells 237, LLC and Palm Desert Forum, LLC, which are both entities afFiliated with Michael S. Marix family. The owners are currently holding the Parcel 8 as a passive investment. They may develop the property or may sell the property to one or more buyers. Infrastructure Improvements. Significant basic (sometimes referred to as "backbone") infrastructure improvements are required before most of the planned development in the District can proceed. The Backbone Infrastructure was authorized to be financed by the Resolution of Formation, and the Backbone Infrastructure is 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 30 within the District from time to time. The Backbone Infrastructure is 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 $37.1 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 2007 Bonds. See "THE PROJECT- Construction and Acquisition of the Project" below. The Backbone Infrastructure is currently expected to be constructed through four separate contracts awarded pursuant to the Acquisition Agreement and the JCFA. The first Backbone Infrastructure contract is for street, storm drain, sewer, water, street grading, curb and gutter, street base and asphalt, traffic signals, traffic signs, and stripping, and was awarded to the lowest responsible bidder. Construction of Backbone Infrastructure improvements began in May 2006. The Backbone Infrastructure is being constructed through four separate contracts awarded pursuant to the Acquisition Agreement and the JCFA. The first Backbone Infrastructure contract was for street, storm drain, sewer, water, street grading, curb and gutter, street base and asphalt, traffic signals, traffic signs, and stripping. Work on this contract commenced in May 2006 and is expected to be complete by April 2007. Contracts for the remaining Backbone Infrastructure have been bid out as follows: dry utilities in August 2006; retaining walls and landscaping, February 2007. All Backbone Infrastructure is expected to be complete by the end of the fourth quarter of 2007. 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. Environmental Matters Flood Hazard Map /nformation. 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. 31 THE PROJECT Eligible Facilities The 2007 Bonds will provide a funding source for a portion of the cost of the Project, which includes 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, Temecufa, 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 (including retaining walls), street improvements, sewer improvements, water improvements, park improvements, and park and well 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 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 (the "JCFA"), 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 (now known as Palm Desert University Village, LLC, a California limited liability company), Shaw/Palm Desert 1, LLC, a California limited liability company, and Sinatra & Cook Project, LLC, a California limited liability company. The JCFA establishes the terms by which the construction of sewer and water system improvements associated with the anticipated development within the District will be financed by the proceeds of the Bonds. 32 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 pians and specifications. The Project may include facilities financed pursuant to public agency development impact fees. The Project may include the following: • 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 (including retaining walls) 33 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. Of the total Project costs, it is currently estimated that approximately $37.123 million will be for the cost of construction of the Backbone Infrastructure, which amount is being financed by the Bonds. The remaining Project costs are comprised mostly of fees, park, well sites and in-tract improvements, some of which are anticipated to be funded by proceeds of the 2007 Bonds. The CFD Hearing Report summarizes the estimated total Project costs as follows; actual costs for the Project will vary as a result of the bidding process. As of January 2007, approximately $9.9 million of 2006 Bond proceeds had been expended on the Project. 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 34 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 excluding CFD fees and building permits) will total approximately $35 million in excess of the improvements financed by the Bonds. The owner of Parcel 12 and 13 estimates that, as of January 2007, additional infrastructure will cost approximately $1 million. The owner of Parcel 16 estimates $6 million of site work is necessary to improve that site. As of January 1, 2007, the owner of Parcel 11 had expended approximately $1.5 million on site work and construction was underway. 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 On March 23, 2006, the City and Palm Desert Funding Company, LP, a Delaware limited partnership ("PDFC") (for itself and as successor to and assignee of Desert Wells 237, LLC, a California limited liability company and Albor Properties III, LP, a California limited partnership)), The University Village Partnership, a California general partnership (now known as Palm Desert University Village, LLC, a California limited liability company), Shaw/Palm Desert 1, LLC, a California limited liability company, and Sinatra & Cook Project, LLC, a California limited liability company, (collectively, the "Developers") entered into an Acquisition Agreement (the "Acquisition Agreement"), which provided that the Developers would construct or cause to be constructed the Backbone Infrastructure. In addition, the Acquisition Agreement allows the financing of other costs of the Project for which each such Developer is responsible as a condition of any development agreement, improvement agreement, subdivision map, or other regulatory approvaf. Each such Developer will use its own funds to pay all construction costs thereof and may seek reimbursement for authorized costs of the Project from the City Facilities Fund and CVWD Facilities Fund if the facilities were constructed in accordance with the Acquisition Agreement. 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 2007 Bonds and 2006 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 Facilities Fund, pursuant to the terms of the Acquisition Agreement. To the extent funds are not available in the City Facilities Fund or the CVWD Facilities 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 have entered into a Cost Sharing and Bond Proceeds Allocation Agreement dated January 25, 2006, as amended by the First Amendment dated as of March 15, 2006 (the "Cost Sharing Agreement"), among themselves and with the two remaining property owners within the District 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. In November 2006, Palm Desert Funding Company, LP assumed most of the obligations of Desert Wells 237, LLC and Albor Properties 35 III, LP, under the Cost Sharing Agreement. After such assignment, Palm Desert Funding Company, LP is responsible for over 63% of the cost, with each of the remaining Developers responsible for less than 10°/a each. The Developers have covenanted in the Acquisition Agreement that they will not amend or otherwise modify the Cost Sharing Agreement without the City's prior written consent. The First Amendment was consented to by the City. OWNERSHIP OF PROPERTY WITHIN THE DISTRICT Unpaid Special Taxes do not constitute a personal indebtedness of the owners of the parcels wifhin fhe District. There is no assurance that the present property owners or any subsequent owners wil!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 fo do so. Neither the City nor any Bondowner will have fhe ability at any time to seek payment directly from the owners of property within fhe District of the Special Tax or fhe principal or interest on the Bonds, or the abilify 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 Net Taxes and moneys available under the Indenture. See "SECURITY AND SOURCES OF PAYMENT �OR THE BONDS" and "SPECIAL RISK FACTORS" herein. 36 The owners of parcels in the District as of February 2007 are summarized as follows: Parcel No. Owner of Record 1 Palm Desert Funding Company, LP �'� 2 Palm Desert Funding Company, LP �'� 3 Palm Desert Funding Company, LP �'� 4 Palm Desert Funding Company, LP �'� 5 Palm Desert Funding Company, LP �'� 6 Palm Desert Funding Company, LP �'� 7 Palm Desert Funding Company, LP �'� 8 Palm Desert Forum, LLC and Desert Wells 237�2� 9 Palm Desgrt Fundin�q� Company, LP 10 John Lain Homes 11 Shaw/Palm Desert 1, LLC 12 The University Village Partnership�3� 13 The University Villa�e Partnership �3�ca> 14 John Laing Homes '� 15 Palm Desert Funding Company, LP 16 Sinatra & Cook Project, LLC 17 Donald L. McCoy and Marcellene W. McCoy "� Parcels 1-7, 10 and 14 were sold to Palm Deserl Funding Company, LP as described below. Palm Desert Funding Company, LP expects to sell all property it owns or acquires to merchant builders and has transferred Parcels 10 and 14 to John Laing Homes. �Z� Desert Wells 237 and Palm Desert Forum share ownership of 3.2 acres of Parcel 8 that was previously part o(Parcel 7. "�The University Village Partnership, a Califomia general partnership, was converted into a California limiied liability company effective February 17,2006 and is now known as Palm Desert University Village, LLC. "'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 InlerMounlain 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 Maximum Special Owner Tax Palm Desert Funding Company LP 68.34% John Laing Homes 9.64 Sinatra 8� Cook Project, LLC 7.49 Palm Desert University Village, LLC 5.09 Shaw/Palm Desert 1, LLC 3.68 Palm Dese�t Forum, LLC 2.42 Donald L. and Marcellene W. McCoy 2.30 Desert Wells 237, LLC/Palm Desert Forum, LLC 1.04 �'�Based on current ownership. 37 �Z�Source:Appraisal by Capital Realry Analysts,dated January 15,2007.Appraisal includes land and CFD financed improvements on{y 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 Rate and Method. �4� Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method.Parcel acreage is based on gross acreage and excludes 3 parks and 9 acres. Pa/m Desert Funding Company, LP. Palm Desert Funding Company, LP is a Delaware limited partnership, and is comprised of Palm Dese�t Funding Co., LLC, its general partner, and Palm Desert Funding Company, Inc., its limited partner. Palm Desert Funding Company, LP ("PDFC") has a Development and Purchase 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 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. Hover Development Company, Inc. is the managing member of Palm Desert Project Company, LLC, and is the authorized agent to act on behalf of PDFC and is responsible for all development decisions as it relates to these entities and the property in the District. Mr. Hover is the President of Hover Development Company, Inc. and has been in 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. PDFC acquired Parcels 1-7, 9, 10, 14 and 15 in the District. PDFC is not a merchant home builder and plans to sell all of the developable property it owns in the District to merchant builders. PDFC has owned Parcels 9 and 15, totaling 88 acres, since August 2005. PDFC purchased Parcels 10 and 14, in May 2006 and has since sold the parcels to John Laing Homes for development. PDFC purchased Parcels 4-7 on September 21, 2006, and Parcels 1-3 on January 16, 2007. In total, PDFC will 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. PDFC has provided approximately $60,000,000 of bank debt and approximately $40,000,000 of equity to purchase land in the District, to mass grade the property it owns or will own, to process plans and to otherwise develop the property as planned. Rabobank holds a promissory note in the amount of$42,300,000 secured by a deed of trust on Parcels 9 and 15. University Park Funding 1nc. holds a promissory note in the amount of $17,700,000 secured by a deed of trust on Parcels 4-7. John Laing Homes. WL Homes LLC, a Delaware limited liability company doing business in California as John Laing Homes ("John Laing Homes") is the owner of Parcels 10 and 14. WL Homes LLC was formed in April 1998 as the result of a merger between John Laing Homes and Watt Homes. Prior to the merger, John Laing Homes had been in the homebuilding industry for over 150 years and Watt Homes had been building homes for 50 years. John Laing Homes maintains construction and development operations in nine separate operating divisions: Inland Empire (the division developing the subject property), Los AngelesNentura, South Coast, San Francisco Bay Region, Denver, Colorado Springs, San Diego, LA Urban Infill, Central Valley and Luxury. The Internet website address for John Laing Homes is www.johnlainghomes.com. This Internet address is included for reference only, and the information on this Internet site is not a part of this Official Statement or incorporated by reference into this Official Statement. 38 John Laing Homes purchased Parcels 10 and 14 from Palm Desert Funding Company, LP, in August 2006. John Laing Homes intends to develop Parcels 10 and 14 as 198 residential units. Construction and purchase financing has been obtained from Bank of America in the amount of$33,370,000 and is secured by a deed of trust. Sinatra 8 Cook Project, LLC. Sinatra & Cook Project, LLC is a California limited liability company. Its members have 25 years experience in multifamily development and are Ark Construction, Inc., a California corporation, Ryan Ogulnick and Steven Gilfenbain. Sinatra 8� Cook Project, LLC purchased Parcel 16 in 2005 and expects to complete construction in March 2008. There is currently no debt on the property in Parcel 16. Palm Desert University Village, LLC. Palm Desert University Village, LLC, a California limited liability company (formerly known as The University Village Partnership) is a California limited liability company whose members (having equal membership interests) are (i) Evans University Village, LLC, a California limited liability company, and (ii) Edwards 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. (Fred) Evans, III. Edwards University Village, LLC is controlled by Edwards Affiliated Holding, LLC and Bridgeport Investment Company, Inc. The managing member of Palm Desert University Village, LLC, is Evans University Village, LLC. Frederick Oliver Evans, Jr. (F.O. (Rick) Evans) spent the last decade at The Irvine Company as President of the Retail Division and he has experience in retail development, marketing and leasing. Frederick Oliver Evans lll (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. Palm Desert University Village, LLC purchased Parcels 12 and 13 in February 2005. Construction financing for the initial phase has been obtained from Wells Fargo Bank in the amount of$14,187,000, secured by a deed of trust. Pre-construction financing for Phases 2 and 3 has been secured in the amount of$3,000,000, also from Wells Fargo Bank. These funds are being used to complete the site work for the entirety of Original Parcel 12. This work is expected to be completed in March 2007. Shaw Pa/m Desert l, 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 Properties 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 has been affiliated with Shaw Properties since 1986 and bega� his career in commercial real estate in 1974. He's a specialist in Industrial, Office and Apartment development and has been involved in thousands of acres of commercial land entitlement and development and millions of square feet of business park and individual building development and management through Shaw Asset Management Corporation. Shaw Palm Desert I, LLC purchased Parcel 11 in April 2005. Construction and purchase financing has been obtained from East West Bank in the amount of $22,000,000 and is secured by a deed of trust. The loan is due in December 2008 and covers both phases of construction on Parcel 11. 