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Home My WebLink About09 ISSUANCE OF TAX ALLOCATION BONDSAgenda te 40 AGENDA REPORT Reeweld m Reviewed: City Manager 4fr&// Finance Directo MEETING DATE: OCTOBER 19, 2010 TO: DAVID C. BIGGS, CITY MANAGER & EXECUTIVE DIRECTOR OF TUSTIN PUBLIC FINANCING AUTHORITY AND TUSTIN COMMUNITY REDEVELOPMENT AGENCY FROM: PAMELA ARENDS-KING, FINANCE DIRECTOR SUBJECT: ISSUANCE OF TAX ALLOCATION BONDS BY THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY SUMMARY: Approval by the City of Tustin ("City"), Tustin Public Financing Authority ("TPFA") and Tustin Community Redevelopment Agency (" Agency") is requested to authorize the issuance and sale of Tax Allocation Bonds ("Bonds") in an aggregate principal amount not to exceed $45 million to finance various redevelopment projects within or benefitting the Marine Corps Air Station — Tustin redevelopment project area (MCAS - Tustin). RECOMMENDATION: 1. It is recommended that the Agency adopt RDA Resolution 10-12 authorizing the issuance and sale of the Bonds by the Agency to finance various redevelopment projects within or benefitting the MCAS -Tustin project area, approving the form of related documents and authorizing all actions necessary by the Agency's officers to consummate the issuance and sale of the Bonds. a. Indenture of Trust; b. Bond Purchase Agreement; and c. Preliminary Official Statement. 2. It is recommended that the City Council adopt City Council Resolution 10-99 approving the issuance and sale by the Tustin Community Redevelopment Agency of Tax Allocation Bonds to finance various redevelopment projects within or benefitting the MCAS — Tustin redevelopment project area. 3. It is recommended that the TPFA adopt TPFA Resolution 10-02 authorizing the purchase and sale of the Bonds from the Agency for re -sale to the Underwriter approving all related documents and authorizing all actions necessary by the officers of the TPFA including but not limited to the execution of the Bond Purchase Agreement. Issuance Of Tax Allocation By The Tustin Community Redevelopment Agency October 19, 2010 Page 2 FISCAL IMPACT: The Bonds will have no financial impact on the City or the TPFA, as all payments of principal and interest on the Bonds will be paid solely from MCAS -Tustin project area tax increment revenues. The Agency will be obligated to use tax increment revenue from the MCAS -Tustin project area each year to pay the debt service on the Bonds, and to pay the annual costs of administering the Bond program. BACKGROUND: Proceeds from the sale of the Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 (the "Bonds") will be used to finance various redevelopment projects, fund a reserve account for the Bonds, and fund the costs associated with issuing the Bonds. The types of facilities proposed to be financed are various infrastructure improvements yet to be completed located within and outside the Redevelopment Project boundaries (for which a benefit resolution shall have been adopted by the Agency) to facilitate the build -out and completion of the Tustin Legacy project. The Agency, working with its consultants, has determined that, due to prevailing financial market conditions and for other reasons, it is in the best interests of the Agency at this time to debt finance redevelopment activities related to the MCAS -Tustin project area. To provide moneys for such purposes, the Agency has determined to issue its Bonds in the aggregate principal amount of not to exceed $45,000,000. The proposed Bond issue will be payable solely from a pledge of the Tax Revenues arising from the Agency's MCAS -Tustin Project Area. No City general funds or other moneys will in any way be pledged or obligated towards the payment of the Bonds. The Agency is proposing to issue approximately $43,995,000 par amount of Bonds to net $40,000,000 to fund various redevelopment activities related to the MCAS -Tustin project area. While current interest rates indicate that the aggregate initial principal amount of the Bonds will be approximately $43,995,000, the Agency is seeking a bond authorization of up to $45,000,000 in the event that interest rates decrease prior to the sale of the Bonds thereby allowing for more Bond principal to be supported by the same level of Tax Revenues. In the event that interest rates rise prior to the sale of the Bonds, less principal may be sold than currently projected. In addition, the Agency will be obtaining an underlying credit rating for the Bonds from Standard & Poor's, as well as obtaining a quote for municipal bond insurance from Assured Guaranty Municipal Corp. In order to issue the Bonds, the Redevelopment Law requires that the City Council approve the issuance of the Bonds by the Agency. In addition, in order for the Agency to sell the Bonds on a negotiated basis with Stone & Youngberg, LLC, the bond underwriter that has been working with the Agency on the Bond issue (the "Underwriter"), relevant State law requires that the Tustin Public Financing Authority buy Issuance Of Tax Allocation By The Tustin Community Redevelopment Agency October 19, 2010 Page 3 the Bonds from the Agency for resale to the Underwriter. The purchase price from the Agency to be paid by the Public Financing Authority will be the same as the sale price of the Bonds by the Public Financing Authority to the Underwriter, so no Public Financing Authority funds are involved in the transaction. The proposed resolution of the Public Financing Authority approves the purchase and sale by it of the Bonds and makes related findings required by applicable law. The Agency resolution being presented for approval authorizes the issuance of the Bonds and approves the related financing documents including a draft of an "Official Statement" that describes the terms of the Bonds. These documents will be finalized when the exact terms of the Bonds are determined at the time the Bonds are sold to investors, anticipated to occur in early -November. The date for the closing of the Bond issue, and the time when Bond proceeds are expected to be available, is currently expected to be November 18, 2010. Pamela Arends-King Finance Director Attachment(s): Resolution RDA 10-12 Resolution City 10-99 Resolution Tustin Public Financing Authority 10-02 Indenture of Trust Preliminary Official Statement Bond Purchase Agreement RESOLUTION NO. RDA 10-12 A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF TUSTIN, CALIFORNIA, AUTHORIZING THE ISSUANCE AND SALE OF TAX ALLOCATION BONDS TO FINANCE REDEVELOPMENT ACTIVITIES WITHIN OR FOR THE BENEFIT OF THE AGENCY'S MCAS-TUSTIN REDEVELOPMENT PROJECT AREA AND APPROVING RELATED DOCUMENTS AND ACTIONS The Tustin Community Redevelopment Agency (the "Agency") of the City of Tustin does hereby resolve as follows: WHEREAS, the Agency is a public body, corporate and politic, duly established and authorized to transact business and exercise powers under and pursuant to the provisions of the Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the California Health and Safety Code (the "Law"), including the power to issue bonds for any of its corporate purposes; WHEREAS, a redevelopment plan for the MCAS -Tustin Redevelopment Project Area (the "Redevelopment Project") has been adopted in compliance with all requirements of the Law; WHEREAS, the Agency has determined that, due to prevailing financial market conditions, it is in the best interests of the Agency at this time to finance redevelopment activities of the benefit of the Redevelopment Project (the "2010 Project"); WHEREAS, to provide moneys to finance the 2010 Project, the Agency has determined to issue its Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010, in the aggregate principal amount of not to exceed $45,000,000 (the "Bonds"), under the provisions of Part 1 of Division 24 of the California Health and Safety Code, commencing with section 33640 of said Code (the "Bond Law"); and WHEREAS, the Agency has duly considered such transactions and wishes at this time to authorize proceedings for the issuance and sale of the Bonds; NOW, THEREFORE, it is hereby ORDERED and DETERMINED, as follows: SECTION 1: Authorization. The Agency hereby authorizes the issuance of the Bonds to finance the 2010 Project. SECTION 2: Issuance of the Bonds; Approval of the Indenture. The Bonds shall be issued pursuant to the Bond Law and pursuant to an indenture of trust, by and Resolution No. RDA 10-12 Page 2 between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Indenture"). The Agency hereby approves the Indenture in substantially the form on file with the Secretary, together with such additions thereto and changes therein as the Chair or the Executive Director shall deem necessary, desirable or appropriate, and the execution thereof by the Chair or the Executive Director shall be conclusive evidence of the approval of any such additions and changes. The Chair or the Executive Director is hereby authorized and directed to execute, and the Secretary is hereby authorized and directed to attest to, the final form of the Indenture for and in the name and on behalf of the Agency. The Agency hereby authorizes the delivery and performance of the Indenture. SECTION 3: Sale of the Bonds. The Agency hereby authorizes the sale of the Bonds to the Tustin Public Financing Authority (the "Authority") for concurrent re -sale to Stone & Youngberg LLC (the "Underwriter"), so long as the total Underwriter's discount, excluding original issue discount which does not constitute compensation to the Underwriter, does not exceed 0.5% of the principal amount of the Bonds. The Agency hereby approves a bond purchase agreement, by and among the Underwriter, the Agency and the Authority, in substantially the form on file with the Secretary (the "Bond Purchase Agreement"), together with such additions thereto and changes therein as the Chair or the Executive Director shall deem necessary, desirable or appropriate, and the execution thereof by the Chair or the Executive Director shall be conclusive evidence of the approval of any such additions and changes. The Chair or the Executive Director is hereby authorized and directed to execute the final form of the Bond Purchase Agreement for and in the name and on behalf of the Agency. SECTION 4: Approval of the Preliminary Official Statement. The preliminary official statement describing the Bonds on file with the Secretary (the "Preliminary Official Statement") is hereby approved for distribution by the Underwriter to municipal bond broker-dealers, to banking institutions and to members of the general public who may be interested in purchasing the Bonds. The Chair or Executive Director is authorized to approve, upon advice of the Agency's Disclosure Counsel, modifications to the Preliminary Official Statement, from time to time, pending such distribution as shall be required to cause the Preliminary Official Statement to contain any further information necessary to accurately describe the Bonds. With respect to the distribution of the Preliminary Official Statement, the Chair or Executive Director is authorized and directed, on behalf of the Agency, to deem the Preliminary Official Statement "final" pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule"). SECTION 5: Approval of the Final Official Statement. A final official statement, which shall include such changes and additions thereto deemed advisable by the Chair or Executive Director and upon advice of the Agency's Disclosure Counsel (the "Final Official Statement"), is hereby approved for delivery to the purchasers of the Bonds, and the Chair or the Executive Director is authorized and directed to execute the Final Official Statement for and on behalf of the Agency. The Chair or Executive Director is authorized and directed to deliver (i) a certificate with respect to the information set forth therein, and (ii) a continuing disclosure certificate substantially in the form appended to the Final Official Statement. Resolution No. RDA 10-12 Page 3 SECTION 6: Official Actions. The Chair, the Executive Director and the Secretary, and any and all other officers of the Agency, are hereby authorized and directed, for and in the name and on behalf of the Agency, to do any and all things and take any and all actions, including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance and sale of the Bonds as described herein including the application to providers of municipal bond insurance for the Bonds. Whenever in this resolution any officer of the Agency is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer shall be absent or unavailable. SECTION 7: Effect. This Resolution shall take effect from and after the date of its passage and adoption. PASSED AND ADOPTED at a regular meeting of the Tustin Community Redevelopment Agency held on the 19th day of October, 2010. ATTEST: PAMELA STOKER Recording Secretary STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF TUSTIN ) Date Jerry Amante Chair I, Pamela Stoker, City Clerk and ex -officio Clerk of the Tustin Community Redevelopment Agency of the City of Tustin, California, do hereby certify that the whole number of the members of the Tustin Community Redevelopment Agency of the City of Tustin is five; that the above and foregoing Resolution No. RDA 10-12 was duly passed Resolution No. RDA 10-12 Page 4 and adopted at a regular meeting of the Tustin Community Redevelopment Agency, held on the 19th day of October, 2010 by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER Recording Secretary RESOLUTION NO. 10-99 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, APPROVING THE ISSUANCE AND SALE BY THE TAX ALLOCATION BONDS OF THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY ISSUED TO FINANCE REDEVELOPMENT ACTIVITIES WITHIN OR FOR THE BENEFIT OF THE AGENCY'S MCAS-TUSTIN REDEVELOPMENT PROJECT AREA The City Council of the City of Tustin does hereby resolve as follows: WHEREAS, the Tustin Community Redevelopment Agency (the "Agency") is a public body, corporate and politic, duly established and authorized to transact business and exercise powers under and pursuant to the provisions of the Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the California Health and Safety Code (the "Law"), including the power to issue bonds for any of its corporate purposes; WHEREAS, a redevelopment plan for the MCAS -Tustin Redevelopment Project Area (the "Redevelopment Project") in the City of Tustin, Orange County, California (the "City"), has been adopted in compliance with all requirements of the Law; WHEREAS, the Agency has determined that, due to prevailing financial market conditions, it is in the best interests of the Agency at this time to finance redevelopment activities of the benefit of the Redevelopment Project (the "2010 Project'); WHEREAS, to provide moneys to finance the 2010 Project, the Agency has determined to issue its Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010, in the aggregate principal amount of not to exceed $45,000,000 (the "Bonds"), under the provisions of Part 1 of Division 24 of the California Health and Safety Code, commencing with section 33640 of said Code; and WHEREAS, in accordance with the requirements of section 33640 of the California Health and Safety Code, the City Council wishes at this time to approve the issuance and sale of the Bonds by the Agency; NOW, THEREFORE, it is hereby ORDERED and DETERMINED, as follows: SECTION 1: Approval of the Bonds. The issuance and sale of the Bonds by the Agency to finance the 2010 Project, is hereby approved. SECTION 2: Effect. This Resolution shall take effect from and after the date of its passage and adoption. Resolution No. 10-99 Page 2 PASSED AND ADOPTED at a regular meeting of the Tustin City Council held on the 19th day of October, 2010. Jerry Amante Mayor ATTEST: PAMELA STOKER City Clerk STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF TUSTIN ) I, Pamela Stoker, City Clerk and ex -officio Clerk of the City Council of the City of Tustin, California, do hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution No. 10-99 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 19th day of October, 2010 by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER City Clerk TPFA RESOLUTION NO. 10-02 A RESOLUTION OF THE TUSTIN PUBLIC FINANCING AUTHORITY AUTHORIZING THE PURCHASE AND SALE OF TAX ALLOCATION BONDS OF THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY ISSUED TO FINANCE REDEVELOPMENT ACTIVITIES WITHIN OR FOR THE BENEFIT OF THE AGENCY'S MCAS-TUSTIN REDEVELOPMENT PROJECT AREA AND APPROVING RELATED DOCUMENTS AND ACTIONS The Tustin Public Financing Authority of the City of Tustin (the "Authority") does hereby resolve as follows: WHEREAS, the City of Tustin (the "City") and the Tustin Community Redevelopment Agency (the "Agency") have heretofore entered into a Joint Exercise of Powers Agreement, dated as of May 1, 1995, establishing the Authority for the purpose, among others, of issuing its bonds to be used to provide financial assistance to the City and to the Agency; WHEREAS, the Agency is a public body, corporate and politic, duly established and authorized to transact business and exercise powers under and pursuant to the provisions of the Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the California Health and Safety Code (the "Law"), including the power to issue bonds for any of its corporate purposes; WHEREAS, a redevelopment plan for the MCAS -Tustin Redevelopment Project Area (the "Redevelopment Project") has been adopted in compliance with all requirements of the Law; WHEREAS, the Agency has determined that, due to prevailing financial market conditions, it is in the best interests of the Agency at this time to finance redevelopment activities of the benefit of the Redevelopment Project (the "2010 Project'); WHEREAS, to provide moneys to finance the 2010 Project, the Agency has determined to issue its Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010, in the aggregate principal amount of not to exceed $45,000,000 (the "Bonds"), under the provisions of Part 1 of Division 24 of the California Health and Safety Code, commencing with section 33640 of said Code; and WHEREAS, the Authority has duly considered such transactions and wishes at this time to authorize the purchase and sale of the Bonds and to approve the form and authorize execution of a bond purchase agreement in connection therewith; TPFA Resolution No. 10-02 Page 2 NOW, THEREFORE, it is hereby ORDERED and DETERMINED, as follows: SECTION 1. Purchase and Sale of the Bonds. The Board hereby authorizes the purchase by the Authority of the Bonds from the Agency for concurrent re -sale to Stone & Youngberg LLC (the "Underwriter"), so long as the total Underwriter's discount, excluding original issue discount which does not constitute compensation to the Underwriter, does not exceed 0.5% of the principal amount of the Bonds. The Authority hereby approves the bond purchase agreement, by and among the Underwriter, the Agency and the Authority, in substantially the form on file with the Secretary (the "Bond Purchase Agreement"), together with such additions thereto and changes therein as the Chair, the Executive Director or the Treasurer shall deem necessary, desirable or appropriate, and the execution thereof by the Chair, the Executive Director or the Treasurer shall be conclusive evidence of the approval of any such additions and changes. The Chair, the Executive Director or the Treasurer is hereby authorized and directed to execute the final form of the Bond Purchase Agreement for and in the name and on behalf of the Authority. SECTION 2. Official Actions. The Chair, the Executive Director and the Treasurer of the Authority, and any and all other officers of the Authority, are hereby authorized and directed, for and in the name and on behalf of the Authority, to do any and all things and take any and all actions, including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance and sale of the Bonds as described herein. Whenever in this resolution any officer of the Authority is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer shall be absent or unavailable. SECTION 3. Effect. This Resolution shall take effect from and after the date of its passage and adoption. PASSED AND ADOPTED at a special meeting of the Tustin Public Financing Authority held on the 19th day of October, 2010. Jerry Amante Chair ATTEST: PAMELA STOKER Recording Secretary TPFA Resolution No. 10-02 Page 3 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF TUSTIN ) I, Pamela Stoker, Recording Secretary of the Tustin Public Financing Authority of the City of Tustin, California, do hereby certify that the whole number of the members of the Directors of the Tustin Public Financing Authority is five; that the above and foregoing TPFA Resolution No. 10-02 was duly passed and adopted at a special meeting held on the 19th day of October, 2010 by the following vote: DIRECTORS AYES: DIRECTORS NOES: DIRECTORS ABSTAINED: DIRECTORS ABSENT: PAMELA STOKER Recording Secretary Quint & Thimmig LLP TUSTIN COMMUNITY REDEVELOPMENT AGENCY Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 BOND PURCHASE AGREEMENT November 4, 2010 Tustin Public Financing Authority 300 Centennial Way Tustin, California 92780 Tustin Community Redevelopment Agency 300 Centennial Way Tustin, California 92780 Ladies and Gentlemen: 08/13/10 09/23/10 Stone & Youngberg LLC (the "Underwriter") offers to enter into this Bond Purchase Agreement {the "Bond Purchase Agreement") with the Tustin Public Financing Authority (the "Authority") and the Tustin Community Redevelopment Agency (the "Agency"), which will be binding upon the Authority, the Agency and the Underwriter upon the acceptance hereof by the Authority and the Agency. This offer is made subject to its acceptance by the Authority and the Agency by execution of this Bond Purchase Agreement and its delivery to the Underwriter on or before 5:00 P.M., California time, on the date hereof. Terms not otherwise defined herein shall have the same meanings as set forth in the Indenture, described below. 1. Purchase and Sale. Upon the terms and conditions and in reliance upon the representations, warranties and covenants herein, the Authority hereby agrees to purchase from the Agency for sale to the Underwriter, the Agency hereby agrees to sell to the Authority, and the Underwriter hereby agrees to purchase from the Authority for offering to the public, and the Authority hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the $ Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 {the "Bonds"), at the purchase price of $ (the "Purchase Price") (being the principal amount of the Bonds of $ , less an Underwriter's discount of $. plus/less a net original issue premium/ discount of The Purchase Price is to be paid on the Closing Date (as defined in Section 7 below). The Bonds shall be dated the Closing Date, and shall bear interest at the rates and shall mature on the dates and in the principal amounts, all as set forth in the attached Exhibit A. The Bonds are special, limited obligations of the Agency, payable from, and secured by a lien on Tax Revenues (as such term is defined in that certain Indenture of Trust, dated as of 20006.05 November 1, 2010 (the "Indenture"), by and between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), on a parity with any Parity Debt issued under and as such term is defined in the Indenture. The Bonds shall bear interest, shall be subject to mandatory and optional redemption and shall mature all as described in the Indenture. The Bonds are being issued for the purpose of (i) financing redevelopment activities within or for the benefit of the Agency's MCAS -Tustin Redevelopment Project Area, (ii) depositing an amount in the Reserve Account equal to the Reserve Requirement {as defined in the Indenture), and (iii) paying the costs of issuing the Bonds. Issuance of the Bonds is authorized by a resolution of the Agency adopted on October 19, 2010 (the "Agency Resolution"), a resolution of the City Council of the City of Tustin, adopted on October 19, 2010 (the "City Resolution") and a resolution of the Authority adopted on October 19, 2010 (the "Authority Resolution"). 2. Bona Fide Public Offering. The Underwriter agrees to make a bona fide public offering of all of the Bonds, at prices not in excess of the initial public offering yields or prices set forth on the cover page of the Official Statement. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. 3. Official Statement. The Agency shall deliver or cause to be delivered to the Underwriter promptly after acceptance of this Bond Purchase Agreement copies of the Official Statement relating to the Bonds, dated the date hereof (the "Official Statement"). The Agency authorizes the Official Statement, including the cover page and Appendices thereto and the information contained therein, to be used in connection with the sale of the Bonds and ratifies, confirms and approves the use and distribution by the Underwriter for such purpose, prior to the date hereof, of the Preliminary Official Statement dated October 20, 2010 (the "Preliminary Official Statement"). The Agency deems such Preliminary Official Statement final as of its date for purposes of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended ("Rule 15c2- 12"), except for information allowed to be omitted by Rule 15c2-12. The Agency also agrees to deliver to the Underwriter, at the Agency's sole cost and at such address as the Underwriter shall specify, as many copies of the Official Statement as the Underwriter shall reasonably request as necessary to comply with paragraph (b)(4) of Rule 15c2-12 with Rule G-32 and all other applicable rules of the Municipal Securities Rulemaking Board. The Agency agrees to deliver such copies of the Official Statement within seven (7) business days after the date hereof. Such Official Statement shall contain all information previously permitted to be omitted by Rule 15c2-12. The Underwriter agrees to give written notice to the Agency of the date after which the Underwriter shall no longer be obligated to deliver Official Statements pursuant to paragraph (b)(4) of Rule 15c2-12 which shall be no later than 25 days after the End of the Underwriting Period. As used in this Bond Purchase Agreement, the term "End of the Underwriting Period" for the Bonds shall mean the earlier of (i) the Closing Date unless the Agency shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date or (ii) the date on which the End of the Underwriting Period for the Bonds has occurred under Rule 15c2- 12; provided, however, that the Agency may treat as the End of the Underwriting Period for the Bonds the date specified as such in a notice from the Underwriter stating the date which is the End of the Underwriting Period. The Underwriter agrees to promptly file a copy of the final Official Statement, including any supplements prepared by the Agency, with a nationally recognized municipal securities information repository, and to take any and all other actions necessary to comply with applicable Securities and Exchange Commission rules and Municipal Securities Rulemaking Board rules governing the offering, sale and delivery of the Bonds to the ultimate purchasers thereof. SO 4. Representations, Warranties and Agreements of the Authority. The Authority represents and warrants to the Underwriter that, as of the Closing Date: (a) The Authority is a joint exercise of powers authority organized and existing under the laws of the State. (b) The Authority has the full right, power and authority (i) to enter into this Bond Purchase Agreement, and (ii) to carry out and consummate all other transactions on its part contemplated by this Bond Purchase Agreement, and the Authority has complied with all provisions of applicable law in all matters relating thereto. (c) The Authority has duly authorized (i) the execution, delivery and due performance by the Authority of this Bond Purchase Agreement, and (ii) the taking of any and all such action as may be required on the part of the Authority to carry out, give effect to and consummate the transactions on its part contemplated by this Bond Purchase Agreement. All consents or approvals necessary to be obtained by the Authority in connection with this Bond Purchase Agreement have been received, and the consents or approvals so received are still in full force and effect. (d) The information relating to the Authority contained in the Official Statement is true and correct in all material respects, and the Official Statement does not contain any untrue or misleading statement of a material fact relating to the Authority or omit to state any material fact relating to the Authority necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (e) Neither the execution and delivery by the Authority of this Bond Purchase Agreement nor the consummation of the transactions on the part of the Authority contemplated herein or the compliance with the provisions hereof will conflict with, or constitute on the part of the Authority a violation of, or a breach of or default under, (i) any statute, indenture, mortgage, note or other agreement or instrument to which the Authority is a party or by which it is bound, (ii) any provision of the State Constitution, or (iii) any existing law, rule, regulation, ordinance, judgment, order or decree to which the Authority (or the members of the Authority or any of its officers in their respective capacities as such) is subject. (f) Except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, which has been served on the Authority or, to the best knowledge of the Authority, threatened, which in any way questions the powers of the Authority referred to in paragraph (b) above, or the validity of any proceeding taken by the Authority in connection with the issuance of the Bonds, or wherein an unfavorable decision, ruling or finding could materially adversely affect the transactions contemplated by this Bond Purchase Agreement or the Indenture, or which, in any way, could adversely affect the validity or enforceability of the Indenture, the Bonds or this Bond Purchase Agreement or, to the knowledge of the Authority, which in any way questions the status of the Bonds under federal or state tax laws or regulations. (g) Any certificate signed by any official of the Authority and delivered to the Underwriter in connection with the offer or sale of the Bonds shall be deemed a representation and warranty by the Authority to the Underwriter as to the truth of the statements therein contained. -3- (h) The Authority will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter and at the expense of the Underwriter as the Underwriter may reasonably request in order (i) 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 as the Underwriter may designate and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the Authority will not be required to execute a special or general consent to service of process or qualify as a foreign corporation in connection with any such qualification in any jurisdiction. (i) All authorizations, approvals, licenses, permits, consents, elections, and orders of or filings with any governmental authority, legislative body, board, Authority or commission having jurisdiction in the matters which are required by the Closing Date for the due authorization of, which would constitute a condition precedent to or the absence of which would adversely affect the due performance by the Authority of, its obligations in connection with this Bond Purchase Agreement have been duly obtained or made and are in full force and effect. 5. Representations, Warranties and Agreements of the Agency. The Agency represents and warrants to the Underwriter that, as of the Closing Date: (a) The Agency is a public body, corporate and politic, organized and existing under the laws of the State, including the Redevelopment Law and is authorized, among other things, (i) to issue bonds, such as the Bonds, and (ii) to secure the Bonds in the manner contemplated by the Indenture. (b) The Agency has the full right, power and authority (i) to enter into the Indenture, (ii) to enter into this Bond Purchase Agreement, (iii) to issue, sell and deliver the Bonds to the Authority as provided herein, and (iv) to carry out and consummate all other transactions on its part contemplated by each of the aforesaid documents, and the Agency has complied with all provisions of applicable law in all matters relating to such transactions. (c) The Agency has duly authorized (i) the execution and delivery of the Bonds and the execution, delivery and due performance by the Agency of this Bond Purchase Agreement and the Indenture, (ii) the distribution and use of the "deemed final" Preliminary Official Statement and the execution, delivery and distribution of the final Official Statement, and (iii) the taking of any and all such action as may be required on the part of the Agency to carry out, give effect to and consummate the transactions on its part contemplated by such instruments. All consents or approvals necessary to be obtained by the Agency in connection with the foregoing have been received, and the consents or approvals so received are still in full force and effect. (d) The information contained in the Official Statement (excluding therefrom information relating to The Depository Trust Company and its book -entry system and any information relating to the municipal bond insurer, if any) is true and correct in all material respects, and the Official Statement does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. -4- (e) Neither the execution by the Agency of the Indenture and execution and delivery by the Agency of this Bond Purchase Agreement and of the Bonds nor the consummation of the transactions on the part of the Agency contemplated herein or therein or the compliance with the provisions hereof or thereof will conflict with, or constitute on the part of the Agency a violation of, or a breach of or default under, (i) any statute, indenture, mortgage, note or other agreement or instrument to which the Agency is a party or by which it is bound, (ii) any provision of the State Constitution, or (iii) any existing law, rule, regulation, ordinance, judgment, order or decree to which the Agency (or the members of the Agency or any of its officers in their respective capacities as such) is subject. (f) The Agency has never been in default at any time, as to principal of or interest on any obligation which it has issued except as otherwise specifically disclosed in the Official Statement; and the Agency has not entered into any contract or arrangement of any kind which might give rise to any lien or encumbrance on the Tax Revenues pledged to the payment of the Bonds except as is specifically disclosed in the Official Statement. (g) Except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, which has been served on the Agency or, to the best knowledge of the Agency, threatened, which in any way questions the powers of the Agency referred to in paragraph (b) above, or the validity of any proceeding taken by the Agency in connection with the issuance of the Bonds, or wherein an unfavorable decision, ruling or finding could materially adversely affect the transactions contemplated by this Bond Purchase Agreement or the Indenture, or which, in any way, could adversely affect the validity or enforceability of the Indenture, the Bonds, this Bond Purchase Agreement or the Tax Revenues or, to the knowledge of the Agency, which in any way questions the status of the Bonds under federal or state tax laws or regulations. (h) Any certificate signed by any official of the Agency and delivered to the Underwriter in connection with the offer or sale of the Bonds shall be deemed a representation and warranty by the Agency to the Underwriter as to the truth of the statements therein contained. (i) The Agency has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. (j) The Agency will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter and at the expense of the Underwriter as the Underwriter may reasonably request in order (i) 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 as the Underwriter may designate and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds, provided; however, that the Agency will not be required to execute a special or general consent to service of process or qualify as a foreign corporation in connection with any such qualification in any jurisdiction. (k) All authorizations, approvals, licenses, permits, consents, elections, and orders of or filings with any governmental authority, legislative body, board, agency or commission having jurisdiction in the matters which are required by the Closing Date -5- for the due authorization of, which would constitute a condition precedent to or the absence of which would adversely affect the due performance by the Agency of, its obligations in connection with the Indenture have been duly obtained or made and are in full force and effect. (1) Between the date of this Bond Purchase Agreement and the Closing Date, the Agency will not offer or issue any bonds, notes or other obligations for borrowed money not previously disclosed to the Underwriter. (m) The issuance and sale of the Bonds is not subject to any transfer or other documentary stamp taxes of the State or any political subdivision thereof. (n) The Agency will apply the proceeds of the Bonds in accordance with the Indenture. (o) As of the time of acceptance hereof and as of the Closing Date, except as otherwise disclosed in the Official Statement, the Agency has complied with the filing requirements of Sections 33080 to 33080.6 and with Sections 33334.2, 33334.3 and 33334.6 of the Redevelopment Law. (p) The Agency has never failed to comply in all material respects with any undertaking of the Agency pursuant to Rule 15c2-12. 6. Covenants of the Agency. The Agency covenants with the Underwriter as of the Closing Date as follows: (a) The Agency covenants and agrees that it will execute a continuing disclosure certificate, constituting an undertaking to provide ongoing disclosure about the Agency, for the benefit of the owners of the Bonds as required by Section (b)(5)(i) of Rule 15c2-12, substantially in the form attached to the Preliminary Official Statement (the "Disclosure Certificate"). (b) The Agency agrees to cooperate with the Underwriter in the preparation of any supplement or amendment to the Official Statement deemed necessary by the Underwriter to comply with the Rule, any applicable rule of the Municipal Securities Rulemaking Board and any applicable federal securities laws. (c) If between the date hereof and the date which is 25 days after the End of the Underwriting Period for the Bonds, an event occurs, or facts or conditions become known to the Agency which, in the reasonable opinion of the Underwriter or the City Attorney, as counsel to the Agency, might or would cause the information contained in the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein, in the light of the circumstances under which it was made, not misleading in any material respect, the Agency will notify the Underwriter, and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Agency will forthwith prepare and furnish to the Underwriter (at the expense of the Agency) a reasonable number of copies of an amendment of or supplement to the Official Statement (in the form and substance satisfactory to the Underwriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to prospective purchasers, not misleading in any material respect -6- with respect to the information of the Agency. If such notification shall be subsequent to the Closing Date, the Agency shall forthwith provide to the Underwriter such legal opinions, certificates, instruments and other documents as the Underwriter may reasonably deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. For the purposes of this subsection, between the date hereof and the date which is 25 days after the End of the Underwriting Period for the Bonds, the Agency will furnish such information with respect to itself as the Underwriter may from time to time reasonably request. (d) The Agency will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Indenture. 