39 Desert Wells 237, LLC. Desert Wells 237, LLC currently owns 80.2% of a portion of Parcel 8, consisting of approximately 3.2 acres, which was transferred from Parcel 7. Desert Wells 237, LLC is a California limited liability company and is managed and majority owned by entities controlled by the Michael S. Marix family. Mr. 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. Each Developer is nof under legal obligafion 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 besf interests. All expectafions of the owners described above are based on the currenf and acfual knowledge of fhe respective Developer and presenf facts and circumstances. Such expectations may change as the result of facts and circumstances occurring, or discovered, after the dafe 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." 40 APPRAISAL OF PROPERTY WITHIN THE DISTRICT The Appraisal General. Capital Realty Analysts, Palm Desert, California (the "Appraiser") prepared an appraisal report dated January 15, 2007, with a date of value of December 31, 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 marketing period. The conclusions reached in the Appraisal are subject to certain assumptions and qualifications which are set forth in the Appraisal. Va/ue Estimates. The Appraiser 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 improvements {including all of the Backbone Infrastructure improvements) to be financed by the Bonds (based on a total projected cost of $57,775,627) (herein, the "Assumed Improvements"). 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 December 31, 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 $241,855,000. The valuation is not a "bulk sale" valuation of all of the property in the District. The valuation is determined as a sum of individuaf parcel valuations, summarized as follows: Value Value Parcel Esttmate, Estlmate, Total � Resldentfal Commercial Value Estlmate 1 $4,175,000 - $4,175,000 2 13,490,000 - 13,490,000 3 21,010,000 - 21,010,OQ0 4 15,135,000 - 15,135,000 5 7,990,000 - 7,990,000 6 4,150,000 - 4,150,000 7 8,850,000 - 8,850,000 8 - $6,000,000 6,000,000 9 68,855,000 - 68,855,000 10&14 22,100,000 - 22,100,000 11 - 13,585,000 13,585,000 12 - 19,550,000 19,550,000 13 - 3,110,000 3,110,000 15 13,025,000 - 13,025,000 16 - 14,090,000 14,090,000 17 - 6,740,000 6,740,000 Total $178,780,000 $63,075,000 $241,855,000 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 DistricY' below. See also"Assumptions and Limiting Conditions" below. 41 Aggregate Va/ue; Not a Bulk Va/ue or Market Va/ue of the District The valuation set forth in the Appraisal is not a bulk sale value, which would represent the most probabie 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 va/uation does not represent a bu/k valuation of all the property in the District or a sum or bulk va/uations based on ownership or projected property uses. This value estimate excludes all discounts or al�owances for carrying costs and is not equal to the market value of all the subject properties as a whole. See "APPENDIX B—THE APPRAISAL." 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. The Assumed Improvements estimated to cost approximately $57.8 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 Assumed 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 Assumed Improvements cost of $57,775,627). 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. Limitafions of Appraisa/ 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. 42 No assurance can be given that the foregoing valuation can or will be maintained during the period of time that the 2007 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. 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 $241,855,000 subject to the limiting conditions stated therein. (See "The Appraisal" above and Appendix B hereto.) The principal amount of the Bonds is $70,000,000'. Consequently, the estimated value, subject to the Special Tax lien, of the real property within the District, is approximately 3.46" times the principal amount of Bonds and the other Overlapping Debt. 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 2007 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 $7.07 million; upon buildout of the District the Maximum Special Tax, based on Maximum Annual Special Tax rates for Developed Property, is estimated to be approximately $5.1 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 2.067 and transition down to approximately 1.491 at buildout. 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. 43 VALUE TO LIEN TABLES BASED ON GROSS ACREAGE ($7,068,000 Maximum Annual Special Tax) Value to Lien Ratios by Property Type (Based on g�oss acreage -$70,000,000 of Bonds) 570,000,000 520,000,000 Projected Percentage of Propert� Appraised Bonded Bonded Maximum Special Projected Value to Tyae�' Value�2� Indebtedness�3��Indebtedness�d�� Tax�5� S�ecial Tax Lien Ratio' Commercial $63,075,000 $15,412,692 $4,403,626 $1,556,364 22.02% 4.09:1 Residential 178,78Q,Q00 54.587,308 15,596,374 5,512,192 77.98 3.28:1 All 5241,855,000 570,000,000 520,000,000 57,068,556 100.00°/a 3.46:1 (1) Zones A-D are Commercial or Mixed-Use and Zone E is Residential. (2) Source:Appraisai by Capifal Realty Ana/ysts, dated January 15, 2007.Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Includes 2006 Bonds and 2007 Bonds. 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 Rate and Method. (4) Includes 2007 Bonds only. (5) Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method.Residential and Commercial acreage is based on gross acreage and residential acreage is adjusted for 9 acres of parks. 'Preliminary;subject to change. Value to Lien Ratios by Zone (Based on gross acreage -$70,000,000 of Bonds) 370,000,000 520,000,000 Projected Percentage of Propert�r Appraised Bonded Bonded Maximum Projected Value to Tvpe(' Value�Z� Indebtedness�3�� Indebtedness�4�� S�ecial Tax�5� Special Tax Lien Ratio' ZoneA � 6,740,000 $ 1,609,220 $ 459,777 $ 162,498 2.30% 4.19:1 Zone B 14,090,000 5,241,744 1,497,641 529,308 7.49 2.69:1 Zone C 36,245,000 6,136,669 1,753,334 619,677 8.77 5.91:1 Zone D 6,000,000 2,425,060 692,874 244,881 3.46 2.47:1 Zone E 178.780,000 54,587.308 15,596,374 5.512.192 77.96 3.28:1 All a241,855,000 a70,000,000 520,000,000 �7,068,556 100.00% 3.46:1 (1) Zones A-D are Commercial or Mixed-Use and Zone E is Residential. (2) Souroe:Appraisa/by Capital Realfy Ana/ysts, dated January 15, 2007. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Includes 2006 Bonds and 2007 Bonds. 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 Rate and Method. (4) Includes 2007 Bonds only. (5) Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method.Residential and Commercial acreage is based on gross acreage and residential acreage is adjusted for 9 acres of parks. `Preliminary;subject to change 44 Value to Lien Ratios by Parcel (Based on gross acreage - $70,000,000 of Bonds) 570,000,000 $20,000,000 Projected Percentage of Parcel Appreised Bonded Bonded Maximum Projected Value to Number�� Value�2� Indebtedness�3�� Indebtedness' Special Tax�`� Special Tax Lien Ratio* 1 $ 4,175,000 $1,454,648 $415,614 �146,869 2.08% 2.87:1 2 13,490,000 4,698,710 1,342,488 474,473 6.71 2.87:1 3 21,010,000 7,318,780 2,091,080 739,046 10.46 2.87:1 4 15,135,000 4,302,354 1,229,244 434,449 6.15 3.52:1 5 7,990,000 2,271,781 649,080 229,403 3.25 3.52:1 6 4,150,000 1,403,336 400,953 141,708 2.00 2.96:1 7 8,850,000 1,933,504 552,430 195,244 2.76 4.58:1 8 4,196,675 1,696,198 484,628 171,281 2.42 2.47:1 8 1,803,325 728,862 208,246 73,600 1.04 2.47:1 9 68,855,000 21,155,687 6,044,482 2,136,288 30.22 3.25:1 10& 14 22,100,000 6,749,101 1,928,315 681,520 9.64 3.27:1 11 13,585,000 2,573,278 735,222 259,848 3.68 5.28:1 12 19,550,000 2,779,162 794,046 280,638 3.97 7.03:1 13 3,110,000 784,229 224,066 79,191 1.12 3.97:1 15 13,025,000 3,299,407 942,688 333,172 4.71 3.95:1 16 14,090,OQ0 5,241,744 1,497,641 529,308 7.49 2.69:1 17 6,740,000 1.609.220 459,777 162,498 2.3Q 4.19:1 All 5241,855,000 $70,000,000 520,000,000 a7,068,556 100.00% 3.46:1 (1) Gross Acreage excludes 3 parks and a total of 9 acres. (2) Source:Appraisa!by Capifal Realty Analysts, dated January 15, 2007. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Includes 2006 Bonds and 2007 Bonds. 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 Rate and Method. (4) Projected maximum special tax is the tolal maximum tax collection based on the rates in the Rate and Method.Parcel acreage is based on gross acreage defined in the appraisal. 'Preliminary;subject to change. 45 Value to Lien Ratios by Owner (Based on gross acreage -$70,000,000 of Bonds) 570,000,000 a20,000,000 Projected Percentage of Appraised Bonded Bonded Maximum Projected Value to Current Owner�'� Value�Z� Indebtedness�3�� Indebtedness* Saecial Tax�4� Saecial Tax Lien Ratio" Palm Desert Funding Company, LP $156,680,000 $47,838,206 $13,668,059 $4,830,672 68.34% 3.28:1 John Laing Homes 22,100,000 6,749,101 1,928,315 681,520 9.64 3.27:1 Sinatra&Cook Project, LLC 14,090,000 5,241,744 1,497,641 529,308 7.49 2.69:1 Palm Desert University Village, LLC 22,660,000 3,563,391 1,018,112 359,829 5.09 6.36:1 ShawiPalm Desert 1, LLC 13,585,000 2,573,278 735,222 259,848 3.68 5.28:1 Palm Dese�t Forum,LLC 4,196,675 1,696,198 484,628 171,281 2.42 2.47:1 Donald&Marcellene McCoy 6,740,000 1,609,220 459,777 162,498 2.30 4.19:1 Desert Wells 237, LLC/Palm Desert Forum,LLC 1.803,325 728,862 208.246 73.600 1.04 2.47:1 All 5241,855,000 �70,000,000 $20,000,000 57,068,556 100.00% 3.46:1 (1) Based on Current Ownership. (2) Source: Appraisal by Capital Realty Analysts, dated January 15, 2007. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Includes 2006 Bonds and 2007 Bonds. 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 Rate and Method. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method. Parcel acreage is based on gross acreage and excludes 3 parks and 9 acres. "Preliminary;subject to change. 46 VALUE TO LIEN TABLES BASED ON NET ACREAGE $5,087,000 Maximum Annual S ecial Tax Value to Lien Ratios by Property Type (Based on minimum net taxable acreage -$70,000,000 of Bonds) 570,000,000 520,000,000 Projected Percentage of Propertv Appraised Bonded Bonded Maximum Projected Value to Tyae('F Value�2� Indebtedness�3��Indebtedness�4�� Saecial Tax�5� Soecial Tax Lien Ratio` Commercial $63,075,000 $20,104,579 $5,744,166 $1,461,040 28.72% 3.14:1 Residential 178,780,000 49,895.421 14,255,834 3.626.000 71.28 3.58:1 All a241,855,000 b70,000,Q00 520,000,000 55,087,040 100.00% 3.46:1 (1) Zones A-D are Commercial or Mixed Use and Zone E is Residential. (2) Source: Appraisal by Capita/ Rea/ty Ana/ysts, dated January 15, 2007. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Includes 2006 Bonds and 2007 Bonds. 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 Rate and Method. (4) Includes 2007 Bonds only. (5) Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method. Residential and Commercial acreage is based on minimum net acreage defined in the Rate and Method. 'Preliminary;subject to change. Value to Lien Ratios by Zone (Based on net taxable acreage -$70,000,000 of Bonds) a70,000,000 a20,000,000 Projected Percentage of Propert� Appraised Bonded Bonded Maximum Projected Value to Tvae c� Value�Z� Indebtedness�3��Indebtedness�4�� Saecial Tax�5� Saecial Tax Lien Ratio Zone A $6,740,000 $2,043,015 $583,719 $148,470 2.92% 3.30:1 Zone B 14,090,000 6,553,831 1,872,523 476,280 9.36 2.15:1 Zone C 36,245,000 8,311,179 2,374,623 603,990 11.87 4.36:1 Zone D 6,000,000 3,196,554 913,3Q1 232,300 4.57 1.88:1 Zone E 178.780.000 49.895,421 14,255,834 3,626,000 71.28 3.58:1 All a241,855,000 570,000,000 520,000,000 E5,087,040 100.00°l0 3.46:1 (1) Zones A-D are Commercial or Mixed Use and Zone E is Residential. (2) Source: Appraisa/ by Capital Realty Analysts, dated January 15, 2007. Appraisal includes land and CFD financed improvements only and does not include proposed housing or building values. (3) Includes 2006 Bonds and 2007 Bonds. Lien Amount is based on the proportion of contribution to the total maximum special tax based on the special tax rate per acre defined in the Rate and Method. (4) Includes 2007 Bonds only. (5) Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method. Residential and Commercial acreage is based on minimum net acreage defined in the Rate and Method. 'Preliminary;subject to change. 47 Value to Lien Ratios by Parcel (Based on net taxable acreage -$T0,000,000 of Bonds) 570,000,000 520,000,000 Projected Percentage of Parcel Appraised Bonded Bonded Maximum Projected Value to Number�'� Value�Z� Indebtedness�3�� Indebtedness* Saecial Tax�4� Soecial Tax Lien Ratio* 1 � 4,175,000 $ 1,329,618 $ 379,891 $ 96,626 1.90% 3.14:1 2 13,490,000 4,294,8a6 1,227,099 312,115 6.14 3.14:1 3 21,010,000 6,689,717 1,911,348 486,155 9.56 3.14:1 4 15,135,000 3,932,558 1,123,588 285,787 5.62 3.85:1 5 7,990,000 2,076,517 593,291 150,905 2.97 3.85:1 6 4,150,000 1,282,717 366,490 93,218 1.83 3.24:1 7 8,850,000 1,767,315 504,947 128,434 2.52 5.01:1 S 4,196,675 2,235,817 638,805 162,481 3.19 1.88:1 9 1,803,325 960,738 274,496 69,819 1.37 1.88:1 9 68,855,000 19,337,314 5,524,947 1,405,281 27.62 3.56:1 10& 14 22,100,OOQ 6,169,003 1,762,572 448,314 8.81 3.58:1 11 13,585,000 3,485,111 995,746 253,270 4.98 3.90:1 12 19,550,000 3,763,949 1,075,414 273,534 5.38 5.19:1 13 3,110,000 1,062,119 303,463 77,186 1.52 2.93:1 15 13,025,000 3,015,816 861,662 219,165 4.31 4.32:1 16 14,090,000 6,553,831 1,872,523 476,280 9.36 2.15:1 17 6,740,000 2.043,015 583.719 148,47Q 2.92 3.30:1 All a241,855,000 570,000,000 a20,000,000 55,087,040 100.00% 3.46:1 (1) Parcel acreage is based on minimum net acreage defined in the Rate and Method. (2) Source: Appraisa/by Capifa/ Rea/fy Ana/ysts, dated January 15, 2007. Appraisal includes land and CFD financed improvements only and does not inciude 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 Rate and Method. {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. 'Preliminary;subject to change. 48 Value to Lien Ratios by Owner (Based on net taxable acreage -$70,000,000 of Bonds) $70,000,000 520,000,000 Projected Percentage Appraised Bonded Bonded Maximum of Projected Value to Current Owner�'� Value�2� Indebtedness�'�� Indebtedness" Special Tax�4� Saecial Tax Lien Ratio' Palm Desert Funding Company LP $156,660,000 $43,726,418 $12,493,262 $3,177,686 62.47% 3.58:1 John Laing Homes 22,100,000 6,169,003 1,762,572 448,314 8.81 3.58:1 Sinatra& Cook Project, LLC 14,090,000 6,553,831 1,872,523 476,280 9.36 2.15:1 Palm Desert University Village, LLC(PDUV) 22,660,000 4,826,068 1,378,877 350,720 6.89 4.70:1 Shaw/Palm Desert 1, LLC 13,585,000 3,485,111 995,746 253,270 4.98 3.90:1 Palm Desert Forum, LLC 4,196,675 2,235,817 638,805 162,481 3.19 1.88:1 Donald L.McCoy and Marcellene W.McCoy 6,740,000 2,043,015 583,719 148,470 2.92 3.30:1 Desert Wells 237, LLC ! Palm Desert Forum, LLC 1,803,325 960,738 274.496 69.819 1.37 1.88:1 All 5241,855,000 $70,000,000 520,000,000 55,087,040 100.00% 3.46:1 (1) Based on Current Ownership. (2) Source: Appraisal by Capita/ Rea/ty Ana/ysts, dated January 15, 2007. 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 Rate and Method. (4) Projected maximum special tax is the total maximum tax collection based on the rates in the Rate and Method. Parcel acreage is based on minimum net acreage defined in the Rate and Method. `Preliminary;subject to change. 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 49 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. Set forth below is an overlapping debt table showing the existing authorized indebtedness payable with respect to property within the District as of February 1, 2007. 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 February 1, 2007 2006-07 Local Secured Assessed Valuation: $63,931,894 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT:°/a Applicable Debt 2/1/07 Desert Community College District 0.104% $ 65,527 Palm Springs Unified School District 0.282 566,862 City of Palm Desert Community Facilities District No. 2005-1 100. 