7. Closing. On November 18, 2010, or at such other date and times as shall have been mutually agreed upon by the Agency, the Authority and the Underwriter (the "Closing Date"), the Agency will deliver or cause to be delivered the Bonds to the Authority, and the Authority shall deliver or cause to be delivered the Bonds to the Underwriter, and the Agency shall deliver or cause to be delivered to the Underwriter the certificates, opinions and documents hereinafter mentioned, each of which shall be dated as of the Closing Date. The activities relating to the execution and delivery of the Bonds, opinions and other instruments as described in Section 8 of this Bond Purchase Agreement shall occur on the Closing Date. The delivery of the certificates, opinions and documents as described herein shall be made at the offices Quint & Thimmig LLP, in San Francisco, California ('Bond Counsel"), or at such other place as shall have been mutually agreed upon by the Agency, the Authority and the Underwriter. Such delivery is herein called the "Closing." The Bonds will be prepared and physically delivered to the Trustee on the Closing Date in the form of a separate single fully registered bond for each of the maturities of the Bonds. The Bonds shall be registered in the name of the Cede & Co., as registered owner and nominee for The Depository Trust Company ("DTC"), New York, New York. The Bonds will be authenticated by the Trustee in accordance with the terms and provisions of the Indenture and shall be delivered to DTC prior to the Closing Date as required by DTC to assure delivery of the Bonds on the Closing Date. It is anticipated that CUSIP identification numbers will be printed on the Bonds, but neither the failure to print such number on any Bonds nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriter to accept delivery of and pay for the Bonds in accordance with the terms of this Bond Purchase Agreement. At or before 10:00 a.m., San Francisco Time, on the Closing Date, the Agency will deliver, or cause to be delivered, the Bonds to DTC, in definitive form duly executed and authenticated by the Trustee, and the Underwriter will pay the Purchase Price of the Bonds by delivering to the Trustee, for the account of the Agency a wire transfer in federal funds of the Purchase Price payable to the order of the Trustee. 8. Closing Conditions. The obligations of the Underwriter hereunder shall be subject to the performance by the Agency of its obligations hereunder at or prior to the Closing Date and are also subject to the following conditions: (a) the representations, warranties and covenants of the Agency and the Authority contained herein shall be true and correct in all material respects as of the Closing Date; (b) as of the Closing Date, there shall have been no material adverse change in the financial condition of the Agency; -7- (c) as of the Closing Date, all official action of the Agency relating to this Bond Purchase Agreement, the Continuing Disclosure Certificate and the Indenture shall be in full force and effect; (d) as of the Closing Date, the Underwriter shall receive the following certificates, opinions and documents, in each case satisfactory in form and substance to the Underwriter: (i) a copy of the Indenture, as duly executed and delivered by the Agency and the Trustee; (ii) a copy of the Disclosure Certificate, as duly executed and delivered by the Agency; (iii) an opinion of Bond Counsel, dated the Closing Date and addressed to the Underwriter, in the form attached as Appendix D to the Official Statement; (iv) a certificate, dated the Closing Date, of the Agency executed by the Chairman or Executive Director of the Agency (or other duly appointed officer of the Agency authorized by the Agency by resolution of the Agency) to the effect that (A) there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body which has been served on the Agency or, to the knowledge of the Agency, threatened against or affecting the Agency to restrain or enjoin the Agency's participation in, or in any way contesting the existence of the Agency or the powers of the Agency with respect to, the transactions contemplated by this Bond Purchase Agreement and the Indenture, and consummation of such transactions; and (B) the representations and warranties of the Agency contained in this Bond Purchase Agreement are true and correct in all material respects on and as of the Closing Date as if made on the Closing Date, and the Agency has complied with all agreements and covenants and satisfied all conditions to be satisfied at or prior to the Closing Date as contemplated by the Indenture and this Bond Purchase Agreement; (v) an opinion of the City Attorney, counsel to the Agency, dated the Closing Date and addressed to the Agency and the Underwriter to the effect that: (A) the Agency is a public body, corporate and politic, organized and existing under the laws of the State, including the Redevelopment Law; (B) the Agency Resolution approving and authorizing the execution and delivery of the Bonds, the Indenture, this Bond Purchase Agreement, the Continuing Disclosure Certificate and the Official Statement was duly adopted at a meeting of the Agency which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and has not been amended from the date of its adoption; (C) the Indenture, the Continuing Disclosure Certificate and this Bond Purchase Agreement are valid and binding agreements of the Agency, enforceable against the Agency in accordance with their respective terms subject to the laws relating to bankruptcy, insolvency, 10 reorganization of creditors' rights generally and to the application of equitable principles; (D) to the best of such counsel's actual knowledge after due inquiry, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body pending with respect to which the Agency has been served with process or threatened in writing against the Agency to restrain or enjoin the Agency's participation in, or in any way contesting the existence of the Agency or the powers of the Agency with respect to, the transactions on the part of the Agency contemplated by the Official Statement, this Bond Purchase Agreement and the Indenture and the consummation of such transactions; (E) to the best of such counsel's actual knowledge after due inquiry, there is no action, suit, proceeding or investigation pending with respect to which the Agency has been served with process, or threatened in writing, which if adversely determined, could materially adversely affect (a) the financial position of the Agency; (b) the ability of the Agency to perform its obligations under the Indenture; or (c) the allocation and payment of the Tax Revenues to the Agency and the other security for the Bonds provided by the Indenture; and (F) to the best of such counsel's actual knowledge after due inquiry, the execution and delivery by the Agency of the Bonds, the Indenture, the Continuing Disclosure Certificate, this Bond Purchase Agreement and compliance by the Agency with the provisions thereof, under the circumstances contemplated thereby, do not and will not conflict with or constitute on the part of the Agency a breach of or default under any agreement or other instrument to which the Agency is a party or by which it is bound (other than the Indenture) or any court order or consent decree to which the Agency is subject; (vi) an opinion of counsel to the Trustee, dated the Closing Date and addressed to the Agency and the Underwriter, to the effect that: (A) The Trustee is a national banking association organized and existing under the laws of the United States of America, having full power to enter into, accept and administer the trust created under the Indenture; (B) The Indenture has been duly authorized, executed and delivered by the Trustee and the Indenture constitutes a legal, valid and binding obligation of the Trustee enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought; and (C) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Indenture or the consummation of the transactions contemplated by the Indenture; -9- (vii) a certificate, dated the Closing Date, of the Trustee, signed by a duly authorized officer of the Trustee, to the effect that (A) the Trustee is duly organized and validly existing as a corporation, with full corporate power to undertake the trust of the Indenture; (B) the Trustee has duly authorized, executed and delivered the Indenture and by all proper corporate action has authorized the acceptance of the trust of the Indenture; and (C) to the best of such officer's knowledge, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body which has been served on the Trustee (either in state or federal courts), or to the knowledge of the Trustee which would restrain or enjoin the execution or delivery of the Indenture, or which would affect the validity or enforceability of the Indenture, or the Trustee's participation in, or in any way contesting the powers or the authority of the Trustee with respect to, the transactions contemplated by the Indenture, or any other agreement, document or certificate related to such transactions; (viii) a supplemental opinion of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that: (A) this Bond Purchase Agreement has been duly authorized, executed and delivered by the Agency, and assuming the valid execution and delivery by the Underwriter, is valid and binding upon the Agency, subject to the laws relating to bankruptcy, insolvency, reorganization of creditors' rights generally and to the application of equitable principles; (B) the Bonds are exempt from registration pursuant to Section 3(a)(2) of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended; and (C) the statements contained in the Official Statement under the captions "THE INTRODUCTION," "THE BONDS," "SECURITY FOR THE BONDS" and "TAX MATTERS" and "APPENDIX C" thereto are accurate insofar as such statements purport to expressly summarize certain provisions of the Bonds and the Indenture; (ix) an opinion of Quint & Thimmig LLP, as disclosure counsel to the Agency, dated the Closing Date and addressed to the Agency and the Underwriter stating that based upon its participation in the preparation of the Official Statement and without having undertaken to determine independently the fairness, accuracy or completeness of the statements contained in the Official Statement, such counsel has no reason to believe that, as of the date of the Closing, the Official Statement (excluding therefrom the reports, financial and statistical data and forecasts therein, the information included in the Appendices thereto, information relating to The Depository Trust Company and its book - entry system as to which no opinion need be expressed) 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; (x) an Arbitrage Certificate in the form satisfactory to Bond Counsel; -10- (xi) the final Official Statement executed by an authorized officer of the Agency; (xii) certified copies of the Agency Resolution, the City Resolution and the Authority Resolution; (xiii) specimen Bonds; (xiv) evidence satisfactory to the Underwriter that the Bonds have received the rating of " " by Standard & Poor's Ratings Services and that such rating has not been revoked or downgraded; (xv) a certificate of the Authority, dated the date of the Closing, signed on behalf of the Authority by the Executive Director or other duly authorized officer of the Authority to the effect that (A) this Bond Purchase Agreement has been duly authorized, executed and delivered by the Authority, and is duly enforceable in accordance with its terms, and (B) the representations and warranties of the Authority contained in this Bond Purchase Agreement are true and correct in all material respects on and as of the Closing Date as if made on the Closing Date, and the Authority has complied with all agreements and covenants and satisfied all conditions to be satisfied at or prior to the Closing Date as contemplated by this Bond Purchase Agreement; (xvi) a certificate of an officer of David Taussig & Associates, dated the date of the Closing, addressed to the Agency and the Underwriter, in the form attached hereto as Exhibit B; and (xvii) such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably deem necessary to evidence the truth and accuracy as of the time of the Closing Date of the representations and warranties of the Agency contained in this Bond Purchase Agreement and the due performance or satisfaction by the Agency at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the Agency pursuant to this Bond Purchase Agreement. 9. Termination. The Underwriter shall have the right to cancel its obligations to purchase the Bonds if between the date hereof and the Closing Date: (a) a decision with respect to legislation shall be reached by a committee of the House of Representatives or the Senate of the Congress of the United States, or legislation shall be favorably reported by such a committee or be introduced, by amendment or otherwise, in or be passed by the House of Representatives or the Senate, or recommended to the Congress of the United States for passage by the President of the United States, or be enacted or a decision by a federal court of the United States or the United States Tax Court shall have been rendered, or a ruling, release, order, regulation or offering circular by or on behalf of the United States Treasury Department, the Internal Revenue Service or other governmental agency shall have been made or proposed to be made having the purpose or effect, or any other action or event shall have occurred which has the purpose or effect, directly or indirectly, of adversely affecting the federal income tax consequences of owning the Bonds, including causing interest on the Bonds to be included in gross income for purposes of federal income taxation, or imposing federal income taxation upon revenues other income of the general character to be derived by the Agency or by any similar body under the Second Supplemental Indenture or similar documents or upon interest received on obligations -11- of the general character of the Bonds which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of or market for the Bonds; or (b) legislation shall have been enacted, or considered for enactment with an effective date prior to the Closing Date, or a decision by a court of the United States shall have been rendered, the effect of which is that of the Bonds, including any underlying obligations, or the Indenture, as the case may be, is not exempt from the registration, qualification or other requirements of the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (c) a stop order, ruling, regulation or offering circular by the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall have been issued or made or any other event occurs, the effect of which is that the issuance, offering or sale of the Bonds, including any underlying obligations, or the execution of the Indenture, as contemplated hereby or by the Official Statement, is or would be in violation of any provisions of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (d) any event shall have occurred or any information shall have become known to the Underwriter which causes the Underwriter to reasonably believe that the Official Statement as then amended or supplemented includes an untrue statement of a material fact, or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; or (e) there shall have occurred any outbreak of hostilities or any national or international calamity or crisis, including a financial crisis, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would materially adversely affect the market for or market price of the Bonds; or (f) there shall be in force a general suspension of trading on the New York Stock Exchange, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would materially adversely affect the market for or market price of the Bonds; or (g) a general banking moratorium shall have been declared by federal, New York or State authorities; or (h) any proceeding shall be pending or threatened by the Securities and Exchange Commission against the Agency; or (i) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; or (j) the New York Stock Exchange or other national securities exchange, or any governmental or regulatory authority, shall impose, as to the Bonds or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of the Underwriter; or IVA (k) the rating on the Bonds or on any other bonds, notes or other obligations of the Agency, or the rating of any municipal bond insurer issuing a municipal bond insurance policy for the Bonds, shall have been downgraded, suspended or withdrawn by a national rating service which, in the opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (1) any change, which in the reasonable opinion of the Underwriter, materially adversely affects the marketability of the Bonds or, the financial condition of the Agency. 10. Contingency of Obligations. The obligations of the Agency hereunder are subject to the performance by the Underwriter of its obligations hereunder. 11. Duration of Representations, Warranties, Agreements and Covenants. All representations, warranties, agreements and covenants of the Agency shall remain operative and in full force and effect, regardless of any investigations made by or on behalf of the Underwriter or the Agency and shall survive the Closing Date. 12. Expenses. The Agency will pay or cause to be paid all reasonable expenses incident to the performance of its obligations and the obligations of the Authority under this Bond Purchase Agreement, including, but not limited to, mailing or delivery of the Bonds, costs of printing the Bonds, printing, distribution and delivery of the Preliminary Official Statement, the Official Statement and any amendment or supplement thereto, the fees and disbursements of Bond Counsel, Disclosure Counsel, and counsel to the Agency, the fees and expenses of the Agency's accountants and fiscal consultants, fees of the Agency's financial advisor, any fees charged by investment rating agencies for the rating of the Bonds and fees of the Trustee. In the event this Bond Purchase Agreement shall terminate because of the default of the Underwriter, the Agency will, nevertheless, pay, or cause to be paid, all of the expenses specified above. The Underwriter shall pay the fees and expenses of any counsel retained by it, all advertising expenses incurred in connection with the public offering of the Bonds, CDIAC fees, CUSIP fees and all other expenses incurred by it in connection with the public offering and distribution of the Bonds, fees (including out-of-pocket expenses and related regulatory expenses). 13. Notices. Any notice or other communication to be given to the Agency under this Bond Purchase Agreement may be given by delivering the same in writing to Mr. William A. Huston, Executive Director, Tustin Community Redevelopment Agency, 300 Centennial Way, Tustin, CA 92780, and any notice or other communication to be given to the Underwriter under this Bond Purchase Agreement may be given by delivering the same in writing to Ms. Sara Oberlies Brown, Managing Director, Stone & Youngberg LLC, 515 South Figueroa Street, Suite 1800, Los Angeles, CA 90071. 