50.000,000 (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $50,632,389 OVERLAPPING GENERAL FUND DEBT: % Applicable (2)Debt 2/1/07 Riverside County General Fund Obligations 0.002% $12,323 Riverside County Pension Obligations 0.002 7,937 Riverside County Board of Education Certificates of Participation 0.002 206 Coachella Valley Cty Water Dist No. 71 Certificates of Participation 0.015 1,123 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $21,589 Less: Riverside County self-supporting obligations 382 TOTAL NET OVERLAPPING GENERAL FUND DEBT $21,207 GROSS COMBINED TOTAL DEBT $50,653,978 (3) NET COMBINED TOTAL DEBT $50,653,596 (1) Excludes 2007 Bonds to be sold. (2) Based on redevelopment adjusted all property assessed valuation of$3,019,172. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2006-07 Assessed Valuation: Direct Debt ($50,000,000).................................................78.21% Total Direct and Overlapping Tax and Assessment Debt ....79.20% Gross Combined Total Debt................................................79.23% Net Combined Total Debt....................................................79.23% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6J30/06: $0 50 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. 51 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 2006-07. City of Palm Desert Community Facilities District No. 2005-1 (University Park) Sample Property Tax Bill-Fiscal Year 2006-07 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 S�ecial Taxes and Assessments Coachella Vailey Recreation & Park AD 97-1 $38.84 Coachella Valley Mosquito Assessment 4.12 City of Palm Desert Emg Svcs Special Asmt 48.00 CFD 2005-1 Tax 3.507.00 Subtotal Special Assessments $3,597.96 Total Taxes $� Total Tax Rate 1.76% (1) Based on Fiscal Year 2006-07 tax rates. 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. 52 SPECIAL RISK FACTORS The purchase of the 2007 Bonds described in this Officia! 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 District to Pay Debt Service The District has no obligation to pay principal of and interest on the 2007 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 are the District or the City obligated to advance funds to pay such debt service on the 2007 Bonds. The 2007 Bonds are not general obligations of the District or the City but are limited obligations of the District payable solely from the Net Taxes 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 2007 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 DistricYs obligations on the 2007 Bonds. See "OWNERSHIP OF PROPERTY WITHIN THE DISTRICT." In that event, there could be a delay or failure in payments on the 2007 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 and the District have 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. 53 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 parcel valuations. This value estimate was determined by applying the sales comparison approach to each parcel, as described in the Appraisal. The va/uation does not represent a bu/k va/uation 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 2007 Bonds. If a property owner defaults in the payment of the Special Tax, the DistricYs 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 has evaluated development risks. Since these are largely business risks of fhe 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 particu(ar parcel, the District is issuing the 2007 Bonds without regard to any such evaluation. Thus, the creafion of the District and the issuance of the 2007 Bonds in no way 54 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. First, undeveloped or partially developed land is generally less valuable than developed land and provides less security to the owners of the 2007 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 2007 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 2007 Bonds, prospective purchasers should evaluate the risks of noncompletion. Risks of Rea/ Estate /nvestment 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. Nafura/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 55 significant delinquencies in the payment of Special Taxes, and the value of the parcels may well depreciate. Lega/ Requirements. Other events that may affect the value of a parcel include changes in the law or application of the law. Such changes may inciude, 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 releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Supertund 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 neither the City nor the District are aware whether any 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 and the District are 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. 56 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 2007 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 2007 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 the Reserve Account established for the 2007 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 2007 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 2007 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 2007 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 2007 Bonds, the Special Tax will be subordinate only to existing prior governmental iiens, 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 57 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 addltion 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. 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 2007 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 2007 Bonds. If funds in the Reserve Account for the 2007 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. 58 No Acceleration Provisions The 2007 Bonds do not contain a provision allowing for the acceleration of the 2007 Bonds in the event of a payment default or other default under the terms of the 2007 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 2007 Bonds are in book- entry form, DTC will be the sole Bond holder and will be entitled to exercise ail 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 District, 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 2007 Bonds, the laws of the State provide a mandatory, statutory duty of 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 2007 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 2007 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 and the District believe, therefore, that issuance of the 2007 Bonds does not require the conduct of further proceedings under the Act or Proposition 218. 59 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 fuil 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°/a 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 locaf 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 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. 60 CONTINUING DISCLOSURE The City has covenanted for the benefit of owners of the 2007 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 will also covenant for the benefit of owners of the 2007 Bonds to provide certain financial information and operating data relating to the respective property it or its affiliates 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 April 1, 2008(the "Landowner 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 Landowner Annual Report. The City Annual Report and the Landowner Annual Report wi{I 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 2007 Bonds were purchased through negotiation by Stinson Securities, LLC and Kinsell Newcomb & DeDios, Inc. (together, the "Underwriter"). The Underwriter agreed to purchase the 2007 Bonds at a price of $ (which is equal to the par amount of the 2007 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 Undervvriter may offer and sell the 2007 Bonds to certain dealers and others at a price lower than the public offering prices set forth on the cover page hereof. 61 FINANCIAL ADVISOR The City has retained Del Rio Advisors, LLC, of Modesto, California, as financial advisor (the "Financial Advisor") in connection with the issuance of the 2007 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 2007 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 2007 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 2007 Bonds. TAX MATTERS In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, under existing law interest on the 2007 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 2007 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 2007 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 2007 Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the 2007 Bonds. The District has covenanted to take the actions required of it for the interest on the 2007 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. 62 Under the Code, a portion of the interest on the 2007 Bonds earned by certain corporations may be subject to a corporate alternative minimum tax. In addition, interest on the 2007 Bonds may be subject to a branch profits tax imposed on certain foreign corporations doing business in the United States and to a tax imposed on excess net passive income of certain S corporations. Under the Code, the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those that are deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences will depend upon the particular tax status or other tax items of the owners of the 2007 Bonds. Bond Counsel will express no opinion regarding those consequences. Any excess of the stated redemption price at maturity of the 2007 Bonds over the initial offering price to the public of the 2007 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 semiannuai 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 2007 Bonds who purchase the 2007 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 2007 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 2007 Bonds, based on the yield to maturity of the 2007 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 2007 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 63 2007 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 2007 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. RATINGS The City has not applied to a rating agency for the assignment of a rating to the 2007 Bonds and does not contemplate applying for a rating. NO LITIGATION At the time of delivery of and payment for the 2007 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 2007 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 2007 Bonds, or in any way contesting or affecting the validity or enforceability of the 2007 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 2007 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 behaff of the District. CITY OF PALM DESERT on behalf of COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) By: City Manager 64 APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX A-1 APPENDIX B THE APPRAISAL B-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE c-� APPENDIX D GENERAL INFORMATION ABOUT THE COUNTY OF RIVERSIDE The following information concerning the Cify of Palm Desert and surrounding areas are included only for the purpose of suppiying general information regarding the community. The 2007 Bonds are not a debt of the City, the County, the State or any of its political subdivisions, and neither fhe City, the County, the State nor any of its political subdivisions is liable therefor. General Description and Background The City of Palm Desert (the "City") is located in the Coachella Valley and is approximately midway between the cities of Indio and Palm Springs, 117 miles east of Los Angeles, 118 miles northeast of San Diego and 515 miles southeast of San Francisco. The City was incorporated on November 26, 1973, as a general law city. In 1997 the City became a charter city. Elevation of the City is 243 feet and the mean temperature is 73.1 degrees. Except for the summers, the weather is mild and annual average rainfall is 3.38 inches. According to State Department of Finance estimates, the City population as of January 1, 2006 was 49,539. The City covers an area of 24.75 square miles. Population Year City of Riverside State of (January 1) Palm Desert Counry California 2002 43,119 1,653,847 35,088,671 2003 44,479 1,726,321 35,691,472 2004 45,604 1,807,624 36,245,016 2005 49,595 1,888,311 36,728,196 2006 49,539 1,953,330 37,172,015 Source: State of Califomia Department of Finance, Demographic Research Unit. D-1 Commercial Activity Total taxable transactions reported during calendar year 2005 in the City were reported to be $1,529,342,000, a 6.7% increase over the total taxable transactions of $1,433,296,000 reported during calendar year 2004. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City is presented in the following table. CITY OF PALM DESERT Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number Taxable % Number Taxable % of Permits Transactions Change of Permits Transactions Change 2001 1,529 $1,015,932 — 2,833 $1,211,069 — 2002 1,532 1,019,327 0.3% 2,979 1,209,385 -0.1% 2003 1,538 1,103,689 8.3% 3,146 1,296,730 7.2% 2004 1,684 1,228,411 11.3°fo 3,254 1,433,296 10.5°!0 2005 1,733 1,317,337 7.2% 3,263 1,529,342 6.7% Source: Califomia State Board of Equalization, Taxable Sales in Califomia(Sales& Use Tax). Total taxable transactions reported during calendar year 2005 in the County were reported to be $28,256,491,000, a 12.0% increase over the total taxable transactions of $25,237,148,000 that were reported in the County during calendar year 2004. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the County is presented in the following table. COUNTY OF RIVERSIDE Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number Taxable % Number Taxable % _ of Permits Transactions Change of Permits Transactions Chanqe 2001 17,403 $13,173,281 — 38,011 $18,231,555 — 2002 17,646 14,250,733 8.2% 38,767 19,498,994 7.0% 2003 18,300 16,030,952 12.5% 40,833 21,709,135 11.3% 2004 20,642 18,715,949 16.7% 42,826 25,237,148 16.3% 2005 22,691 20,839,212 11.3% 44,222 28,256,491 12.0% Source: Califomia State Board of Equalization, Taxable Sales in Califomia (Sales& Use Tax). D-2 Employment and Industry The City is included in the Riverside-San Bernardino labor market area. The unemployment rate in the Riverside-San Bernardino-Ontario MSA was 4.6 percent in November 2006. This compares with an unadjusted unemployment rate of 4.5 percent for California and 4.5 percent for the nation during the same period. The unemployment rate was 4.9 percent for Riverside County and 4.4 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 seif-employed, unpaid volunteers or family workers, domestic workers in households, and persons in labor management disputes. RIVERSIDE-SAN BERNARDINO-ONTARIO METROPOLITAN STATISTICAL AREA Civilian Labor Force, Employment and Unemployment (Annual Averages) 2001 2002 2003 2004 2005 Civilian Labor Force�'� 1,562,300 1,639,700 1,688,300 1,650,500 1,714,000 Employment 1,484,100 1,543,400 1,588,700 1,556,100 1,627,700 Unemployment 78,200 96,300 99,600 94,400 86,300 Unemployment Rate 5.0% 5.9% 5.9% 5.7�/a 5.0°l0 Waqe and Salary Emplovment: iZ� Agriculture 20,900 20,300 20,300 18,700 18,200 Natural Resources and Mining 1,200 1,200 1,200 1,200 1,300 Construction 88,400 90,900 99,000 111,800 122,200 Ma n ufa ctu ring 118,600 115,400 116,100 120,100 120,200 Wholesale Trade 41,600 41,900 43,500 45,600 49,200 Retail Trade 132,200 137,500 142,700 153,800 165,000 Transportation, Warehousing and Utilities 45,600 46,800 50,100 55,500 59,700 Information 14,600 14,100 13,900 14,000 14,400 Finance and Insurance 22,900 23,500 25,700 28,000 29,900 Real Estate and Rental and Leasing 15,300 15,900 16,900 17,700 18,700 Professional and Business Services 101,700 106,800 115,400 125,500 132,500 Educational and Health Services 106,000 112,400 115,800 118,400 120,000 Leisure and Hospitaliry 104,400 107,200 109,000 116,700 122,400 OtherServices 37,100 38,100 38,400 39,300 41,200 Federal Government 16,900 16,900 17,000 17,300 18,600 State Government 25,800 26,600 26,600 26,500 27,000 Local Government 157,600 169,300 167,900 168,700 174,800 Total All Industries 1,050,700 1,084,800 1,119,400 1,178,700 1,235,400 (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-3 Major Employers The following table lists the largest employers within the County, listed alphabetically: COUNTY OF RIVERSIDE Major Employers (As of January 2007) Employer Name Location Industry C A State Transportation Lake Elsinore Government O�ces-State Casino Morongo Cabazon Tourist Attractions Chase Home Finance Moreno Valley Real Estate Loans Crossroads Truck Dismantling Mira Loma Automobile Dismantling/Recycling (Whol) Desert Regional Medical Ctr Palm Springs Hospitals Eisenhower Medical Ctr Rancho Mirage Clinics Handsome Rewards Perris Internet&Catalog Shopping Hemet Valley Medical System Hemet Hospitals La Quinta Resort&Club La Quinta Hotels & Motels Labtechniques Rancho Mirage Laboratories-Medical Marriott Desert Springs Resort Palm Desert Hotels & Motels Mountain &Dunes Golf Courses La Quinta Golf Courses-Private Oasis Distributing Thermal Fruits &Vegetables-Growers & Shippers Pechanga Resort&Casino Temecula Casinos Riverside Community College Riverside Schools-Universities&Colleges Academic Riverside Community Hospital Riverside Hospitals Riverside County Regional Med Moreno Valley Hospitals Riverside Forklift Training Riverside Trucks-Industrial (Wholesale) Robertson's Ready-Mix Corona Concrete Contractors Signatures Perris Internet&Catalog Shopping Starcrest Products Of Ca Perris Internet 8�Catalog Shopping Starcrest Products-California Perris Internet&Catalog Shopping Sun World Intl Inc Coachella Fruits &Vegetables-Growers & Shippers University Of California Riverside Schools-llniversities &Colleges Academic Watson Pharmaceuticals Inc Corona Drug Millers Source: Califomia Employment Deve/opment Department, extracted from The America's Labor Market Information System(ALM/S)Emp/oyerDatabase. D-4 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) 2001 2002 2003 2004 2005 Permit Valuation New Single-family $82,145.0 $60,526.9 $65,066.1 $81,436.8 $46,917.6 New Multi-family 28,885.0 27,001.6 11,992.5 11,198.0 17,553.1 Res.Alterations/Additions 9,043.2 12.957.5 9.328.9 11,103.3 13,660.2 Total Residential 120,0732 100,486.0 86,387.6 103,738.2 78,130.9 New Commercial 11,177.0 14,707.5 7,272.6 19,863.5 60,005.2 New Industriaf 5,438.4 3,012.0 712.6 3,005.1 13,495.5 New Other 1,264.2 1,160.0 1,249.8 7,896.1 5,278.0 Com.Alterations/Additions 18.439.4 22.534.2 10.888.0 12.347.4 13.756.7 Total Nonresidential 36,319.0 41,413.7 20,123.0 43,112.1 92,535.4 New Dwellinq Units Single Family 255 221 237 325 100 Multiple Family 411 310 101 111 135 TOTAL 666 531 338 436 235 Source: Construction lndustry Research Board, Building Permit Summary. COUNTY OF RIVERSIDE Building Permit Valuation (Valuation in Thousands of Dollars) 2001 2002 2003 2004 2005 Permit Valuation New Single-family $3,051,190.4 $3,670,371.4 $4,665,675.7 $5,997,5132 $6,243,791.7 New Multi-family 174,628.0 165,413.0 406,483.0 404,615.9 407,432.1 Res. Alterations/Additions 70.849.7 87.842.9 106.855.8 135.176.6 164.312.5 Total Residential $3,296,668.2 $3,923,627.4 $5,179,014.5 $6,537,305.6 $6,815,536.3 New Commercial $287,068.6 $297,963.6 $360,707.4 $580,057.8 $552,666.9 New Industrial 74,766.3 80,881.6 112,706.6 203,311.9 120,367.6 New Other 152,854.0 187,510.6 261,793.6 334,001.0 344,703.2 Com. Alterations/Additions 143,351.7 174.785.7 173,165.5 222,495.5 274,337.7 Total Nonresidential $658,040.6 $741,141.5 $908,373.1 $1,339,866.1 $1,292,075.4 New Dwellinq Units Single Family 16,556 20,591 25,137 29,478 29,994 Multiple Family 2.458 2.073 5.224 4,748 4.140 TOTAL 19,014 22,664 30,361 34,226 34,134 Source: Construction Industry Research Board, Building Permit Summary. D-5 Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." The following table summarizes the total effective buying income for the City of Palm Desert, the County of Riverside, the State and the United States for the period 2001 through 2005. CITY OF PALM DESERT; COUNTY OF RIVERSIDE Effective Buying Income 2001 through 2005 Total Effective Median Household Buying Income Effective Buying Year Area (000's Omitted) Income 2001 Ciry of Palm Desert $1,008,568 $37,975 Riverside County 23,617,301 37,480 California 650,521,407 43,532 United States 5,303,481,498 38,365 2002 City of Palm Desert $1,184,128 $42,299 Riverside Counry 25,180,040 38,691 California 647,879,427 42,484 United States 5,340,682,818 38,035 2003 City of Palm Desert $1,238,323 $41,699 Riverside County 27,623,743 39,321 California 674,721,020 42,924 United States 5,466,880,008 38,201 2004 City of Palm Desert $1,295,785 $42,769 Riverside County 29,468,208 40,275 California 705,108,410 43,915 United States 5,692,909,567 39,324 2005 Ciry of Palm Desert $1,364,255 $43,784 Riverside County 32,004,437 41,326 California 720,798,106 44,681 United States 5,894,663,750 40,529 Source:Sa/es&Marketrng Management Survey of Buying Power for 2001 through 2004; Claritas Demographics for 2005. D-6 Utilities Services Water is supplied to the City by the Coachella Valley Water District. Sewage treatment and disposal is provided by the Coachella Valley Water District. Southern California Gas Company supplies natural gas to the City and electric power is provided by the Southern California Edison Company. Telephone service is available through Verizon. Cable television services are provided by Time Warner. Transportation Inter-City transportation is provided by Greyhound Bus which provides service from its connection points in the City to its lines located outside of the City in addition to the community owned and operated Sunline Bus System which provides service throughout the entire Coachella Valley. IntraCity transportation is provided by Tel-a-Ride and local taxi firms. The City's central highways are California Highway 111 and 74 which connect to US Interstate 10 and to California Highway 63 and 86. A full service airport is located in Palm Springs, twelve miles northwest of the City, with approximately seven carriers providing service. The airport has an 8,500-foot runway and general aviation facilities. There is also a private airport in Bermuda Dunes, eight miles northeast of the City. In addition, shipping is provided by numerous truck carriers which have overnight service to Los Angeles, San Francisco, San Diego and Phoenix. Rail transportation is provided by the Southern Pacific Railroad located in Indio, 10 miles east of the City, and by Amtrak, which has two stations located in the Coachella Valley. Community Service Facilities The City provides both police and fire protection through contracts with the County of Riverside. Educational services are provided through the Desert Sands Unified School District. The College of Desert is the Coachella Valley's Community College and is located in Palm Desert. A satellite campus of Cal State University, San Bernardino is located on the College of the Desert Campus. Cultural and recreational facilities include sixteen churches. The City has library services provided by the Riverside County Public Library System. The City has one public library located on the College of the Desert campus. This 43,000 square foot library is jointly used by the College of the Desert and the public library system. D-7 APPENDIX E 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 1, 2007, 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 AgenY'). WITNESSETH : WHEREAS, pursuant to a Indenture dated as of May 1, 2006, as supplemented by a Supplemental Indenture dated 1, 2007 (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 2007 (the "Bonds"), in the aggregate principal amount of$20,000,000; 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 2007 Bonds and in order to assist the Participating Underwriter of the 2007 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 , 2007, relating to the 2007 Bonds. "Participating Underwriter" shall mean any of the original underwriters of the 2007 Bonds required to comply with the Rule in connection with offering of the 2007 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 Ru{e 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, 2007 (for the report due January 15, 2008), 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 F-2 (ii) each appropriate State Repository (with a copy to the Trustee) a notice, in substantially the form attached as Exhibit A. (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 2007 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). F-3 (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 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 flnancial 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 C1TY'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 THE 2007 BONDS) ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE 2007 BONDSAND 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 2007 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 shal{ clearly identify each such other document so included by reference. SECTION 4. Reportinq of Siqnificant 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 2007 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 2007 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 2007 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 F-4 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) 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 Reportinq Oblistation. 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 2007 Bonds. If such termination occurs prior to the final maturity of the 2007 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 Aqent. 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 sha11 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. F-5 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. SECTION 9. Duties, Immunities and Liabilities of Dissemination Aqent. 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 2007 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 lndustria, Suite 110 Temecula, California 92590 (909) 587-3500 (909) 587-3510 fax Trustee: Wells Fargo Bank, National Association 707 Wilshire Blvd, 17th Floor Los Angeles, CA 90017 (213) 614-3353 (213) 614-3355 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. F-6 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 2007 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. 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 Name of Bond Issue: $20,000,000 City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax 8onds, Series 2007 Date of Issuance: , 2007 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 May 1, 2006, as supplemented by a Supplemental Indenture dated as of 1, 2007 (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 (Landowner) THIS CONTINUING DISCLOSURE AGREEMENT (the "Disclosure AgreemenY') dated as of , 2007, is by and between (the "Landowner"} and MuniFinancial, Temecula, California, in its capacity as Dissemination Agent (the "Dissemination AgenY'). WITNESSETH: WHEREAS, pursuant to the Indenture dated as of May 1, 2006, as supplemented by a Supplemental Indenture dated as of 1, 2007 (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 2007B (the "Bonds"), in the aggregate principal amount of$20,000,000; and WHEREAS, this Disclosure Agreement is being executed and delivered by the Landowner and the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the 2007 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 Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the foilowing meanings: "Annual Report" shall mean any Annual Report provided by the Landowner 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.org" unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. F-9 "Official Statement" means the Official Statement, dated , 2007, relating to the 2007 Bonds. "Participating Unden�vriter" shall mean any of the original underwriters of the 2007 Bonds. "Project" shall mean the proposed subdivision within the District, as described in the Official Statement, to be developed by the Landowner. "Property" shall mean the property in the District owned by the Landowner on the date that the Annual Report is provided. "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 Landowner shall, not later than April 15` of each year (reflecting reported information as of December 315t of the prior year or such later date identified in the Annual Report) beginning with the report due April 1, 2008 and continuing while this Disclosure 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 Landowner 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. The Annual Reports shall be submitted to the Repository not later than April 15 of each year, commencing April 15, 2008. Additionally, the Landowner shall provide to any Beneficial Owner, the Participating Underwriter, or the Issuer that so requests by a written request made at least 30 calendar days prior to any July 1, October 1 or January 1, beginning July 1, 2007, 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 quarteriy 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) calendar 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 Landowner to determine if the Landowner is in compliance with subsection (a). (c) If the Landowner is unable to provide to the Dissemination Agent an Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to the Dissemination Agent substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: F-10 (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; (ii) file each Annual Report received with each National Repository and the State Repository, if any; and (iii) (if the Dissemination Agent is other than the Landowner), to the extent appropriate information is available to it, file a report with the Landowner 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 Landowner's Annual Report shall contain or incorporate by reference the following, if material: (a) Any significant changes in the information contained in the Official Statement about the Landowner and the Property under the headings: "THE DISTRICT - Anticipated Development in the DistricY' and the status of completion of the Project (b) A general description of the development status of the Property within the District. (c) A summary of the Property within the District sold by the Landowner since the date of the last Annual Report. (d) A description of any change in the legal structure of the Landowner which is material to Bond investors. (e) Material changes in Project costs, status of any construction loans and any permanent financing received by the Landowner with respect to the Project that could have a significant impact on the Landowner's ability to complete the Project. (f) Any denial of credit, lines of credit, loans or loss of source of capital that could have a significant impact on the Landowner's ability to pay the Special Tax or other taxes or assessments levied on the Property or on the Landowner's ability to complete the Project. (g) Any failure by the Landowner to pay prior to delinquency 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 Project. SECTION 4. Reportinq of Siqnificant Events. (a) Pursuant to the provisions of this Section 4, the Landowner shall give, to the Dissemination Agent, notice of the occurrence of any of the following events with respect to the 2007 Bonds, if material: F-11 (i) failure to pay any real property taxes (including any assessments or special taxes) levied within the District on a parcel of Property owned by the Landowner. (ii) the discovery of toxic material or hazardous waste which will require remediation on any Property owned by the Landowner subject to the Special Tax. (iii) default by the Landowner on any loan with respect to the construction or permanent financing of public or private improvements with respect to the Project. (iv) Initiation of bankruptcy proceedings (whether voluntary or involuntary) by the Landowner or any related entity. (b) Whenever the Landowner obtains knowledge of the occurrence of an event described in section (a), the Landowner shall as soon as possible determine if such event would be material to Bond investors under applicable federal securities laws. (c} If the Landowner determines that knowledge of the occurrence of such event would be material under applicable federal securities laws, the Landowner shall promptly provide a notice of such occurrence to the Dissemination Agent, with a copy to the Issuer. SECTION 5. Termination of Reportinq Obliqation. The obligations of the Landowner and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2007 Bonds. In addition the Landowner shall have no obligations hereunder if the Special Tax of the District on all Property within the District owned by the Landowner and affiliates or partners at the time of calculation thereof is less than twenty percent (20%) of the total Special Tax for the entire District. Automatically, upon the occurrence of an event of termination, the Landowner shall no longer have an obligation to submit an Annual Report or any other report as set forth in Section 2(a). However, if such termination occurs prior to the final maturity of the 2007 Bonds, the Landowner 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 Landowner and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Landowner, 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 2007 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 2007 Bonds. F-12 In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Landowner 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 Landowner. SECTION 7. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Landowner 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 Landowner chooses to include any information in any Annual Report or notice of occurrence of a material event in addition to that which is specifically raquired by this Disclosure Agreement, the Landowner 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 Aqent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Landowner 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 pertormance 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. So long as the Dissemination Agent is Munifinancial, any fees payable to the Dissemination Agent shall be payable as an administrative expense of the District. For any other entity that serves as the Dissemination Agent, the Dissemination Agent's compensation shall be paid by the Landowner 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 pertormance 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 Landowner under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2007 Bonds. SECTION 9. SubseQuent Companies. The Landowner will require, as a condition of sale of any portion of the Property which the Landowner sells resulting in a new owner who, together with affiliates or partners thereof, owns property responsible for at least twenty percent (20%) of the total Special Taxes 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: F-13 To the Landowner: 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 lndustria, Suite 110 Temecula, California 92590 (909) 587-3500 (909) 587-3510 Fax Trustee: Wells Fargo Bank, National Association �07 Wilshire Blvd, 17th Floor Los Angeles, CA 90017 (213) 614-3353 (213) 614-3355 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 2007 Bonds, and shall create no rights in any other person or entity. SECTION 12. Counterqarts. 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-14 IN WITNESS WHEREOF, the parties hereto have executed this Disciosure Agreement as of the date first above written. [LANDOWNER] By: its: MUNIFINANCIAL, as Dissemination Agent By: Authorized Officer F-15 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Paim Desert Name of Bond Issue: $20,000,000 City of Palm Desert, Community Facilities District No. 2005-1 (University Park}, Special Tax Bonds, Series 2007 B Date of Issuance: , 2007 NOTICE IS HEREBY GIVEN that (the "Landowner") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement of the Landowner dated as of the date of issuance of such Bonds. The Landowner anticipates that the Annual Report will be fited by Dated: on behalf of the Dissemination Agent By: its: cc: Landowner F-16 APPENDIX G THE BOOK ENTRY SYSTEM Book-Entry System DTC will act as securities depository for the 2007 Bonds. The 2007 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 2007 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 2007 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2007 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 2007 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 2007 Bonds, except in the event that use of the book-entry system for the 2007 Bonds is discontinued. G-1 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 2007 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 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 2007 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 2007 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 2007 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, mandatory redemption and interest payments on the 2007 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 2007 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 2007 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. G-2 Discontinuance of Book-Entry System DTC may discontinue providing its services with respect to the 2007 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 principai of and redemption premium, if any, on the 2007 Bonds will be payable as set forth in the Indenture and summarized above under the caption "Description of the 2007 Bonds." Bonds will be transferable and exchangeable on the terms and conditions provided in the Indenture. See "Transfer or Exchange of Bonds" above. G-3 2/19/07 $20,000,000 CITY OF PALM DESERT COMMUNITY FACILITIES DfSTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS SERIES 2007 BOND PURCHASE AGREEMENT , 2007 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, 1nc. (together the "Underwriter") offers to enter into this Purchase Agreement (this "Purchase AgreemenY') with the City of Paim Desert (the "City") on behalf of City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "DistricY'), 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 Undervvriter 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 Sonds. (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 $20,000,000 aggregate principal amount of the City of Palm Desert Gommunity Facilities DlstriCt No. 2005-1 (University Park), Special Tax Bonds, Series 2007 (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, less an original issue discount of $ , less an undenNriter'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 Bond Indenture, dated as of May 1, 2006, as amended by a First Supplemental Indenture dated as of March 1, 2007 (the "Indenture"), between the District and Wells Fargo Bank, National Association, as fiscal agent (the "Trustee"), the Official Statement (as hereinafter defined), and the Mello-Roos Community Facilities Act of 1982, constituting Section 53311 et seq. of the California Government Code (the "AcY'). The City will acquire and own certain improvements to be financed with the proceeds of the Bonds pursuant to an Acquisition Agreement dated March 23, 2006, as amended (the "Acquisition Agreement") between the City and the Landowner(as defined herein). (b) Pursuant to the authorization of the City, the Underwriter has distributed copies of the Preliminary Official Statement, dated , 2007, 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 8� 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 , 2007 (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 through the facilities 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 Apreements of the Citv. The City represents, warrants to, covenants and agrees with, the Underwriter that: (a) (i) The District is a community facilities district duly organized and validly existing under the Constitution and laws of the State of California; (ii) the District has, and at the Closing Date will have, full legal right and power to enter into, execute, and deliver the Indenture and to carry out, give effect to, and consummate the transactions contemplated thereby, and (iii) the City, acting on behalf of the District, has, and at the Closing Date wil{ have, full legal right and power to enter into, execute, and deliver this Purchase Agreement, the Continuing Disclosure Agreement, dated as of Closing (the "Issuer Continuing Disclosure AgreemenY'), by and between the City and MuniFinancial, as dissemination agent (the "Dissemination Agent"), and the Official Statement, and to carry out, give effect to, and consummate the transactions contemplated hereby and thereby. 2 (b) The City has complied, and will at the Closing Date be in compliance, in a11 respects with the Indenture, the Issuer Continuing Disclosure Agreement, the Act and this Purchase Agreement. (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 fllings 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 lndenture. (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 3 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 wifl 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 gives 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 5tatement, 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. Q) 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. 4 (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. (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 pertorm 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 (Landowner), by and between Palm Desert Funding Company, LP and MuniFinancial, as dissemination agent and dated as of the date of Closing (the "Landowner Continuing Disclosure AgreemenY') 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. 5 (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 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 pertormance 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 6 (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. 7 (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 2007 by the City Council, acting in its capacity as legislative body of the District (Resolution No. ), 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 Officiai 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 Landowner 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 E 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 and the Indenture 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 — Creation of the District," "— Bond Terms," "— Regisfrafion of Ownership of Bonds," "— Source of Payment of the Bonds," "— Limited Obligation of the District," "THE BONDS," "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS," and "TAX MATTERS" and in Appendices C and E to the Official Statement insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture, Bond Counsel's final opinion and the Act, are accurate in all material respects; (iv} the District is a community facilities district duly formed and validly existing under the Act; (v) the City Council has duly authorized the Official Statement and the distribution thereof, this Purchase Agreement, and the Issuer Continuing Disclosure Agreement; (vi) the City, on behalf of the District, has duly and validly executed and delivered this Purchase Agreement and the Issuer Continuing Disclosure Agreement, and assuming due authorization, execution, and delivery by the other parties thereto, as necessary, each such document constitutes the legal, 8 valid, and binding obligation of the City and the District, enforceable against the City and the District in accordance with its respective terms, subject to bankruptcy, insoivency, reorganization, moratorium, and other laws affecting enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; and (vii)the Speciai 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 secured by 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 Officia{ 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) Resolution No. has been duly approved at a meeting of the City Council on , 2007, 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 throughout, and Resolution No. has not been amended since its date of adoption and is now in full force and effect; (ii) other than as disclosed in the O�cial 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 9 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 from State of California personal income taxation; (iii)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 (iv)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 Desert Wells 237, LLC, a California limited liability company ("DW 237"), Palm Desert Funding Company, LP, a Delaware limited partnership ("PDFC"), WL Homes LLC, a Delaware limited liability company doing business in California as John Laing Homes ("JLH"), Palm Desert Forum, LLC, a California limited liability company ("Forum"), 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"), and 10 Donald L. McCoy and Marceflene W. McCoy, husband and wife as joint tenants ("McCoy," and each individually or collectively with DW 237, Forum, PDFC, JLH, UV Partnership, Shaw, and S&C, as the context may require, "Landowner"), the Speciai 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 counsei to each Landowner except McCoy, 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, Bond Counsel, or the City may reasonably request, including but not limited to instruments to evidence the truth and accuracy, as of the date 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 pertormance or satisfaction by the City or any Landowner at or prior to the Closing of ali agreements then to be performed and all conditions then to be satisfied by the City or such Landowner, as applicable, in connection with the transactions contemplated hereby, the Indenture, the Continuing Disclosure Agreements, the Official Statement, the Acquisition Agreement, and the JCFA. 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 shali continue in full force and effect. The Underwriter, jointly and severally, agrees, at its sole cost and expense, to defend, protect, indemnify, and hold harmless the City, the District, and each of their respective Councilmembers, directors, officials, officers, employees, consultants, agents, and volunteers, 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 any and all losses, actions, demands, damages, injuries, claims, causes of action, liabilities, costs, or expenses of every type and description to which they may be subjected or put, arising or claimed to arise, directly or indirectly, out of, in connection with, resulting from, or related to the failure of any Landowner and/or such Landowner's counsel to provide and deliver any document to be executed, delivered, or provided by or on behalf of a Landowner or counsel to a Landowner at or prior to 8:00 A.M., California time, on , 2007 pursuant to this Purchase Agreement, the Indenture, the Acquisition Agreement, and the JCFA. 11 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. Undertakinqs of the Citv. 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 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. 12 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 Aqreements. 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. 13 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 8 DeDIOS, INC. By: President and Principal CITY OF PALM DESERT on behalf of COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) By: City Manager 14 EXHIBIT A MATURITY SCHEDULE Maturity Principal Interest �September 1) Amount Rate Yield Price 20Q8 2009 2010 2011 2012 2013 2014 2015 2016 2021 2026 2032 2032 2d36 A-1 Exhibit B $20,000,000 CITY OF PALM DESERT COMMUNITY FACILITIES DISTRIC7 NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2007 Landowner Representations, Warranties and Covenants [DW237/PDFC/JLH/UV Partnership/Shaw/S8�C/Forum/McCoy] (the "Landowner") 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 "DistricY') 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 2007 (the "Bonds"). Capitalized terms not otherwise defined herein, are defined as provided in the Purchase Agreement dated , 2007 (the "Purchase AgreemenY') between the Underwriter and the City. 1. Due Orqanization, Existence and AuthoritY. The Landowner 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, First Amendment, 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 (Landowner)] and to carry out and consummate the transactions contemplated by the [Acquisition Agreement, the Allocation Agreement, First Amendment, the JCFA, and the Continuing Disclosure Agreement (Landowner)] (collectively, the "Landowner Documents"). 