14. Parties in Interest. This Bond Purchase Agreement is made solely for the benefit of the Agency and the Underwriter (including the successors or assigns of the Underwriter) and no other person, including any purchaser of the Bonds, shall acquire or have any right hereunder or by virtue hereof. 15. Governing Law. This Bond Purchase Agreement shall be governed by and construed in accordance with the laws of the State. 16. Headings. The headings of the paragraphs of this Bond Purchase Agreement are inserted for convenience of reference only and shall not be deemed to be a part hereof. -13- 17. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. 18. Effectiveness. This Bond Purchase Agreement shall become effective upon acceptance hereof by the Agency. -14- 19. Counterparts. This Bond Purchase Agreement may be executed in several counterparts which together shall constitute one and the same instrument. TUSTIN COMMUNITY REDEVELOPMENT AGENCY David C. Biggs Executive Director Accepted and agreed to as of the date first above written: TUSTIN PUBLIC FINANCING AUTHORITY By David C. Biggs Executive Director TUSTIN COMMUNITY REDEVELOPMENT AGENCY M William A. Huston Executive Director -15- Very truly yours, STONE & YOUNGBERG LLC By Sara Oberlies Brown Managing Director EXHIBIT A TO THE BOND PURCHASE AGREEMENT TUSTIN COMMUNITY REDEVELOPMENT AGENCY Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 MATURITY SCHEDULE Maturity Date Principal Interest (September 1) Amount Rate REDEMPTION PROVISIONS Reoffering Yield Price Optional Redemption of Bonds. The Bonds maturing on or before September 1, , are not subject to optional redemption prior to maturity. The Bonds maturing on or after September 1, - are subject to redemption, at the option of the Agency on any date on or after September 1, , as a whole or in part, from any available source of funds, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium. Sinking Account Redemption. The Bonds maturing on September 1, (the "_ Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on September 1 in each year thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the _ Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Exhibit A Page 1 Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity. The Bonds maturing on September 1, (the " Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on September 1 in each year thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity. Exhibit A Page 2 EXHIBIT B CERTIFICATE OF FISCAL CONSULTANT The undersigned, on behalf of David Taussig & Associates, as fiscal consultant (the "Fiscal Consultant") to the Tustin Community. Redevelopment Agency (the "Agency"), in connection with the issuance by the Agency of its $ aggregate principal amount of Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 (the "Bonds"), hereby confirms, as of the date hereof, the information set forth in its Report, dated 2010 (the "Report"), entitled "Projected Taxable Values and Anticipated Tax Increment Revenues," prepared in connection with the sale of the Bonds, and certifies the following that: 1. the undersigned is an authorized officer of the Fiscal Consultant and, as such, is familiar with the facts certified and is authorized and qualified to execute this certificate. 2. in the professional experience and opinion of the Fiscal Consultant, the assumptions made in the Report are reasonable. 3. the Fiscal Consultant is not aware of any event or act which has occurred since the date of the Report which, in the Fiscal Consultant's opinion, would materially and adversely affect the conclusions expressed therein. 4. the undersigned hereby consents to the references to the Fiscal Consultant and to the information from the Report reproduced in the Preliminary Official Statement and in the Official Statement for the Bonds. 5. the Fiscal Consultant hereby certifies that, as of the date of the Report and the date hereof, the information relating to the Projected Taxable Values and Anticipated Tax Increment Revenues contained in the Official Statement under the captions "THE REDEVELOPMENT PROJECT—Redevelopment Plan Limitations," "THE REDEVELOPMENT PROJECT—Assessed Valuation," "THE REDEVELOPMENT PROJECT—Appeals of Assessed Values," and "THE REDEVELOPMENT PROJECT—Tax Revenue Projections," insofar as such statements purport to summarize portions of the Report, are accurate in all material respects and do not omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading, and no events or occurrences have been ascertained by the Fiscal Consultant or have come to its attention that would substantially adversely change the opinions set forth in the Report. We note that in making the foregoing statements that the Fiscal Consultant has undertaken no additional research with respect to the Agency or the Redevelopment Project (as referenced in the Official Statement). The Agency and Stone & Youngberg LLC, as the Underwriter, are entitled to rely on this Certificate. Dated: November 18, 2010 DAVID TAUSSIG & ASSOCIATES By Exhibit B Quint & Thimmig LLP 08/13/10 09/23/10 INDENTURE OF TRUST Dated as of November 1, 2010 by and between the TUSTIN COMMUNITY REDEVELOPMENT AGENCY and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee Relating to Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 Section 1.01. Section 1.02. Section 1.03. Section 2.01. Section 2.02. Section 2.03. Section 2.04. Section 2.05. Section 2.06. Section 2.07. Section 2.08. Section 2.09. Section 2.10. Section 2.11. Section 2.12. Section 3.01. Section 3.02. Section 3.03. Section 3.04. Section 3.05. Section 3.06. Section 3.07. TABLE OF CONTENTS Pale ARTICLE I DETERMINATIONS; DEFINITIONS Findingsand Determinations........................................................................................................2 Definitions........................................................................................................................................2 Rulesof Construction.....................................................................................................................9 ARTICLE II AUTHORIZATION AND TERMS Authorizationof Bonds................................................................................................................10 Punctual Payment.........................................................................................................................23 Termsof Bonds..............................................................................................................................10 Section 5.02. Redemptionof Bonds...................................................................................................................1l Formof Bonds................................................................................................................................13 Extension of Payment...................................................................................................................23 Executionof Bonds.......................................................................................................................13 Section5.04. Transferof Bonds..........................................................................................................................14 Exchangeof Bonds........................................................................................................................14 Books and Accounts; Financial Statements...............................................................................23 Registrationof Bonds....................................................................................................................14 Section 5.06. TemporaryBonds..........................................................................................................................14 Bonds Mutilated, Lost, Destroyed or Stolen.............................................................................15 Payments of Taxes and Other Charges......................................................................................24 CUSIPNumbers............................................................................................................................15 Section 5.08. Useof Depository..........................................................................................................................15 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS; PARITY DEBT Issuanceof Bonds..........................................................................................................................17 Punctual Payment.........................................................................................................................23 Application of Proceeds of Sale...................................................................................................17 Section 5.02. RedevelopmentFund...................................................................................................................17 Costs of Issuance Fund.................................................................................................................17 Extension of Payment...................................................................................................................23 Issuanceof Parity Debt.................................................................................................................18 Section5.04. Issuance of Subordinate Debt......................................................................................................19 Validityof Bonds...........................................................................................................................19 Books and Accounts; Financial Statements...............................................................................23 ARTICLE IV SECURITY OF BONDS; FLOW OF FUNDS Section 4.01. Security of Bonds; Equal Security ...............................................................................................20 Section 4.02. Special Fund; Deposit of Tax Revenues.....................................................................................20 Section 4.03. Deposit of Amounts by Trustee..................................................................................................20 ARTICLE V OTHER COVENANTS OF THE AGENCY Section5.01. Punctual Payment.........................................................................................................................23 Section 5.02. Limitation on Additional Indebtedness; Against Encumbrances..........................................23 Section 5.03. Extension of Payment...................................................................................................................23 Section5.04. Payment of Claims........................................................................................................................23 Section 5.05. Books and Accounts; Financial Statements...............................................................................23 Section 5.06. Protection of Security and Rights of Owners............................................................................23 Section 5.07. Payments of Taxes and Other Charges......................................................................................24 Section 5.08. Taxation of Leased Property ........................................................................................................24 Section 5.09. Disposition of Property ................................................................................................................24 Section 5.10. Maintenance of Tax Revenues; Compliance with Plan Limitations......................................24 Section 5.11. Management and Operations of Properties..............................................................................25 Section 5.12. Continuing Disclosure..................................................................................................................25 Section 5.13. Further Assurances.......................................................................................................................25 Section 5.14. Annual Review of Housing Tax Increment Revenues.............................................................25 Section5.15. Tax Covenants...............................................................................................................................26 Section 5.16. Reservation of Funds for SERAF Payment................................................................................26 ARTICLE VI THE TRUSTEE Section 6.01. Duties, Immunities and Liabilities of Trustee...........................................................................27 Section 8.02. Section 6.02. Merger or Consolidation..............................................................................................................28 Limitation on Owner's Right to Sue...........................................................................................37 Section6.03. Liability of Trustee........................................................................................................................28 Non-Waiver....................................................................................................................................37 Section 6.04. Right to Rely on Documents and Opinions...............................................................................30 Actions by Trustee as Attorney-in-Fact Section 6.05. Preservation and Inspection of Documents..............................................................................30 Remedies Not Exclusive...............................................................................................................38 Section 6.06. Compensation and Indemnification...........................................................................................30 Parties Interested Herein..............................................................................................................38 Section 6.07. Deposit and Investment of Moneys in Funds...........................................................................31 Section 6.08. Accounting Records and Financial Statements.........................................................................32 Section 6.09. Appointment of Co -Trustee or Agent........................................................................................32 Section 6.10. Other Transactions with Agency................................................................................................33 ARTICLE VII MODIFICATION OR AMENDMENT OF THIS INDENTURE Section7.01. Amendment...................................................................................................................................34 Section 7.02. Effect of Supplemental Indenture...............................................................................................34 Section 7.03. Endorsement or Replacement of Bonds After Amendment...................................................34 Section 7.04. Amendment by Mutual Consent................................................................................................35 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS Section8.01. Events of Default...........................................................................................................................36 Section 8.02. Application of Funds Upon Default...........................................................................................36 Section 8.03. Limitation on Owner's Right to Sue...........................................................................................37 Section 9.03. Section8.04. Non-Waiver....................................................................................................................................37 Section 9.04. Section 8.05. Actions by Trustee as Attorney-in-Fact .....................................................................................38 Section 8.06. Remedies Not Exclusive...............................................................................................................38 Section 9.06. Section 8.07. Parties Interested Herein..............................................................................................................38 Section 9.07. ARTICLE IX MISCELLANEOUS Section 9.01. Benefits Limited to Parties...........................................................................................................39 Section 9.02. Successor is Deemed Included in All References to Predecessor..........................................39 Section 9.03. Discharge of Indenture.................................................................................................................39 Section 9.04. Execution of Documents and Proof of Ownership by Owners..............................................40 Section9.05. Disqualified Bonds........................................................................................................................40 Section 9.06. Waiver of Personal Liability ........................................................................................................40 Section 9.07. Destruction of Canceled Bonds...................................................................................................40 Section9.08. Notices............................................................................................................................................40 Section9.09. Partial Invalidity ............................................................................................................................41 Section9.10. Unclaimed Moneys.......................................................................................................................41 Section 9.11. Execution in Counterparts...........................................................................................................41 Section9.12. Governing Law..............................................................................................................................41 EXHIBIT A: FORM OF BOND INDENTURE OF TRUST THIS INDENTURE OF TRUST (this "Indenture") is dated as of November 1, 2010, by and between the TUSTIN COMMUNITY REDEVELOPMENT AGENCY, a public body corporate and politic, duly organized and existing under the laws of the State of California (the "Agency"), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"); WITNESSETH: WHEREAS, the Agency is a public body, corporate and politic, duly established and authorized to transact business and exercise powers under and pursuant to the provisions of the Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the California Health and Safety Code (the "Law"), including the power to issue bonds for any of its corporate purposes; WHEREAS, a redevelopment plan for the MCAS Tustin Redevelopment Project (the "Redevelopment Project") has been adopted in compliance with all requirements of the Law; WHEREAS, the Agency has determined that, due to prevailing financial market conditions, it is in the best interests of the Agency at this time to finance redevelopment activities of the benefit of the Redevelopment Project (the "2010 Project"); WHEREAS, to provide moneys to finance the 2010 Project, the Agency has determined to issue its Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010, in the aggregate principal amount of not to exceed $ (the 'Bonds"), under the provisions of Part 1 of Division 24 of the California Health and Safety Code, commencing with section 33640 of said Code (the 'Bond Law"); and WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof and interest and redemption premium (if any) thereon, the Agency and the Trustee have duly authorized the execution and delivery of this Indenture; and WHEREAS, all acts and proceedings required by law necessary to make the Bonds when executed by the Agency, and authenticated and delivered by the Trustee, the valid, binding and legal special obligations of the Agency, and to constitute this Indenture a legal, valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done or taken; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of and the interest and redemption premium (if any) on all the Bonds issued and Outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable considerations, the receipt of which is hereby acknowledged, the Agency and the Trustee do hereby covenant and agree with one another, for the benefit of the respective Owners from time to time of the Bonds, as follows: ARTICLE I DETERMINATIONS; DEFINITIONS Section 1.01. Findings and Determinations. The Agency has reviewed all proceedings heretofore taken and has found, as a result of such review, and hereby finds and determines that all things, conditions and acts required by law to exist, happen or be performed precedent to and in connection with the issuance of the Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the Agency is now duly empowered, pursuant to each and every requirement of law, to issue the Bonds in the manner and form provided in this Indenture. Section 1.02. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.02 shall, for all purposes of this Indenture, of any Supplemental Indenture, and of any certificate, opinion or other document herein mentioned, have the meanings herein specified. "Additional Revenues" means, as of the date of calculation, the amount of Tax Revenues which, as shown in the Report of a Redevelopment Consultant, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Redevelopment Project due to the completion of construction which is not then reflected on the tax rolls, or due to transfer of ownership or any other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition, the term "increases in the assessed valuation" means the amount by which the assessed valuation of taxable property in the Redevelopment Project is estimated to increase above the assessed valuation of taxable property in the Redevelopment Project (as evidenced in the written records of the County) as of the date on which such calculation is made. "Agency" means the Tustin Community Redevelopment Agency, a public body corporate and politic duly organized and existing under the Law. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds and any Parity Debt in such Bond Year, assuming that the Outstanding Bonds and Parity Debt are retired as scheduled, and (b) the principal or sinking fund amount of the Outstanding Bonds and Parity Debt payable by their terms in such Bond Year. "Bonds" means the $ Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010. "Bond Counsel" means (a) Quint & Thimmig LLP, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Agency of nationally -recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code. "Bond Year" means any twelve-month period beginning on September 2 in any year and ending on the next succeeding September 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date, and end on September 1, 2011. "Business Day" means a day of the year, other than a Saturday or Sunday, on which banks in New York, New York, Los Angeles and San Francisco, California, are not required or permitted to be closed and on which the New York Stock Exchange is not closed. -2- "Closing Date" means the date on which the Bonds are delivered by the Agency to the original purchaser thereof. "Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed by the Agency dated as of the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the Agency relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, operating expenses, rating agency fees, filing and recording fees, initial fees and charges and first annual administrative fee of the Trustee and fees and expenses of its counsel, fees, charges and disbursements of attorneys, financial advisors, fiscal consultants, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds, the premium for the Municipal Bond Insurance Policy and any other cost, charge or fee in connection with the original issuance of the Bonds. "Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.04. "County" means Orange County, a county duly organized and existing under the laws of the State. "Debt Service Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.03. "Defeasance Obligations" means (a) cash, (b) direct non -callable obligations of the United States of America, (c) securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, (d) Refcorp interest strips, (e) CATS, TIGRS, STRPS, and (f) defeased municipal bonds rated AAA by S&P or Aaa by Moody's (or any combination of the foregoing). "Event of Default" means any of the events described in Section 8.01. "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury Security -State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California, but only if at all times during which the investment is held, its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. "Fiscal Year" means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other twelve month -3- period selected and designated by the Agency to the Trustee in writing as its official fiscal year period. "Indenture" means this Indenture of Trust by and between the Agency and the Trustee, as originally entered into or as it may be amended or supplemented by any Supplemental Indenture entered into pursuant to the provisions hereof. "Independent Accountant" means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by the Agency, and who, or each of whom: (a) is in fact independent and not under domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. "Independent Financial Consultant" means any financial consultant or firm of such consultants appointed by the Agency, and who, or each of whom: (a) is in fact independent and not under domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency, other than as original purchaser of the Bonds or any Parity Debt; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. "Independent Redevelopment Consultant" means any consultant or firm of such consultants appointed by the Agency, and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects; (b) is in fact independent and not under domination of the Agency; (c) does not have any substantial interest, direct or indirect, with the Agency; and (d) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. "Information Services" means the Electronic Municipal Market Access System (referred to as "EMMA"), a facility of the Municipal Securities Rulemaking Board, (at http://emma.msrb.org); provided, however, in accordance with then current guidelines of the Securities and Exchange Commission, shall mean such other organizations providing information with respect to the Bonds shall mean such other organizations providing information with respect to the redemption of bonds as the Agency may designate in a Written Certificate of the Agency delivered to the Trustee. "Interest Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(a). "Interest Payment Date" means March 1 and September 1 in each year, commencing March 1, 2011, so long as any of the Bonds remain Outstanding hereunder. "Law" means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the California Health and Safety Code, and the acts amendatory thereof and supplemental thereto. "Low and Moderate Income Housing Fund" means the fund of the Agency established by the Agency pursuant to section 33334.3 of the Law. "Maximum Annual Debt Service" means, as of any date of calculation, the largest Annual Debt Service for the current or any future Bond Year, including Debt Service on existing or proposed Parity Debt. For purposes of such calculation, there shall be excluded a pro rata portion of each installment of principal of any Parity Debt, together with the interest to accrue -4- thereon, in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from which amounts may not be released to the Agency unless, in the case where there has not been five consecutive fiscal years of positive assessed valuation growth, the average Tax Revenues for the five prior fiscal years is at least equal to 150% of the amount of Maximum Annual Debt Service or, if there has been no decline in assessed valuation for five consecutive years, the Tax Revenues for the current Fiscal Year (as evidenced in a written document from an appropriate official of the Agency) plus, at the option of the Agency, Additional Revenues, equal at least one hundred twenty-five percent (125%) of the amount of Maximum Annual Debt Service. "Moody's" means Moody's Investors Service, its successors and assigns. "Original Purchaser" means the original purchaser of the Bonds upon their delivery by the Trustee on the Closing Date. "Outstanding" when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 9.05) all Bonds except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of Section 9.03; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant hereto. "Owner" or "Bondowner" means, with respect to any Bond, the person in whose name the ownership of such Bond shall be registered on the Registration Books. "Parity Debt" means any loans, advances or indebtedness issued or incurred by the Agency on a parity with the Bonds pursuant to Section 3.05. "Parity Debt Instrument" means any resolution, indenture of trust, trust agreement, loan agreement or other instrument authorizing the issuance and/or execution and delivery of any Parity Debt. "Pass -Through Agreements" means any agreements hereafter entered into by the Agency pursuant to the Law for payments to affected taxing agencies, together with any amendments thereof hereafter duly authorized pursuant to the Law. "Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Certificate. "Permitted Investments" means the following: (a) Federal Securities. (b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. U.S. Farmers Home Administration (FmHA) Certificates of Beneficial Ownership -5- 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation Certificates 6. Government National Mortgage Association (GNMA or Ginnie Mae) GNMA—guaranteed mortgage-backed bonds GNMA—guaranteed pass-through obligations 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds (c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies which are not backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) Participation Certificate Senior debt obligations 3. Federal National Mortgage Association (FNMA or Fannie Mae) Mortgage-backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or Sallie Mae) Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes (d) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, which invest solely in Federal Securities, if rated by S&P, having a rating of AAAm-G; and if rated by Moody's having a rating of Aaa, including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries provide investment advisory or other management services. (e) Certificates of deposit secured at all times by collateral described in (a) and/or (b) above. Such certificates must be issued by commercial banks or savings and loan associations (including the Trustee or its affiliates). The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. -6- (f) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC. (g) Commercial paper rated, at the time of purchase, "Prime -1" by Moody's and "A-1" or better by S&P. (h) Federal funds or bankers acceptances with a maximum term of 180 days of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime -1" or better by Moody's and "A-1" or better by S&P. (i) the Local Agency Investment Fund of the State, created pursuant to 16429.1 of the California Government Code. (j) other forms of investments that satisfy the Agency's Statement of Investment Policy. "Plan Limitations" means, subject to the suspension of the limit on the total amount of tax increment funds that may be received by set forth in section 33333.8(e) of the Law, the limitations contained or incorporated in the Redevelopment Plan on (a) the aggregate principal amount of indebtedness payable from Tax Revenues derived under the Redevelopment Plan which may be outstanding at any time, (b) the aggregate amount of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan, and (c) the period of time for establishing, incurring or repaying indebtedness payable from Tax Revenues derived under the Redevelopment Plan. "Principal Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(b). "Principal Corporate Trust Office" means such principal corporate trust office of the Trustee as may be designated from time to time by written notice from the Trustee to the Agency, initially being at 700 South Flower Street, Suite 500, Los Angeles, CA 90017, Attention: Corporate Trust Services, except that, with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. "Rating Category" means any generic rating category of Moody's or S&P, without regard to any refinement of such category by plus or minus sign or by numerical or other qualifying designation. "Record Date" means, with respect to any Interest Payment Date, the close of business on the fifteenth (15th) calendar day of the month preceding such Interest Payment Date, whether or not such fifteenth (15th) calendar day is a Business Day. "Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(d). "Redevelopment Fund" means the fund of the Agency established by the Agency pursuant to Section 3.03. "Redevelopment Plan" means the Redevelopment Plan for the Redevelopment Project, approved by Ordinance No. 1276, enacted by the City Council of the City on June 13, 2003, as amended by Ordinance No. 1334, enacted by the City Council of the City on April 3, 2007, together with any amendments thereof at any time duly authorized pursuant to the Law. -7- "Redevelopment Project" means the MCAS Tustin Redevelopment Project, as described in the Redevelopment Plan. "Refunding Debt" means any loan, bond, note, advance or indebtedness the proceeds thereof are used to refund all or a portion of the Bonds or any Parity Debt (and to pay costs of issuance of and fund a reserve fund or account for such Refunding Debt), and the debt service due on such Refunding Debt in any Bond Year in which the Refunding Debt is outstanding is not greater than the debt service due in such Bond Year on the portion of the Bonds or Parity Debt refunded with the proceeds of such Refunding Debt. "Registration Books" means the records maintained by the Trustee pursuant to Section 2.08 for the registration and transfer of ownership of the Bonds. "Report" means a document in writing signed by an Independent Financial Consultant or an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of this Indenture to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. "Reserve Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(c), which shall serve as the reserve fund for the Bonds and all Parity Debt. "Reserve Requirement" means, as of any calculation date, an amount, calculated by or on behalf of the Agency and certified to the Trustee in writing, equal to the least of (a) Maximum Annual Debt Service on all Outstanding Bonds and any Parity Debt, (b) 125% of average annual debt service on the Bonds and any Parity Debt, and (c) 10% of the then outstanding principal amount of the Bonds and any Parity Debt. The Reserve Requirement as of the Closing Date is "Responsible Officer" means any Vice President, Assistant Vice President or Trust Officer of the Trustee with responsibility for matters related to this Indenture. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., New York, New York, or its successors. "Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th Floor, New York, NY 10041-0099, Attention: Call Notification Department, Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and Exchange Agency, such other addresses and/or such other securities depositories as the Agency may designate in a Written Certificate of the Agency delivered to the Trustee. "Sinking Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(b). "Special Fund" means the fund by that name established and held by the Agency pursuant to Section 4.02, which shall serve as the special fund for the Bonds and all Parity Debt. "State" means the State of California. 0 "Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency pursuant to Section 3.06, which are either: (a) by its terms payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon the Tax Revenues which is expressly subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Bonds. "Supplemental Indenture" means any resolution, agreement or other instrument which has been duly adopted or entered into by the Agency, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Code" means the Internal Revenue Code of 1986, as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Tax Code (including the Tax Regulations). "Tax Regulations" means temporary and permanent regulations promulgated under Section 103 and all related provisions of the Tax Code. "Tax Revenues" means all taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Redevelopment Project pursuant to Article 6 of Chapter 6 (commencing with section 33670) of the Law and section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws, and as provided in the Redevelopment Plan, and all payments, subventions and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, excluding all other amounts of such taxes (if any) (i) which are required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to section 33334.3 of the Redevelopment Law, (ii) which constitute supplemental subventions payable by the State to the Agency under and pursuant to Chapter 1.5 of Part 1 of Division 4 of Title 2 (commencing with section 16110) of the California Government Code, (iii) which constitute amounts required to be paid by the Agency pursuant to the Pass -Through Agreements, except and to the extent such amounts so payable are payable on a basis subordinate to the payment of the Bonds, and (iv) which constitute amounts payable by the Agency under sections 33607.5 or 33607.7 of the Law for payments to affected taxing entities, except and to the extent such amounts so payable are payable on a basis subordinate to the payment of the Bonds. "Term Bonds" means the Bonds maturing on September 1, , and September 1, "Trustee" means The Bank of New York Mellon Trust Company, N.A., as trustee hereunder, or any successor thereto appointed as trustee hereunder in accordance with the provisions of Article VI. "Written Request of the Agency" or "Written Certificate of the Agency" means a request or certificate, in writing signed by the Chairman, the Executive Director and the Treasurer or the Secretary of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose. Section 1.03. Rules of Construction. All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture, and the words "herein," "hereof," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. 