2. Due Authorization and Approval. By all necessary action of the corporation, the Landowner has duly authorized and approved the execution and delivery of, and the performance by the Landowner of the obligations of the Landowner contained in the Landowner 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 Landowner 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 Landowner pocuments 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 Landowner a breach or default under any agreement or instrument to which the Landowner 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 Landowner pocuments. 4. No Litiqation. 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 B-t service of process having been accomplished) or, to the actual knowledge of the undersigned, threatened by or against the Landowner: (i) in any way questioning the due formation and valid existence of the Landowner; (ii) in any way contesting or affecting the validity of the Landowner Documents or the consummation of the transactions contemplated thereby; (iii) in any way questioning or contesting the validity of any governmental approvai of the City or any aspect thereof, or (iv)which would have a material adverse effect upon the financial condition of the Landowner or the ability to develop the property it owns within the District. 5. Information. The information submitted by the Landowner 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 Landowner has provided the information set forth in the Preliminary Official Statement and the Official Statement describing the Landowner and the development undertaken and proposed to be undertaken by the Landowner, and the Undenivriter 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 — [Landowner relevant information]," insofar as such statements purport to summarize information with respect to the Landowner, the proposed development of its property in the District, the property owned by the Landowner within the District, and pending or threatened litigation in which the Landowner is a litigant, nothing has come to the Landowner's attention as of the date of this Certificate which would lead the Landowner 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. Landowner'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 Landowner 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 Landowner currently owns within the District. 9. Appraisal. The Landowner has reviewed the Appraisal Report dated January ,, 2007 ("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. 10. Consent to Bond Issuance. The Landowner hereby consents to the issuance of the Bonds and hereby reaffirms its consent to the Waiver Relating to Acquisition Agreement, dated as of February 22, 2007, by the City and the District. 11. Consent to Indenture. The Landowner hereby consents to all of the terms and conditions contained in that certain Bond Indenture, dated as of May 1, 2006, as amended by a First Supplemental Indenture dated as of March 1, 2007, by and between the City and Wells Fargo Bank, National Association, as trustee (the "Trustee"). B-2 12. Aqreement. In addition to the foregoing, the Landowner covenants that, while the Bonds are outstanding, the Landowner 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 Landowner 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 DistricYs 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 Landowner, the City and/or the District, or to which the Landowner is a beneficiary. Dated: , 2007 [DEVELOPER] By: Authorized Representative B-3 Exhibit C $20,000,000 CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2007 Form of Landowner's Counsel Opinion [Letterhead of Landowner 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: $20,000,000 City of Palm Desert Community Facilities District No. 2005-1 (Universitv Park) Special Tax Bonds, Series 2007 Ladies and Gentlemen: We have acted as counsel to [DW237/PDFC/JLH/UV Partnership/Shaw/S&C/Forum] (the "Landowner") in connection with (i) the proposed development known as (the "DevelopmenY')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 $20,000,000 City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2007 (the "Bonds"). This opinion is rendered pursuant to the Purchase Agreement dated , 2007 (the "Purchase AgreemenY') 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. 7he Purchase Agreement; B. The Official Statement for the offer and sale of the Bonds dated , 2007 (the "Official Statement"); C-1 C. The Continuing Disclosure Agreement (Landowner), dated , 2007, by and between the Landowner and Wells Fargo National Bank, as dissemination agent (the "Continuing Disclosure Agreement"); D. A litigation search of Landowner, dated , 2007 (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. E. [The Acquisition Agreement dated as of , 2007, between, among others, the Landowner and the City (the "Acquisition AgreemenY'] and together with the Continuing Disclosure Agreement, the "Landowner Agreements") CVWD JCFA, Allocation Agreement and First Amendment;] F. [The Waiver Relating to Acquisition Agreement, dated as of February 22, 2007, by the City and the District and acknowledged and consented to by Landowner;] G. [The Articles of Incorporation for dated as of , certified by the Secretary of State of the State of California on ;] H. [The Bylaws of the Landowner certified by the Secretary of Landowner to be the bylaws in effect on the date hereof;] I. Resolutions of the Board of Diractors of Landowner dated , 2007; J. Certificate of Good Standing for Landowner, issued by the Secretary of State of the State of California on , 2007; and K. The Landowner Certificate provided by Landowner 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 Landowner 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 Landowner, or as a result of our examination of the Landowner 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 federa{ 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: (i) The genuineness and authenticity of all signatures on original documents submitted to us (other than any signatures on behalf of Landowner); the authenticity and c-2 completeness of afl 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 Landowner 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 Landowner, 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. Landowner 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. Landowner is qualified to do business in the State of California. 2. The Landowner Agreements have been duly authorized, executed and delivered by Landowner, and constitute legal, valid and binding obligations of the Landowner, enforceable against the Landowner in accordance with their respective terms. 3. The execution and delivery by Landowner of the Landowner 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 Landowner, (b)to our knowledge, any indenture, mortgage, deed of trust, lease, note, commitment, agreement or other instrument to which Landowner is a party, or by which Landowner 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 Landowner, the conflict, violation or breach of which, in the case of clauses (b) or (c) would have a material adverse effect on Landowner 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 against Landowner which, if determined adversely, would have a material adverse effect (a) on the ability of Landowner to perform its obligations under the Landowner Agreements or (b)on the development, construction, use, occupancy or operation of the Development or a material portion thereof. C-3 6. Without having undertaken to independently determine the accuracy, completeness or fairness of the discussion contained in the Preliminary 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 — [Landowner relevant information ]" insofar as such statements purport to summarize information with respect to the Landowner, the proposed development of its property in the District, the property owned by the Landowner within the District, and pending or threatened litigation in which the Landowner 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 {aws 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 a�y 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, [COUNSEL] By: c-a GS Exhibit D $20,000,000 CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2007 Certificate of Saecial 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 Munifinancial (the "Special Tax ConsultanY') 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 , 2007 (the "Preliminary Official StatemenY') and the Official Statement dated , 2007 (the "Official StatemenY') for the City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "DistricY') Special Tax Bonds, Series 2007 (the "Bonds"). The Bonds are secured by Special Taxes of the Community Facilities District. Capitalized terms not othervvise defined herein shall be defined as provided in the Special Tax Formula or in the Bond Indenture dated as of May 1, 2006, as supplemented by a First Supplemental Indenture dated as of March 1, 2007 (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 su�cient 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 Specia! 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 D-1 "SECURITY AND SOURCES OF PAYMENTS FOR THE BONDS--Speciaf Taxes" and "-- 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: , 2007 MUNIFINANCIAL By: , Principal D-2 Exhibit E $20,000,000 CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (University Park) SPECIAL TAX BONDS, SERIES 2007 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 January^, 2007 (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 Pafm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2007 (the "Bonds"). Capitalized terms not otherwise defined herein shall be defined as provided in the Purchase Agreement dated as of , 2007, 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 , 2007 (the "Preliminary Official StatemenY'} and the Official Statement dated , 2007 (the "Official StatemenY') 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 estimated values concluded in the Appraisal Report. However, we have not performed any procedures since the date of the Appraisai Report to obtain knowledge of such events or occurrences nor are we obiigated 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: , 2007 CAPITAL REALTY ANALYSTS By: FIRST SUPPLEMENT TO ACQUISITION AGREEMENT by and among CITY OF PALM DESERT, CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK), PALM DESERT FUNDING COMPANY, LP, for itself and as successor to and assignee of DESERT WELLS 237, LLC and ALBOR PROPERTIES III, LP, PALM DESERT UNIVERSITY VILLAGE, LLC (f/Wa THE UNIVERSITY VILLAGE PARTNERSHIP), SHAW/PALM DESERT 1, LLC, AND SINATRA & COOK PROJECT, LLC Dated as of March 8,2007 �azza�.2 THIS FIRST SUPPLEMENT TO ACQUISITION AGREEMENT ("First Supplement"), dated as of March 8, 2007, is by and among the CITY OF PALM DESERT, a municipal corporation existing under the laws of the State of California (the "City"), CI"I'Y OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (L�NIVERSITY PARK), a community facilities district established under the Mello-Roos Community Facilities Act of 1982 (the "District"), PALM DESERT FUNDING COMPANY, LP, a Delaware limited partnership ("PDFC"), for itself and as successor to and assignee of Desert Wells 237, LLC and Albor Properties III, L.P., PALM DESERT LTNIVERSITY VILLAGE, LLC, a California limited liability company (formerly known as The University Village Partnership, a California general partnership) (herein still referenced as "iJV Partnership" regardless of the name change), SHAW/PALM DESERT 1, LLC ("Shaw"), a California limited liability company, and SINATRA & COOK PROJECT, LLC, a California limited liability company ("S&C" and each individually and together with PDFC, UV Partnership, and Shaw, as the context may require, the"Developer"). RECITALS: A. The City, the District, and the Developer previously executed the Acc�uisition Agreement, dated as of March 23, 2006 (the"Original Agreement"). B. All capitalized terms used but not defined in this First Supplement shall have the meanings given such terms in the Original Agreement. C. The Original Agreement specifies certain of the authorized public facilities to be financed in accordance therewith as "Backbone Infrastructure," which Backbone Infrastructure includes, among other facilities, four well sites (including iand acquisition and improvements) to be located at sites as determined by the Coachella Valley Water District concurrently with land plan, final tentative map(s), or similar document(s) (as appropriate) heretofore or to be approved by the City's Planning Commission and the City Council (collectively, the"Well Sites"). D. For the benefit of the City and the District and in order to protect the City and the District against construction cost increases and to provide for the full cost of the Backbone Infrastructure from proceeds of Bonds issued by the District, pursuant to Section 3.1 of the Original Agreement, the parties thereto have heretofore agreed the issuance of a second series of Bonds by the District, if authorized by the City Council in its absolute discretion, shall be subject to the prior receipt of bids, pursuant to the terms of the Ori�inal Agreement, for the construction of all Backbone Infrastructure (except for the Cook Street pedestrian bridge and the land acquisition components of the authorized park sites and the Well Sites), including but not limited to the costs of improving the Well Sites (collectively, the "Well Sites Improvements"). E. Construction of the Well Sites Improvements is not imminent and is contingent upon the construction of certain development within the District by the owners of land therein, which construction is, based on an absorption study contained within an appraisal prepared for the District, reasonably expected to occur within one-half to four years from the date hereof. F. Construction of the Well Sites Improvements in any event is required to be provided by the owners of land therein as a condition of regulatory approval (regardless of the availability of proceeds of Bonds issued by the District). 94224�.2 1 G. The Developer has requested the City and District to expedite the issuance of the second series of Bonds and authorize the issuance of such Bonds prior to the receipt of bids for thc construction of the Well Sites Improvements but after the receipt of all other bids rcquired pursuant to Section 3.1 of the Original Agreement. H. Heretofore, bids have been received for all Facilities required pursuant to Section 3.1 of the Original A�reement prior to the issuance of a second series of Bonds, except for the Well Sites Improvements, for which no bids have yet been requested or received. I. In order to facilitate construction of the balance of the authorized public facilities to serve the District, other than the Well Sites Improvements, in a timely manner, the City and District are willing to waive the requirements of Section 3.1 of the Original Agreement as to the Well Sites Improvements only, provided that the other parties to the Original Agreement have consented in writing to such waiver. J. Additionally, Section 3.3.A. of the Original Agreement provides for the allocation and deposit of proceeds of the Bonds available for deposit in the Improvement Funds in accordance with Articles IV and VI of the Allocation Agreement. K. With respect to an Eligible Facility constitutin� Backbone Infrastructure for which no bids have been received nor any contract awarded (such as the Well Sites Improvements), the aforementioned provisions of the Allocation Agreement designate the amount to be deposited in the appropriate Backbone Infrastructure Account of the Improvement Funds with respect to such Eligible Facility as the amount estimated and set forth in a cost estimate report dated September 22, 2005 and prepared by RBF Consulting. L. Subsequently, CVWD has altered the specifications of the Wells Sites improvements to require such sites to be paved, which alterations have significantly increased the costs of the Well Sites Improvements, and RBF Consulting has prepared a revised cost estimate letter as to the Well Sites lmprovements, dated February 13, 2007. M. With respect to the Well Sites Improvements, PDFC and S&C desire to amend the Original Abreement to provide for the deposit in the appropriate Backbone Infrastructure Account of the Improvement Funds of the amounts estimated for such improvements in RBF Consulting's revised cost estimate letter dated February 13, 2007, rather than RBF Consulting's cost estimate report dated September 22, 2005, and UV Partnership, Shaw, the City, and the District are willing to amend the Original Agreement in such a manner and upon such terms and conditions as set forth in this First Supplement. AGREEMENT SECTION 1. Waiver as to Condition Precedent Solely With Respect to Receipt of Bids for Well Sites. The City and the District hereby expressly waive the requirement in the last paragraph of Section 3.1 of the Original Agreement only as to the receipt of bids for the Well Sites Improvements prior to the issuance of a second series of Bonds; the City and the District hereby reaffirm the requirement in the last paragraph of Section 3.1 of the Original Agreement as to the receipt of bids for all such other Backbone Infrastructure for which the requirement applies, as specified therein, prior to the issuance of a second series of Bonds. Each Developer hereby 9-J2243.2 2 expressly acknowledges, consents to, and agrees with such waiver and such reaffirmation as set forth in this paragraph. SECTION 2. Modification to Deposit of Bond Proceeds and Use for Construction and Acquisition Costs of Facilities— Backbone Infrastructure. Section 3.3.A. of the Ori�inal Agreement is hereby amended by inserting the following new paragraph after the first paragraph of Section 3.3.A.: "Notwithstanding the foregoing, proceeds of a second or subsequent series of 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, except that "RBF Report" shall have the meaning ascribed to such term in this Acquisition Agreement rather than the meaning ascribed to such term in 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 trom 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, lus 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 lnfrastructure if no contracts have been awarded but bids have been received, l�us an amount equal to 15% of such bid as a contingency for change orders and an additional amount eyual 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 (or if no contingency is set forth therein, a 15% contin�ency for change orders) and the proportionate share of consultant costs and fees attributable to such City Backbone Infrastructure (13%)) if no bids have been received nor any contract awarded for such City Backbone Infrastructure), and second to the Backbone Infrastructure Account ofthe 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 (applying the meaning ascribed to "RBF Report" in this Acquisition Agreement, rather than the meaning ascribed to such term in the Allocation Agreement)." SECTION 3. Definitions. Section 1.1 of the Original Agreement is hereby amended as follows: (a) By adding the following definition (in its correct alphabetical sequence): ""RBF Well Improvements Letter" means the revised cost estimate letter, dated February 13, 2007, as to the Eligible Facilities identified on Exhibit B as ��a2za�.2 3 Items IX.B., IX.D., IX.F., and IX.H. (well sites improvements) and prepared by RBF Consulting." (b) By deleting the definition for `'RBF Report" and replacing such definition in its entirety with the language below: ""RBF Report" means the cost estimate report regarding the Eligible Facilities, dated September 22, 2005 and prepared by RBF Consulting, and with respect to a second or subsequent series of Bonds, such report as amended and supplemented by the RBF Well lmprovements Letter." SECTION 4. Conflict. This First Supplement amends the Original Agreement. Where this First Supplement conflicts with the terms of the Original Agreement, this First Supplement shall control. SECTION S. Governing Law. This First Supplement 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 6. Signatories. The signatories hereto represent that they have been appropriately authorized to enter into this First Supplement on behalf of the party for whom they sign. SECTION 7. Execution in Counterparts. This First Supplement may be executed in counterparts, each of which shall be deemed an original. SECTION 8. Construction. The language in all parts of this First Supplement 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 Supplement is the product of mutual negotiation and drafting eflforts. 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 Supplement. [The remainder of this page is intentionally left blank.] yazza3.2 4 IN WITNESS WHEREOF, the parties have executed this First Supplement to 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: PALM DESERT FUNDING COMPANY, LP, a Delaware limited partnership By: Hover Development Company, Inc. Its: Authorized Representative PDFC By: Name: Thomas 1. Hover Title: President [signatures continue on next page] 9-12243.2 5 PALM DESERT UN[VERSITY VILLAGE LLC, a California limited liability company (formerly known as The University Village Partnership, a California general partnership) By: Evans University Village, LLC, a California limited liability company, Its: Managing Member By: The Evans Company, LLC, a California limited liability company, UV Its: Manager Partnership By: Name: F.O. Evans Its: Manager By: EDWARDS UN[VERSITY VILLAGE LLC, a California limited liability company Its: Member By: Name: W. James Edwards III 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: Authorized Member [signatures continue on next page] 9=12243.2 6 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 lts: Member and Manager By: Fordar, LLC, S&C A California limited liability company lts: Member and Manager By: Kambiz Kamdar Its: Manager By: Fred Kamdar Its: Member By: Joseph Foroosh, D. Its: Member 9�12243.2 '] CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) and WELLS FARGO BANK, NATIONAL ASSOCIATION as Trustee FIRST SUPPLEMENTAL INDENTURE Dated as of May 1, 2007 Relating to [$20,000,000] City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds Series 2007 943478.4 RWG DRAFT 2l21/07 TABLE OF CONTENTS PAGE ARTICLE I AUTHORITY AND DEFINITIONS ......................................................................... 2 SECTION l.Ol. SUPPLEMENTAL INDENTURE............................................................................ 2 SECTION 1.02. AUTHORITY FOR FIRS"I�SUPPLEMEI�TAL INDENTURE....................................... 2 SECTION1.03. DEFiNiT[oys.................................................................................................... 2 ARTICLE II THE SERIES 2007 BONDS ..................................................................................... 3 SECTION 2.01. AuTHORIZATION ............................................................................................. 3 SECTION 2.02. TERMS OF SER[ES 2007 BOt�DS ....................................................................... 3 SECTION 2.03. BOOK-ENTRY SYSTEM .................................................................................... 4 SECTION 2.04. FoR�oF SER[Es 2007 Bo�v�s......................................................................... 4 SECTION 2.05. EXECUTION AND AUTHENTICATION ................................................................ 4 SECTION 2.06, REDEMPTION OF SERIES 2007 BONDS ............................................................. 4 SECTION 2.07. APPLICATION OF PROCEEDS OF SER[ES 2007 BONDS....................................... 6 ARTICLE IlI MISCELLANEOUS ................................................................................................ 7 SECTION 3.01. AMENDMENTS TO THE INDENTiJRE.................................................................. 7 SECTION 3.02. EXECUTION IN COUNTERPARTS ....................................................................... 8 APPENDIX A - FoRM oF SERiEs 2007 BoND 943478.4 t First Supplemental Indenture This First Supplemental Indenture, dated as of May l, 2007, is entered into by and between 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"), and Wells Fargo Bank, National Association, a national banking association duly organized and existing under laws of the United States of America and authorized to accept and execute trusts of the character herein set forth, as trustee (the "Trustee"). Recitals A. The District is a community facilities district established under the Mello- Roos Community Facilities Act of 1982, as amended, bein�Chapter 2.5, Part 1, Division 2, Title 5, of the Government Code of the State of California(the"Act"}, duly created, established and authorized to finance certain capital facilities and services and exercise its powers, all under and pursuant to the Act (as defined in the Master Indenture hereinafter described), and the powers of the District include the power to issue bonds for the financing of authorized capital facilities. B. 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 Act. C. 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 authorized to issue bonds for one or more series, pursuant to the Act, in an aggregate principal amount not to exceed $70,000,000, for the purpose of financing the Project. D. Pursuant to a Bond Indenture, dated as of May 1, 2006 (the "Master Indenture"), by and between the District and Wells Fargo Bank, National Association, as trustee, the District has heretofore issued its Special Tax Bonds, Series 2006A (the"Series 2006A Bonds") in the initial aggregate principal amount of�50,000,000. E. The District deems it necessary and desirable to issue Parity Bonds (as defined in the Master Indenture) for the purpose of financing additional costs of the Project. F. To accomplish such purpose, the District has determined to issue its Special Tax Bonds, Series 2007 (the "Series 2007 Bonds"), in the aggregate principal amount of �$20,000,OOOJ, all pursuant to and secured by the Master Indenture, as amended and supplemented by this First Supplemental Indenture in the manner provided therein and herein. G. The execution and delivery of the Series 2007 Bonds and of this First Supplemental Indenture have been duly authorized and all things necessary to make the Series 2007 Bonds, when executed by the District and authenticated by the Trustee, valid and binding legal obligations of the District and to make this First Supplemental Indenture a valid and binding legal instrumcnt for the security of the Serics 2007 Bonds, have been done. 943478.4 NOW THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH, that in order to secure the payrnent of the principal of, and the interest and premium, if any, on, all Series 2007 Bonds at any time issued and Outstanding undcr the Indenture, according to their tenor, and to secure the perforrnance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Series 2007 Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Series 2007 Bonds by the owners thereof, and for other valuable consideration, the receipt whereof is hereby acknowledged, the District does hereby covenant and agree with the Trustee, for the benefit of the respective holders from time to time of the Series 2007 Bonds, as follows: ARTICLE I AUTHORITY AND DEFINITIONS SECTION 1.01. Supplemental Indenture. This First Supplemental Indenture is supplemental to the Master Indenture. Save and except as amended and supplemented by this First Supplemental Indenture, the Master Indenture shall remain in full force and effect. SECTION 1.02. Authoritv for First Sup�lemental Indenture. This First Supplemental Indenture is adopted (i) pursuant to the provisions of the Act and (ii) in accordance with Article VI and Article IX of the Master Indenture. SECTION 1.03. Definitions. Except as provided by this First Supplemental Indenture, all terms which are defined in Section 1.1 of the Master Indenture shall have the same meanings, respectively, in this First Supplemental Indenture. The following additional terms shall, for all purposes of the Indenture, have the following meanings: "Closin� Date"means, with respect to the Series 2007 Bonds, May_, 2007. "Series 2007 Bonds"means the City of Palm Desert Community Facilities District No. 2005-1 (University Park) Special Tax Bonds, Series 2007, issued pursuant to this First Supplemental Indenture. "Series 2007 Term Bonds" the Series 2007 Bonds maturing on September 1, 20_ and September 1, 20_. "Trustee"means Wells Fargo Bank, National Association, and its successors and assigns. 943478.4 2 ARTICLE II THE SERIES 2007 BONDS SECTION 2.01. Authorization. The Series 2007 Bonds are hereby authorized to be issued for the purpose of financing a portion of the cost of the Project. 5ECTION 2.02. Terms of Series 2007 Bonds. The Series 2007 Bonds authorized to be issued by the District under and subject to the terms of the Indenture and the Act shall be designated the"City of Palm Desert Community Facilities District No. 2005-1 (University Park) Spccial Tax Bonds, Series 2007" and shall be in the aggregate principal amount of ��20,000,000�. The Series 2007 Bonds shall be dated as of the Closing Date for the Series 2007 Bonds, shall bear interest at such rates (payable on March 1 and September 1 in each year, commencing [ 1, 200_]), and shall mature and become payable as to principal on September 1 in each of the years in the amounts set forth below: Maturity Date Principal Interest �September 1) Amount Rate � % Interest on the Series 2007 Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. The Series 2007 Bonds shall be issued as fully registered bonds in the denomination of $5,000, or any integral multiple of�5,000 (not exceeding the principal amount of Series 2007 Bonds maturing at any one time). The Series 2007 Bonds shall be numbered as determined by the Trustee. The Series 2007 Bonds shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless(i) such date of authentication is during the period from the 16th day of the month next preceding an Interest Payment Date to and including such Interest Payment Date, in which event they shall bear interest from such Interest Payment Date, or (ii) such date of authentication is on or before the 15th day of the month next preceding the first Interest Payment Date, in which event they shall bear interest from their dated date; provided, however, that if, at the time of authentication of any Series 2007 Bond, interest is then in default on the Outstanding Series 2007 Bonds, such Series 2007 Bond shall bear interest from the Interest Payment Date to which interest previously has been paid or made available for payment on the Outstanding Series 2007 Bonds. Payment of interest on the Series 2007 Bonds due on or before the maturity or prior redemption of such Series 2007 Bonds shall be made to the person whose name appears on the Bond Register of the Trustee as the registered owner thereof, as of the close of business on the 15th day of the month next preceding the Interest Payment 94347R.4 3 Date. Subject to Section 2.5 of the Master Indenture, such interest to be paid by check mailed on each Interest Payrnent Date by first-class mail, postage prepaid, to such registered owner at his address as it appears on such Bond Register, or, upon written request received by the Trustee on or prior to the applicable Record Date preceding an Interest Payment Date, of an Owner of at least $1,000,000 in aggregate principal amount of Series 2007 Bonds, by wire transfer in immediately available funds to an account designated by such Owner. Principal of and redemption premiums, if any, on the Series 2007 Bonds shall be payable upon the surrender thereof at maturity or the earlier redemption thereof at the Principal Office of the Trustee. Principal of and redemption premiums, if any, and interest on the Series 2007 Bonds shall be paid in lawful money of the United States of America. SECTION 2.03. Book-Entry System . The Series 2007 Bonds shall be initially issued as Book-Entry Bonds, in accordance with Section 2.12 of the Master Indenture. SECTION 2.04. Form of Series 2007 Bonds . The Series 2007 Bonds, the authentication and registration endorsement and the assignment to appear thereon shall be substantially in the forms attached hereto as Annendix A, with necessary or appropriate variations, omissions and insertions as permitted or reyuired by this First Supplemental Indenture. SECTION 2.05. Execution and Authentication . The provisions set forth in Section 2.7 of the Master Indenture shall apply to the Series 2007 Bonds. SECTION 2.06. Redemption of Series 2007 Bonds (a) Optional Redemption. The Series 2007 Bonds maturing on or before September 1, 20 are not subject to optional redemption by the District. The Series 2007 Bonds maturing on or after September 1, 20 shall be subject to redemption as a whole or in part, by such maturities as the District shall designate, prior to their respective maturities at the option of the District 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 5eptember 1, 20_ and March 1, 20_ _% September 1, 20_and March 1, 20_ _ September 1, 20_and March l, 20_ _ September 1, 20_and Interest _ Payrnent Dates thereafter In the event the District elects to redeem Series 2007 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 Series 200? 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. 943478.4 4 (b) Mandatory Sinking Fund Redemption. The Series 2007 Bonds maturing on September l, 20 and September 1, 20_ (the "Series 2007 Term Bonds") 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 5eptember l, 20 , respectively, and on cach September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Series 2007 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 Series 2007 Term Bond equal to the principal amount thereof, plus accrued interest to thc redemption date, without premium, as follows: SERIES 2007 BONDS MATURING SEPTEMBER l, 20 Redemption Date (September 1) Principal Amount $ (maturity) SERIES 2007 BONDS MATURING SEPTEMBER 1, 20 Redemption Date (September 1) Principal Amount $ (maturity) (c) Extraordinary Redemption. The Series 2007 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 of the Master Indenture, plus amounts transferred from the Reserve Account pursuant to Section 3.6(c) of the Master Indenture, 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 September l, 20_and March 1, 20_ _% September 1, 20_and March 1, 20_ _ September 1, 20_and March 1, 20_ _ September l, 20_and Interest _ Payment Dates thereafter 943478.4 5 The District shall give written notice to the Trustee of its intention to redeem Series 2007 Bonds pursuant to this subsection, the redemption date, and the principal amount of the Series 2007 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) General Redemption Provisions. Except with respect to the foregoing, the provisions set forth in Sections 4.2 through 4.5 of the Master Indenture shall apply to the Series 2007 Bonds. SECTION 2.07. Avplication of Proceeds of Series 2007 Bonds. On the Closing Date, the Trustee shall receive proceeds from the sale of the Series 2007 Bonds in the amount of � (representing the ag�-egate principal amount of the Series 2007 Bonds, [plus/less] a net original issue [premium/discount� of$ , and less an underwriter's discount of$ . Immediately upon receipt, the Trustee shall set aside and deposit or transfer such proceeds as follows: (a) $ shall be deposited in the Costs of Issuance Account of the City Facilities Fund to pay the Costs of Issuance of the Bonds; (b) $ shall be deposited in the Reserve Account of the Special Tax Fund to increase the amount therein to the Reserve Requirement; (c) $ shall be deposited in the Backbone Infrastructure Account of the City Facilities Fund; (d) $ shall be deposited in the Backbone Infrastructure Account of the CVWD Facilities Fund; (e) $ shall be deposited in the DW 237 Subaccount (City Facilities) of the Other Facilities Account of the City Facilities Fund; (fl $ shall be deposited in the PDFC Subaccount (City Facilities) of the Other Facilities Account of the City Facilities Fund; (g) $ shall be deposited in the UV Subaccount (City Facilities) of the Other Facilities Account of the City Facilities Fund; (h) $ shall be deposited in the Shaw Subaccount (City Facilities) of the Other Facilities Account of the City Facilities Fund; (i) $ shall be deposited in the S&C Subaccount (City Facilities) of the Other Facilities Account of the City Facilities Fund; (j) $ shall be deposited in the DW 237 Subaccount (CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund; (k) $ shall be deposited in the PDFC Subaccount (CVWD 943478.4 6 Facilities) of the Other Facilities Account of the CVWD Facilities Fund; (1) $ shall be deposited in the UV Subaccount (CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund; (m) $ shall be deposited in the Shaw Subaccount (CVWD Facilities) of the Other Facilities Account of the C�tWD Facilities Fund; and (n) $ shall be deposited in the S&C Subaccount (CVWD Facilities) of the Other Facilities Account of the CVWD Facilities Fund. The Trustee may, in its discretion, establish a temporary fund or account in its books and records to facilitate such transfers. ARTICLE III MISCELLANEOUS SECTION 3.01. Amendments to the Indenture. Upon the issuance of the Series 2007 Bonds, the following amendments shall take effect (a) Section 3.1(a)(2) of the Master Indenture shall be amended pursuant to Section 3.7 of the Master Indenture to read in its entirety as follows: "(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 (in which there shall be established a Series 2006A Subaccount and a Series 2007 Subaccount) and an Alternative Penalty Account). (b) The last para��raph of Section 3.1(a) of the Master Indenture shall be amended to read in its entirety as follows: "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, including, but not limited to, additional subaccounts within the Other Facilities Account of the City Facilities Fund and the Other Facilities Account of the CVWD Facilities Fund." (c) Section 3.9(d) of the Master Indenture shall be amended by adding the following clause(6): "(6) From such other subaccount of the Other Facilities Account of the City Facilities Fund as may be established pursuant to Section 3.1(a) at the direction of an Authorized Representative of the District to the subaccount of the Other Facilities Account of the CVWD Facilities Fund bearing the same account name, 943478.4 7 as may be established pursuant to Section 3.1(a) at the direction of an Authorized Representative of the District. E.g., from the DW 237 Subaccount of the Other Facilities Account of the City Facilities Fund to the DW 237 Subaccount of the Other Facilities Account of the CVWD Facilities Fund." (d) Section 3.10(c) of the Master Indenture shall be amended by adding the following clause (6): "(6) From such other subaccount of the Other Facilities Account of the CVWD Facilities Fund as may be established pursuant to Section 3.1(a) at the direction of an Authorized Representative of the District to the subaccount of the Other Facilities Account of the City Facilities Fund bearing the same account name, as may be established pursuant to Section 3.1(a) at the direction of an Authorized Representative of the District. E.g., from the DW 237 Subaccount of the Othcr Facilities Account of the CVWD Facilities Fund to the DW 237 Subaccount of the Other Facilities Account of the City Facilities Fund." SECTION 3.02. Executions in Counterparts. This First Supplemental Indenturc may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, as many of them as the District and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. 943478.4 8 IN WITNESS WHEREOF, CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (UNIVERSITY PARK) has caused this First Supplemental 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 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 First Supplemental 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: City Clerk of the City of Palm Desert, California WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Officer 943478.4 9 EXHIBIT A FORM OF SPECIAL TAX BOND, SERIES 2007 Unless this Scries 2007 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 transf'er, exchange, or payment, and any Series 2007 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 madc to Cede& Co. or to such other entity as is requested by an authorized representative of DTC), ANY TItANSFER, PLEDGE, OR OTHER USE HEREOF FOR VAI,UE OR OTHERWISE EiY OR"1'O ANY I'LRSON 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 (LINIVERSITY PARK) SPECIAL TAX BOND, SERIES 2007 IN'I'EREST RATE MATURITY DATE DATED DATE CUSIP % September 1, May_, 2007 REGISTF,REU OWNER: CEDE & CO. PRINCIPAL AMOUNT: DOLLARS CITY OF PALM DESERT COMMUNIT'Y 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 Yayment 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 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 943478.4 A-10 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 Series 2007 Bond interest is in default, interest on this Series 2007 Bond shall be payable from the last Interest Payment Date to which the interest has been paid or made available f'or payment or, if no interest has been paid or made available for payment, interest on this Scries 2007 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 1, 20_, 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 Series 2007 Bond are payable to the Registered Owner hereof in lawful money of the United States of America upon presentation and surrender of'this Series 2007 Bond at the Principal Offlce of the Trustee(as such term is defined in the Bond Indenture), initially Wells Fargo Bank, National Association(the"Trustee"). Interest on this Series 2007 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 Series 2007 Bond is one of a duly authorized issue of"City of Palm Desert Community Facilitics District No. 2005-1 (University Park) Special Tax Bonds, Series 2007"(the"Series 2007 Bonds") issued in the aggregate principal amount of�$20,000,000� 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 a reserve account, and paying certain costs related to the issuance of the Series 2007 Bonds. The issuance of the Series 2007 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 (March 8], 2007 and a Bond Indenture dated as of May 1, 2006 (the"Master Indenture"), as amended and supplemented by a First Supplemental Indenture, dated as of May 1,2007, by and between the District and the Trustee executed in connection therewith(the Master Indenture, as so amended and supplemented, and as the same may be further amended and supplemented from time to time in accordance with the terms thereof, the"Indenture"), and this reference incorporates the Indenture herein, and by acceptance hereof the Registered Owner of this Series 2007 Bond assents to said terms and conditions. 1'he Indenture is executed under and this Series 2007 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 Series 2007 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 Series 2007 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_ "Che District has covenanted for the benefit of the owners of the Series 2007 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 Special7'ax installments levied for payment of principal and interest on the Series 2007 Bonds. The Series 2007 Bonds may be redeemed, at the option of the District, from any source of funds on any Interest Payment Date in whole, or in part, from such maturities as are selected by the District and 943478.4 A-11 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 March 1, 20_ _ September 1, 20 and Interest Payment � Dates thereafter The Series 2007 Bonds maturing on September 1, 20 and September 1, 20_(the"Series 2007 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 Indenture at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. "Che Series 2007 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 transf'ers, 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 September 1, 20 and March 1, 20 _% September 1, 20 and March 1, 20 _ September 1,20_and March 1, 20_ _ September 1, 20 and Interest Payment _ Dates thereafter Notice of redemption with respect to the Series 2007 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 lhe validity of the proceedings for redemption. All Series 2007 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 Series 2007 Bonds shall have no rights except to receive payment of the redemption price upon the surrender of the Series 2007 Bonds. This Series 2007 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. "I'he Series 2007 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 Series 2007 Bonds of other authorized denominations of the same issue and maturity, all as more fully set forth in the Indenture. This Series 2007 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 the limitations and upon payment of the charges provided in the Indenture, upon surrender and 943478.4 A-12 cancellation of this Series 2007 Bond. Upon such transfer, a new registered Series 2007 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. "I'he Trustee shall not be required to register transfers or make exchanges of(i) any Series 2007 Bonds for a period of fifteen (15) days next preceding any selection of the Series 2007 Bonds to be redeemed, or(ii) any Series 2007 Bonds chosen for redemption. The rights and obligations of the District and of the registered owners of the Series 2007 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 SERIES 2007 BOND5 DO NOT CONSTITUTE OBLIGATIONS UF THE CI�'Y OF PALM DESERT OR OF THE DISTRICT FOR WHICH THE CITY OF PALM DESER"I'OR THF, DISTRICT IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED,GENERAL OR SPECIAL TAXES, OTHER THAN THE SPECIAL TAXES REFERENCED HEREIN. THE S�,RIES 2007 BONDS ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE FROM THE PURTION 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 Series 2007 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 Series 2007 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 Series 2007 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. IN WITNESS WHEREOF, City of Palm Desert Community Facilities District No. 2005-1 (University Park) has caused this Series 2007 Bond to be dated as of May^, 2007, to be signed on behalf of the District by the Mayor of the City by his manual signature and attested by the manual si�,mature of the City Clerk of the City. CITY OF PALM DESERT COMMUNITY FACILITIES DISTRICT NO. 2005-1 (LTNNERSITY PARK) Mayor of the City of Palm Desert, California ATTEST: City Clerk of the City of Palm Desert,California 94347R.4 A-13 [FORM OF"I'RUSTEE'S CERTIFICAT� OF AUTHENTICATION AND REGIST'RA"TION] This is one of the Series 2007 Bonds described in the within-mentioned Indenture which has been registered on the Bond registration books. Dated: WELLS FARGO BANK, NATIONAI, ASSOCIATION, as 1'rustee 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 Series 2007 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 must member of an institution which is a participant correspond with the name(s) as written on in the Securities Transfer Agent Medallion the face of the within Series 2007 Bond in Program(STAMP)or other similar program. every particular without alteration or enlargement or any change whatsoever. 943478.4 A-l 4