0 ARTICLE II AUTHORIZATION AND TERMS Section 2.01. Authorization of Bonds. Bonds in the aggregate principal amount of dollars ($ ) are hereby authorized to be issued by the Agency under and subject to the terms of this Indenture and the Law. This Indenture constitutes a continuing agreement with the Owners of all of the Bonds issued or to be issued hereunder and then Outstanding to secure the full and final payment of principal and redemption premiums (if any) and the interest on all Bonds which may from time to time be executed and delivered hereunder, subject to the covenants, agreements, provisions and conditions herein contained. The Bonds shall be designated the "Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010." Section -2A2. Terms of Bonds. (a) The Bonds shall be issued in fully registered form without coupons in the denomination of $5,000 or any integral multiple thereof. The Bonds shall mature on the dates and shall bear interest (calculated on the basis of a 360 -day year of twelve 30 -day months) at the rates per annum as follows: Maturity Date Principal Interest (September 1) Amount Rate (b) Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) shall be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee mailed by first class mail, postage prepaid, on the Interest Payment Date, to such Owner at the address of such Owner as it appears on the Registration Books as of such Record Date; provided however, that payment of interest may be by wire transfer to an account in the United States of America to any registered owner of Bonds in the aggregate principal amount of $1,000,000 or more who shall furnish written wire instructions to the Trustee on or before the applicable Record Date. Such instructions shall remain in effect until rescinded in writing by the Owner. Principal of and redemption premium (if any) on any Bond shall be paid upon presentation and surrender thereof, at maturity or redemption, at the Principal Corporate Trust Office. Both the principal of -10- and interest and premium (if any) on the Bonds shall be payable in lawful money of the United States of America. (c) Each Bond shall be dated as of its date of delivery and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (i) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date; or (ii) a Bond is authenticated on or before February 15, 2011, in which event it shall bear interest from its date of delivery; provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Section 2.03. Redemption of Bonds. (a) Optional Redemption. The Bonds maturing on or before September 1, , are not subject to optional redemption prior to maturity. The Bonds maturing on or after September 1, are subject to redemption, at the option of the Agency on any date on or after September 1, . as a whole or in part, by such maturities as shall be determined by the Agency (and, in lieu of such determination, pro rata among maturities), and by lot within a maturity, from any available source of funds, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium. The Agency shall be required to give the Trustee written notice of its intention to redeem Bonds under this subsection (a) with a designation of the maturities to be redeemed at least forty-five (45), but not more than seventy-five (75) days, or such shorter period of time as agreed to by the Trustee, prior to the date fixed for such redemption. (b) Sinking Account Redemption. The Term Bonds maturing on September 1, (the Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on each September 1 thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been redeemed pursuant to subsection (a) above, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity. In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Agency, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Agency. -11- The Term Bonds maturing on September 1, (the " Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on each September 1 thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been redeemed pursuant to subsection (a) above, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Agency, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Agency. (c) Notice of Redemption. The Trustee on behalf and at the expense of the Agency shall mail (by first class mail, postage prepaid) notice of any redemption at least thirty (30) but not more than sixty (60) days prior to the redemption date, to (i) the Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and (ii) the Securities Depositories and to one or more Information Services designated in a Written Request of the Agency filed with the Trustee; but such mailing shall not be a condition precedent to such redemption and neither failure to receive any such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the redemption date and the redemption price if an optional redemption, shall designate the CUSIP number of the Bonds to be redeemed, shall state the individual number of each Bond to be redeemed or shall state that all Bonds between two stated numbers (both inclusive) or all of the Bonds Outstanding are to be redeemed, and shall require that such Bonds be then surrendered at the Principal Corporate Trust Office for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Notwithstanding the foregoing, in the case of any optional redemption of the Bonds under paragraph (a) above, the notice of redemption shall state that the redemption is conditioned upon receipt by the Trustee of sufficient moneys to redeem the Bonds on the anticipated redemption date, and that the optional redemption shall not occur if, by no later than the scheduled redemption date, sufficient moneys to redeem the Bonds have not been deposited with the Trustee. In the event that the Trustee does not receive sufficient funds by the scheduled optional redemption date to so redeem the Bonds to be optionally redeemed, such event shall not constitute an Event of Default; the Trustee shall send written notice to the Owners, to the Securities Depositories and to one or more of the Information Services to the -12- effect that the redemption did not occur as anticipated, and the Bonds for which notice of optional redemption was given shall remain Outstanding for all purposes of this Indenture. Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. (d) Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Agency shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Agency, a new Bond or Bonds of the same interest rate and maturity, of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Bond to be redeemed. (e) Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption price of and interest on the Bonds so called for redemption shall have been duly deposited with the Trustee, such Bonds so called shall cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price and accrued interest to the redemption date, and no interest shall accrue thereon from and after the redemption date specified in such notice. (f) Manner of Redemption. Whenever any Bonds or portions thereof are to be selected for redemption by lot, the Trustee shall make such selection, in such manner as the Trustee shall deem appropriate, and shall notify the Agency thereof. In the event of redemption by lot of Bonds, the Trustee shall assign to each Bond then Outstanding a distinctive number for each $5,000 of the principal amount of each such Bond. The Bonds to be redeemed shall be the Bonds to which were assigned numbers so selected, but only so much of the principal amount of each such Bond of a denomination of more than $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected. All Bonds redeemed or purchased pursuant to this Section 2.03 shall be canceled. (g) Selection of Bonds for Redemption. Whenever provision (other than pursuant to Section 2.03(b)) is made in this Indenture for the redemption of Bonds and less than all Bonds then currently outstanding are called for redemption, the Trustee will select Bonds for redemption from Bonds then currently Outstanding and not previously called for redemption, at the written direction of the Agency in such order of maturity as shall be designated by the Agency, and in the absence of such direction, pro rata among maturities and by lot within a maturity. The Trustee will promptly notify the Agency in writing of the Bonds so selected for redemption. Section 2.04. Form of Bonds. The Bonds, the form of Trustee's Certificate of Authentication, and the form of Assignment to appear thereon, shall be substantially in the form set forth in Exhibit A, which is attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Indenture. Section 2.05. Execution of Bonds. The Bonds shall be executed on behalf of the Agency by the signature of its Executive Director and the signature of its Secretary who are in office on the date of execution and delivery of this Indenture or at any time thereafter. Either or both of such signatures may be made manually or may be affixed by facsimile thereof. If any officer whose signature appears on any Bond ceases to be such officer before delivery of the Bonds to the purchaser, such signature shall nevertheless be as effective as if the officer had remained in office until the delivery of the Bonds to the purchaser. Any Bond may be signed and attested on behalf of the Agency by such persons as at the actual date of the execution of such Bond shall be -13- the proper officers of the Agency although on the date of such Bond any such person shall not have been such officer of the Agency. Only such of the Bonds as shall bear thereon a Certificate of Authentication in the form hereinafter set forth, manually executed and dated by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such Certificate shall be conclusive evidence that such Bonds have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. In the event temporary Bonds are issued pursuant to Section 2.09 hereof, the temporary Bonds may bear thereon a Certificate of Authentication executed and dated by the Trustee, may be initially registered by the Trustee, and, until so exchanged as provided under Section 2.09 hereof, the temporary Bonds shall be entitled to the same benefits pursuant to this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.06. Transfer of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Principal Corporate Trust Office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Bond or Bonds shall be surrendered for registration of transfer, the Agency shall execute and the Trustee shall deliver a new Bond or Bonds, of like series, interest rate, maturity and principal amount of authorized denominations. The Trustee shall collect from the Owner any tax or other governmental charge on the transfer of any Bonds pursuant to this Section 2.06. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Agency. The Trustee may refuse to transfer, under the provisions of this Section 2.06, either (a) any Bonds during the period fifteen (15) days prior to the date established by the Trustee for the selection of Bonds for redemption, or (b) any Bonds selected by the Trustee for redemption. Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Principal Corporate Trust Office for a like aggregate principal amount of Bonds of other authorized denominations of the same series, interest rate and maturity. The Trustee shall collect any tax or other governmental charge on the exchange of any Bonds pursuant to this Section 2.07. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the Agency. The Trustee may refuse to exchange, under the provisions of this Section 2.07, either (a) any Bonds during the fifteen (15) days prior to the date established by the Trustee for the selection of Bonds for redemption or (b) any Bonds selected by the Trustee for redemption. Section 2.08. Registration of Bonds. The Trustee will keep or cause to be kept, at its Principal Corporate Trust Office, sufficient records for the registration and registration of transfer of the Bonds, which shall at all times during normal business hours be open to inspection by the Agency, upon reasonable prior notice to the Trustee; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on the Registration Books Bonds as hereinbefore provided. Section 2.09. Temporary Bonds. The Bonds may be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the Agency, and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Agency upon the same conditions -14- and in substantially the same manner as the definitive Bonds. If the Agency issues temporary Bonds, it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds shall be surrendered, for cancellation, in exchange therefor at the Principal Corporate Trust Office, and the Trustee shall deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations, interest rates and like maturities. Until so exchanged, the temporary Bonds shall be entitled to the same benefits pursuant to this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Agency, at the expense of the Owner of such Bond, shall execute, and the Trustee shall thereupon deliver, a new Bond of like tenor and amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Agency and the Trustee and, if such evidence be satisfactory to both and indemnity satisfactory to them shall be given, the Agency, at the expense of the Owner, shall execute, and the Trustee shall thereupon deliver, a new Bond of like tenor and amount in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond has matured or has been called for redemption, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee and the Agency). The Agency may require payment by the Owner of a sum not exceeding the actual cost of preparing each new Bond issued under this Section 2.10 and of the expenses which may be incurred by the Agency and the Trustee in the premises. Any Bond issued under the provisions of this Section 2.10 in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Agency whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds issued pursuant to this Indenture. Section 2.11. CUSIP Numbers. The Trustee and the Agency shall not be liable for any defect or inaccuracy in the CUSIP number that appears on any Bond, check, advice of payment or redemption notice and any such document may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Agency nor the Trustee shall be liable for any inaccuracy in such numbers. Section 2.12. Use of Depository. Notwithstanding any provision of this Indenture to the contrary: (a) At the request of the Original Purchaser, the Bonds shall be initially issued registered in the name of "Cede & Co.," as nominee of The Depository Trust Company, the depository designated by the Original Purchaser, and shall be evidenced by one Bond for each maturity, as set forth in Section 2.02. Registered ownership of such Bonds, or any portions thereof, may not thereafter be transferred except: (i) to any successor of The Depository Trust Company or its nominee, or of any substitute depository designated pursuant to paragraph (ii) of this subsection (a) ("substitute depository"); provided that any successor of The Depository Trust Company or substitute depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (ii) to any substitute depository designated in a Written Request of the Agency, upon (A) the resignation of The Depository Trust Company or its successor (or any substitute depository or its successor) from its functions as depository or {B) a determination by the Agency that The Depository Trust Company or its successor is no -15- longer able to carry out its functions as depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (iii) to any personas provided below, upon (A) the resignation of The Depository Trust Company or its successor (or any substitute depository or its successor) from its functions as depository or (B) a determination by the Agency that The Depository Trust Company or its successor is no longer able to carry out its functions as depository; provided that no substitute depository which is not objected to by the Agency and the Trustee can be obtained. (b) In the case of any transfer pursuant to paragraph (i) or paragraph (ii) of subsection (a) of this Section 2.12, upon receipt of all Outstanding Bonds by the Trustee, together with a Written Request of the Agency to the Trustee, a single new Bond shall be executed and delivered, registered in the name of such successor or such substitute depository or their nominees, as the case may be, all as specified in such Written Request of the Agency. In the case of any transfer pursuant to paragraph (iii) of subsection (a) of this Section 2.12, upon receipt of all Outstanding Bonds by the Trustee together with a Written Request of the Agency, new Bonds shall be executed and delivered in such denominations and registered in the names of such persons as are requested in a Written Request of the Agency provided the Trustee shall not be required to deliver such new Bonds within a period less than sixty (60) days from the date of receipt of such a Written Request of the Agency. (c) In the case of partial redemption or an advance refunding of any Bonds evidencing all of the principal maturing in a particular year, The Depository Trust Company shall deliver the Bonds to the Trustee for cancellation and re -registration to reflect the amounts of such reduction in principal. (d) The Agency and the Trustee shall be entitled to treat the person in whose name any Bond is registered as the absolute Owner thereof for all purposes of this Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the Agency; and the Agency and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying or otherwise dealing with any beneficial owners of the Bonds. Neither the Agency nor the Trustee will have any responsibility or obligations, legal or otherwise, to the beneficial owners or to any other party including The Depository Trust Company or its successor (or substitute depository or its successor), except for the registered owner of any Bond. (e) So long as all outstanding Bonds are registered in the name of Cede & Co. or its registered assign, the Agency and the Trustee shall reasonably cooperate with Cede & Co., as sole registered Owner, or its registered assign in effecting payment of the principal and interest due with respect to the Bonds by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due. (f) So long as all Outstanding Bonds are registered in the name of Cede & Co. or its registered assign (hereinafter, for purposes of this paragraph (f), the "Owner"): (i) All notices and payments addressed to the Owners shall contain the Bonds' CUSIP number. (ii) Notices to the Owner shall be forwarded in the manner set forth in the form of Blanket Agency Letter of Representations executed by the Agency and received and accepted by The Depository Trust Company. -16- ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS; PARITY DEBT Section 3.01. Issuance of Bonds. Upon the execution and delivery of this Indenture, the Agency shall execute and deliver to the Trustee Bonds in the aggregate principal amount of dollars ($ ) and the Trustee shall authenticate and deliver the Bonds upon the Written Request of the Agency. Section 3.02. Application of Proceeds of Sale. Upon the receipt of payment for the Bonds on the Closing Date of $ , being the principal amount of the Bonds of $ , less an underwriter's discount of $ , plus a net original issue premium of $ , the Trustee shall apply the proceeds of sale thereof as follows: (a) The Trustee shall deposit the amount of $ in the Costs of Issuance Fund; (b) The Trustee shall deposit the amount of $ in the Reserve Account; and (c) The Trustee shall transfer the amount of $ to the Agency for deposit in the Redevelopment Fund. The Trustee may establish, as it deems necessary, a temporary fund or account on its records to facilitate the deposits and transfers set forth herein. Section 3.03. Redevelopment Fund. There is hereby established a separate fund for the proceeds of the Bonds to be known as the "Redevelopment Fund," which shall be held by the Agency. Amounts on deposit in the Redevelopment Fund shall be used solely in the manner provided by the Redevelopment Law and the Redevelopment Plan to provide financing for redevelopment purposes within the Redevelopment Project. Upon completion of the 2010 Project, any remaining amounts in the Redevelopment Fund shall be transferred by the Agency to the Trustee for deposit in the Interest Account and applied as a credit against the debt service requirements of the Bonds. Section 3.04. Costs of Issuance Fund. There is hereby established a separate fund to be known as the "Costs of Issuance Fund," which shall be held by the Trustee in trust. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Agency stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. Each such Written Request of the Agency shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. On the date six months following the Closing Date, or upon the earlier Written Request of the Agency stating that all known Costs of Issuance have been paid, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Agency for deposit in the Redevelopment Fund and the Costs of Issuance Fund shall be closed. -17- Section 3.05. Issuance of Parity Debt. In addition to the Bonds, the Agency may issue or incur Parity Debt to finance redevelopment activities within or for the benefit of the Redevelopment Project in such principal amount as shall be determined by the Agency. The Agency may issue and deliver any such Parity Debt, subject only to the following specific conditions: (a) The Agency shall be in compliance with all covenants set forth in this Indenture and all existing Parity Debt Instruments. (b) Subject to paragraph (e) below, (i) unless there has been no decline in the aggregate assessed value in the Redevelopment Project for five consecutive fiscal years, the prior five year average of Tax Revenues, as evidenced in written documentation from an appropriate official of the County, plus, at the option of the Agency, the Additional Revenues, shall be at least equal to one hundred fifty percent (150%) of Maximum Annual Debt Service which will be Outstanding following the issuance of such Parity Debt; provided, however, that Tax Revenues shall be reduced to the amount by which Tax Revenues would be decreased if all pending assessment appeals were to be determined in favor of the property owners in a proportionate amount equal to the average percent of reductions over the most recent five years of appeals history, as determined by an Independent Redevelopment Consultant. (i) if there has been no decline in the aggregate assessed value in the Redevelopment Project for five consecutive fiscal years, Tax Revenues, for the then current Fiscal Year, based on the most recent assessed valuation of property in the Redevelopment Project, as evidenced in written documentation from an appropriate official of the County, plus, at the option of the Agency, the Additional Revenues, shall be at least equal to one hundred twenty-five percent (125%) of Maximum Annual Debt Service which will be Outstanding following the issuance of such Parity Debt; provided, however, that Tax Revenues shall be reduced to the amount by which Tax Revenues would be decreased if all pending assessment appeals were to be determined in favor of the property owners in a proportionate amount equal to the average percent of reductions over the most recent five years of appeals history, as determined by an Independent Redevelopment Consultant. If such Parity Debt is payable at a variable interest rate, for purposes of the calculations set forth above, interest should be calculated assuming the 30 -year Revenue Bond Index as published by The Bond Buyer no more than two weeks prior to date of sale. (c) The aggregate amount of the principal and sinking fund installments of and interest on all Outstanding Bonds, Parity Debt and Subordinate Debt coming due and payable following the issuance of such Parity Debt shall not exceed the maximum amount of tax increment revenues permitted under the Plan Limitations; (d) The aggregate amount of the all Bonds, Parity Debt and Subordinate Debt to be outstanding following the issuance of such Parity Debt shall not exceed the maximum amount of obligations permitted under the Plan Limitations to be outstanding at any time; (e) The Parity Debt shall be payable as to principal on September 1 in each year in which principal becomes due, and shall be payable as to interest semiannually on March 1 and September 1, except that the first installment of interest may be payable on either March 1 or September 1 and shall be for a period not longer than twelve (12) months. -18- (f) The Trustee shall act as trustee for such Parity Debt. (g) The Parity Debt Instrument providing for the issuance of such Parity Debt may provide for the establishment of separate funds and accounts or may make reference to and include any fund or account established under this Indenture; (h) The Parity Debt Instrument providing for the issuance of such Parity Debt shall provide for the deposit of moneys in the Reserve Account if required to increase the balance of the Reserve Account to at least equal to the Reserve Requirement upon the issuance of such Parity Debt. (i) The Agency shall deliver to the Trustee a Written Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in subsections (a), (b), (c), (d), (e), (f), (g) and (h) of this Section 3.05 have been satisfied. Notwithstanding the foregoing, the Agency may issue or incur Refunding Debt in such principal amount as shall be determined by the Agency so long as the conditions set forth in subsections (a), (c), (d), (f) and (g) of this Section 3.05 are met, and the Agency delivers to the Trustee a Certificate of the Agency certifying that such conditions precedent to the issuance of such Refunding Debt set forth in subsections (a), (c), (d), (f) and (g) of this Section 3.05 have been met and such Refunding Debt is otherwise in accordance with the definition of Refunding Debt. Section 3.06. Issuance of Subordinate Debt. From time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency; provided that (a) the Agency shall be in compliance with all of its covenants set forth in this Indenture and any Parity Debt Instruments, (b) the issuance of such Subordinate Debt (after taking into account the Bonds and all other obligations of the Agency payable from Tax Revenues, as well as all other bonded indebtedness of the Agency) shall not cause the Agency to exceed any applicable Plan Limitations, (c) the Agency will at all times that the Bonds and any Parity Debt are Outstanding have sufficient capacity to receive Tax Revenues in an amount at least equal to the remaining Debt Service on the Bonds and any Parity Debt as well as all fixed debt service or other obligations of the Agency (including such Subordinate Debt) payable from Tax Revenues, and (d) the Agency shall deliver to the Trustee a Written Certificate of the Agency certifying that the conditions precedent to the issuance of such Subordinate Debt set forth in clauses (a), (b) and (c) of this Section 3.06 have been satisfied. Section 3.07. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be dependent upon the completion of the 2010 Project or upon the performance by any person of his obligation with respect to the Redevelopment Project. -19- ARTICLE IV SECURITY OF BONDS; FLOW OF FUNDS Section 4.01. Security of Bonds; Equal Security. Except as provided in Section 6.06, the Bonds shall be equally secured by a pledge of, security interest in and a first and exclusive lien on all of the Tax Revenues, and a first and exclusive pledge of, security interest in and lien upon all of the moneys in the Special Fund and the Debt Service Fund, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. Except for the Tax Revenues and such other moneys, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium (if any) on the Bonds. In consideration of the acceptance of the Bonds by those who shall hold the same from time to time, this Indenture shall be deemed to be and shall constitute a contract between the Agency and the Owners from time to time of the Bonds, and the covenants and agreements herein set forth to be performed on behalf of the Agency shall be for the equal and proportionate benefit, security and protection of all Owners of the Bonds without preference; priority or distinction as to security or otherwise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or herein. Section 4.02. Special Fund; Deposit of Tax Revenues. There is hereby established a special fund to be known as the "Special Fund," which shall be held by the Agency. The Agency shall deposit all of the Tax Revenues received in any Bond Year to the Special Fund promptly upon receipt thereof by the Agency, until such time during such Bond Year as the amounts on deposit in the Special Fund equal the aggregate amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account, the Sinking Account, the Reserve Account and the Redemption Account in such Bond Year pursuant to Section 4.03, except as may be required by a Parity Debt Instrument. All Tax Revenues received by the Agency during any Bond Year in excess of the amount required to be deposited in the Special Fund during such Bond Year pursuant to the preceding paragraph of this Section 4.02, including delinquent amounts if any, shall be released from the pledge and lien hereunder for the security of the Bonds and may be applied by the Agency for any lawful purposes of the Agency, including but not limited to the payment of Subordinate Debt, or the payment of any amounts due and owing to the United States of America pursuant to Section 5.15. Prior to the payment in full of the principal of and interest and redemption premium (if any) on the Bonds and the payment in full of all other amounts payable hereunder and under any Parity Debt Instrument, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except as may be provided in this Indenture and in any Supplemental Indenture. Amounts in the Special Fund shall be invested by the Agency only in Permitted Investments. Section 4.03. Deposit of Amounts by Trustee. There is hereby established a trust fund to be known as the Debt Service Fund, which shall be held by the Trustee hereunder in trust. Moneys in the Special Fund shall be transferred by the Agency to the Trustee in the following amounts, at the following times, and deposited by the Trustee in the following respective -20- special accounts, which are hereby established in the Debt Service Fund, and in the following order of priority: (a) Interest Account. On or before the fifth Business Day preceding each Interest Payment Date, the Agency shall withdraw from the Special Fund and transfer to the Trustee, for deposit in the Interest Account an amount which when added to the amount contained in the Interest Account on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No such transfer and deposit need be made to the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including interest payable on any Bonds redeemed prior to maturity pursuant to this Indenture). (b) Principal Account; Sinking Account. On or before the fifth Business Day preceding each principal payment date in each year, or date on which any Outstanding Term Bonds become subject to mandatory Sinking Account redemption, beginning September 1, , the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit (i) in the Principal Account an amount which, when added to the amount then contained in the Principal Account, will be equal to the principal becoming due and payable on the Outstanding Bonds on the next September 1, and (ii) in the Sinking Account an amount which, when added to the amount then contained in the Sinking Account, will be equal to the aggregate principal amount of the Term Bonds subject to mandatory Sinking Account redemption on such date. In the event that the amount then in the Special Fund, following the transfer described in the preceding subparagraph (a), is not sufficient to fully fund the amounts described in the preceding clauses (i) and (ii), the Trustee shall deposit the available funds in the Special Fund pro rata to the Principal Account and the Sinking Account, based on the aggregate principal and Sinking Account payments then due on the Bonds. No such transfer and deposit need be made to the Principal Account if the amount contained therein is at least equal to the principal or sinking fund installment to become due on the next September 1 on all of the Outstanding Bonds. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Bonds as it shall become due and payable. (c) Reserve Account. In the event that the Trustee has actual knowledge that the amount on deposit in the Reserve Account at any time is less than the Reserve Requirement, the Trustee shall promptly notify the Agency of such fact. Promptly upon receipt of any such notice, the Agency shall transfer to the Trustee, Tax Revenues sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. If there shall then not be sufficient Tax Revenues to transfer an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account, the Agency shall be obligated to continue making transfers as Tax Revenues become available in the Special Fund until there is an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. No such transfer and deposit need be made to the Reserve Account so long as there shall be on deposit therein a sum at least equal to the Reserve Requirement. Amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of making transfers to (i) the Interest Account (and any interest account created for Parity Debt), and (ii) the Principal Account (and any principal account created for Parity Debt) and the Sinking Account (and any sinking account created for Parity Debt) in such order of priority (pro rata to the Principal Account (and any principal account created for Parity Debt) and the Sinking Account (and any sinking account created for Parity Debt), based upon the principal and sinking account payments then due, if the amount then in the Reserve Account, after satisfying any deficiency in the Interest Account (and any interest account created for -21- Parity Debt), is not sufficient to fully satisfy any then deficiencies in the Principal Account (and any principal account created for Parity Debt) and the Sinking Account (and any sinking account created for Parity Debt), in the event of any deficiency at any time in any of such accounts or for the retirement of all the Bonds or Parity Debt then Outstanding, except that so long as the Agency is not in default under this Indenture, any amount in the Reserve Account in excess of the Reserve Requirement (as determined by the Trustee based upon a valuation of investments held in such account performed in accordance with Section 6.07) shall be withdrawn from the Reserve Account semiannually on or before the Business Day preceding each March 1 and September 1 by the Trustee and deposited in the Interest Account (and any interest account created for Parity Debt). If a valuation discloses that amounts in the Reserve Account are less than the Reserve Requirement, which valuation must occur not less than semi-annually, the Agency shall immediately cause the cure thereof from any available moneys. All amounts in the Reserve Account on the Business Day preceding the final Interest Payment Date shall be withdrawn from the Reserve Account and shall be transferred either (i) to the Interest Account and the Principal Account, in such order, to the extent required to make the deposits then required to be made pursuant to this Section 4.03 or, (ii) if the Agency shall have caused to be transferred to the Trustee an amount sufficient to make the deposits required by this Section 4.03, then, at the Written Request of the Agency, to the Agency for deposit by the Agency into the Special Fund. The- Trustee may conclusively presume that there has been no change in the Reserve Requirement unless notified in writing by the Agency. The Reserve Account may be maintained in the form of one or more separate sub - accounts which are established for the purpose of holding the proceeds of separate issues of the Bonds in conformity with applicable provisions of the Tax Code. (d) Redemption Account. On or before the fifth Business Day preceding any date on which Bonds are to be redeemed pursuant to Section 2.03(a), the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Redemption Account an amount required to pay the principal of and premium, if any, on the Bonds to be redeemed on such date pursuant to Section 2.03(a), taking into account any funds then on deposit in the Redemption Account. The Trustee shall also deposit in the Redemption Account any other amounts received by it from the Agency designated by the Agency in writing to be deposited in the Redemption Account. All moneys in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of and premium, if any, on the Bonds to be redeemed pursuant to Section 2.03(a) on the respective dates set for such redemption. -22- ARTICLE V OTHER COVENANTS OF THE AGENCY Section 5.01. Punctual Payment. The Agency shall punctually pay or cause to be paid the principal and interest to become due in respect of all the Bonds together with the premium thereon, if any, in strict conformity with the terms of the Bonds and of this Indenture. The Agency shall faithfully observe and perform all of the conditions, covenants and requirements of this Indenture, all existing Parity Debt Instruments, the Bonds and any Parity Debt. Nothing herein contained shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes referred to herein. Section 5.02. Limitation on Additional Indebtedness; Against Encumbrances. The Agency hereby covenants that, so long as the Bonds are Outstanding, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, for which all or any part of the Tax Revenues are pledged as security for payment, excepting only the Bonds, any Parity Debt and any Subordinate Debt. The Agency will not otherwise encumber, pledge or place any charge or lien upon any of the Tax Revenues or other amounts pledged to the Bonds superior to the pledge and lien herein created for the benefit of the Bonds. Section 5.03. Extension of Payment. The Agency will not, directly or indirectly, extend or consent to the extension of the time for the payment of any Bond or claim for interest on any of the Bonds and will not, directly or indirectly, be a party to or approve any such arrangement by purchasing or funding the Bonds or claims for interest in any other manner. In case the maturity of any such Bond or claim for interest shall be extended or funded, whether or not with the consent of the Agency, such Bond or claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. Section 5.04. Payment of Claims. The Agency shall promptly pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or other amounts pledged to the payment of the Bonds, or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Bonds. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 5.05. Books and Accounts; Financial Statements. The Agency shall keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the County, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Tax Revenues, the Special Fund and the Redevelopment Fund. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Owners of not less than ten percent (10%) in aggregate principal amount of the Bonds then Outstanding, or their representatives authorized in writing. Section 5.06. Protection of Security and Rights of Owners. The Agency will preserve and protect the security of the Bonds and the rights of the Owners. From and after the Closing Date, the Bonds shall be incontestable by the Agency. -23- Section 5.07. Payments of Taxes and Other Charges. Except as otherwise provided herein, the Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Redevelopment Project, or upon the revenues therefrom when the same shall become due. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 5.08. Taxation of Leased Property. All amounts derived by the Agency pursuant to section 33673 of the Law with respect to the lease of property for redevelopment shall be treated in the same manner as amounts derived pursuant to section 33670(b) of the Law for purposes of determining Tax Revenues under this Indenture. Section 5.09. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Redevelopment Project to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Indenture) so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent (10%) of the land area in, or total assessed valuation of, the Redevelopment Project unless such disposition is permitted as hereinafter provided in this Section 5.09. If the Agency proposes to participate in such a disposition, it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the Tax Revenues following such disposition will be at least equal to one hundred twenty-five percent (125%) of Maximum Annual Debt Service on the Bonds and on any Parity Debt, the Agency may thereafter make such disposition. If said Report concludes that, following said proposed disposition, the Tax Revenues will not be at least equal to one hundred twenty-five percent (125%) of Maximum Annual Debt Service on the Bonds and on any Parity Debt, the Agency shall not participate in said proposed disposition. For purposes of this Section 5.09, the amount of Tax Revenues shall be determined as provided in Section 3.05(a)(ii). Section 5.10. Maintenance of Tax Revenues; Compliance with Plan Limitations. The Agency shall comply with all requirements of the Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. Without limiting the generality of the foregoing, the Agency covenants that it shall deposit or cause to be deposited in the Low and Moderate Income Housing Fund, all amounts when, as and if required to be deposited therein pursuant to the Law. The Agency shall not enter into any agreement with the County or any other governmental unit, or modify the Redevelopment Plan in any manner, which would have the effect of reducing the amount of Tax Revenues available to the Agency under the Redevelopment Plan for payment of the Bonds and any Parity Debt, unless in the written opinion of an Independent Redevelopment Consultant filed with the Trustee such reduction will not materially adversely affect the interests hereunder of or the security granted hereunder to the owners of the Bonds and any Parity Debt. The Agency agrees not to make any findings of the character described in subparagraphs (1)(A), (2)(A) or (3)(A) of section 33334.2(a) of the Law with the purpose or effect of reducing the percentage of taxes allocated to the Agency pursuant to Section 33670 of the -24- Law that are required by sections 33334.2(a) and 33334.3(a) to be deposited in the Agency's Low and Moderate Income Housing Fund. Section 5.11. Management and Operations of Properties. The Agency will manage and operate all properties owned by the Agency and comprising any part of the Redevelopment Project, in a sound and businesslike manner, and will keep such properties insured at all times in conformity with sound business practice. Section 5.12. Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the Agency to comply with the Continuing Disclosure Certificate shall not be an Event of Default hereunder. However, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Agency to comply with its obligations under this Section 5.13. Section 5.13. Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture, and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. Section 5.14. Annual Review of Tax Increment Revenues. The Agency shall annually cause to be prepared a report which sets forth the estimated annual and cumulative total amount of all tax increment revenues that are allocable to the Agency pursuant to section 33670 of the Law and the Redevelopment Plan (including Tax Revenues but excluding any tax increment revenues that are not intended to be applied against the total provided in the Plan Limitations) remaining available to be received by the Agency under the Plan Limitations in each Fiscal Year following the current Bond Year (the "Remaining Limit Amount"), the estimated Current Year Obligations (as defined below), and the estimated Future Obligations (as defined below). If the Remaining Limit Amount is equal to or less than 110% of the Future Obligations, the Agency shall cause to be deposited in a Trustee -held escrow account (the "Defeasance Escrow Account"), for investment in Defeasance Securities, that portion of the taxes, if any, allocated to the Agency pursuant to section 33670 of the Law and the Redevelopment Plan in excess of the Current Year Obligations to the extent necessary, taking into account (i) the Remaining Limit Amount, (ii) all Future Obligations, and (iii) the amounts already existing in the Defeasance Escrow Account, to enable repayment when due of all Future Obligations within the Remaining Limit Amount. Amounts in the Defeasance Escrow Account, including interest earned thereon, shall only be used to (A) prepay Bonds, or (B) pay debt service on the Bonds. "Current Year Obligations" means the amounts necessary to pay the debt service and other amounts due in the applicable Fiscal Year for which the annual report is then being prepared with respect to the Bonds, Parity Debt and Subordinate Debt. "Future Obligations" means the estimated amounts necessary to pay the debt service and other amounts due in all succeeding Fiscal Years with respect to the Bonds, Parity Debt and Subordinate Debt; provided that in estimating the portion of the Future Obligations related to the Bonds and any Parity Debt, the amount of remaining debt service shall take into account the early prepayment or defeasance of any such obligations, estimated to occur using amounts deposited or to be deposited in the Defeasance Escrow Account. -25- Section 5.15. Tax Covenants. (a) Federal Guarantee Prohibition. The Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Tax Code. (b) No Arbitrage. The Agency shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the Bond proceeds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Tax Code. (c) Private Activity Bond Limitation. The Agency shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Tax Code or the private loan financing test of section 141(c) of the Tax Code. (d) Rebate Requirement. The Agency shall take any and all actions necessary to assure compliance with section 148(f) of the Tax Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds. (e) Maintenance of Tax -Exemption. The Agency shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the date of issuance of the Bonds. Section 5.16. Reservation of Funds for SERAF Payment. The Agency shall maintain (sufficient funds on hand to make any required payment due for Fiscal Year 2010-11 to the County Supplemental Education Revenue Augmentation Fund, until such time as such payments are made by the Agency or a court of competent jurisdiction finds, in a final non - appealable judgment, that the Agency is not required to make such payments. -26- ARTICLE VI THE TRUSTEE Section 6.01. Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to the occurrence of an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants, duties or obligations shall be read into this Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a reasonable person would exercise or use under the circumstances in the conduct of its own affairs. (b) The Agency may remove the Trustee at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee (i) if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) if at any time the Agency has knowledge that the Trustee shall cease to be eligible in accordance with subsection (e) of this Section 6.01, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. In each case such removal shall be accomplished by the giving of written notice of such removal by the Agency to the Trustee, whereupon the Agency shall immediately appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the Agency and by giving the Owners notice of such resignation by first class mail, postage prepaid, at their respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Agency shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Owner (on behalf of such Owner and all other Owners) may petition any court of competent jurisdiction at the expense of the Agency for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing, acknowledging and delivering to the Agency and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the Agency or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Agency shall execute and deliver any and all -27- instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the Agency shall mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which then has a current rating on the Bonds and to the Owners at their respective addresses shown on the Registration Books. If the Agency fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Agency. (e) Any Trustee appointed under the provisions of this Section 6.01 in succession to the Trustee shall be a financial institution having a trust office in the State, having (or in the case of a corporation, association or trust company included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federal or state authority. If such financial institution publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section 6.01. Section 6.02. Merger or Consolidation. Any bank, national banking association, corporation or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank, corporation or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, national banking association, corporation or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank, corporation or trust company shall be eligible under subsection (e) of Section 6.01, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 6.03. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Agency, and the Trustee shall not assume responsibility for the correctness of the same, nor make any representations as to the validity or sufficiency of this Indenture or of the security for the Bonds or the tax status of interest thereon nor shall incur any responsibility in respect thereof, other than as expressly stated herein. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall not be liable for the acts of any agents of the Trustee selected by it with due care. The Trustee and its officers and employees may become the Owner of any Bonds with the same rights it would have if they were not Trustee and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of the Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made by a responsible employee or officer, unless the Trustee shall have been negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in -28- aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (d) The Trustee shall not be liable for any action taken by it and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture, except for actions arising from the negligence or intentional misconduct of the Trustee. The permissive right of the Trustee to do things enumerated hereunder shall not be construed as a mandatory duty. (e) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless and until a Responsible Officer shall have actual knowledge thereof, or shall have received written notice thereof from the Agency at its Principal Corporate Trust Office. In the absence of such actual knowledge or notice, the Trustee may conclusively assume that no default has occurred and is continuing under this Indenture. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee may rely conclusively on the Agency's certificates to establish the Agency's compliance with its financial covenants hereunder, including, without limitation, its covenants regarding the deposit of Tax Revenues into the Special Fund and the investment and application of moneys on deposit in the Special Fund (other than its covenants to transfer such moneys to the Trustee when due hereunder). (f) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Agency or with respect to the observance or performance by the Agency of the other conditions, covenants and terms contained in this Indenture, or with respect to the investment of any moneys in any fund or account established, held or maintained by the Agency pursuant to this Indenture or otherwise. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. The Trustee shall be entitled to interest on all amounts advanced by it at the maximum rate permitted by law. (h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys or receivers and shall be entitled to opinion and advice of counsel concerning all matters of trust and its duties hereunder. The Trustee shall not be responsible for any action taken or not taken on the part of any agent, attorney or receiver appointed with due care by it hereunder. (i) The Trustee shall have no responsibility, opinion, or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of these Bonds. (j) Before taking any action under Article VIII or this Article at the written request of a majority of the Owners, the Trustee may require that a satisfactory indemnity bond be furnished by the Owners for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken. (k) Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Bonds. The Trustee shall not be accountable for the use or -29- application by the Agency or any other party of any funds which the Trustee has released in accordance with the terms of this Indenture. The immunities and exceptions from liability of the Trustee shall extend to its officers, directors, employees, agents and attorneys. Whether or not expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of the Trustee shall be subject to the provisions of this Article VI. (1) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (m) The Trustee shall not be concerned or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof. Section 6.04. Right to Rely on Documents and Opinions. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion or other paper or document believed by it to be genuine and to have been signed or prescribed by the proper party or parties, and shall not be required to make any investigation into the facts or matters contained thereon. The Trustee may consult with counsel, including, without limitation, counsel of or to the Agency, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustee hereunder in accordance therewith. The Trustee shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and such person's title thereto is established to the satisfaction of the Trustee. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the Agency, which shall be full warrant to the Trustee for any action taken or suffered under the provisions of this Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. The Trustee may conclusively rely on any certificate or Report of any Independent Accountant or Independent Redevelopment Consultant appointed by the Agency. Section 6.05. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject at all reasonable times upon reasonable notice to the inspection of the Agency and any Owner, and their agents and representatives duly authorized in writing, during regular business hours and under reasonable conditions. Section 6.06. Compensation and Indemnification. The Agency shall pay to the Trustee from time to time reasonable compensation for all services rendered under this Indenture in accordance with the letter proposal from the Trustee approved by the Agency and also all -30- reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys (including the allocated costs and disbursement of in-house counsel to the extent such services are not redundant with those provided by outside counsel), agents and employees, incurred in and about the performance of its powers and duties under this Indenture. The Trustee shall have a first lien on the Tax Revenues and all funds and accounts held by the Trustee hereunder to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel (including the allocated costs and disbursement of in-house counsel to the extent such services are not redundant with those provided by outside counsel). The Agency further covenants and agrees to indemnify, defend and save the Trustee and its officers, directors, agents and employees, harmless against any loss, expense and liabilities, including legal fees and expenses, which it may incur arising out of or in connection with the exercise and performance of its powers and duties hereunder, including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or willful misconduct of the Trustee, its officers, directors, agents or employees. The obligations of the Agency and the rights of the Trustee under this Section 6.06 shall survive resignation or removal of the Trustee under this Indenture and payment of the Bonds and discharge of this Indenture. Section 6.07. Deposit and Investment of Moneys in Funds. (a) Investment by Trustee of Moneys in Funds. Moneys in the Debt Service Fund, the Interest Account, the Principal Account, the Sinking Account, the Reserve Account, the Redemption Account and the Costs of Issuance Fund shall be invested by the Trustee in Permitted Investments as directed by the Agency in the Written Request of the Agency filed with the Trustee at least two (2) Business Days in advance of the making of such investments. In the absence of any such Written Request of the Agency, the Trustee shall invest any such moneys in Permitted Investments described in clause . (d) of the definition thereof, which by their terms mature prior to the date on which such moneys are required to be paid out hereunder; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the Agency specifying a specific money market fund and, if no such Written Request of the Agency is so received, the Trustee shall hold such moneys uninvested. Reserve Account investments may not have maturities extending beyond five years. The Trustee shall be entitled to rely conclusively upon the written instructions of the Agency directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State, and shall not be required to make further investigation with respect thereto. With respect to any restrictions set forth in the above list which embody legal conclusions (e.g., the existence, validity and perfection of security interests in collateral), the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Agency's expense. Moneys in the Special Fund may be invested by the Agency in any obligations in which the Agency is legally authorized to invest its funds. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts held by the Trustee hereunder shall be deposited in the Interest Account; provided, however, that all interest or gain from the investment of amounts in the Reserve Account shall be deposited by the Trustee in the Interest Account, to the extent not required to cause the balance in the Reserve Account to equal the Reserve Requirement. The Trustee or an affiliate may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Agency or otherwise made pursuant to this Section 6.07. -31- All moneys held by the Trustee shall be held in trust, but need not be segregated from other funds unless specifically required by this Indenture. Except as specifically provided in this Indenture, the Trustee shall not be liable to pay interest on any moneys received by it, but shall be liable only to account to the Agency for earnings derived from funds that have been invested. The Trustee or any of its affiliates may act as principal, agent, sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. The Agency acknowledges that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Agency the right to receive brokerage confirmations of security transactions as they occur, the Agency specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Agency periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. (b) Valuation of Investments. (i) Except as otherwise provided in subparagraph (ii) of this Paragraph (b), all investments of amounts deposited in any fund or account created by or pursuant to this Indenture, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Tax Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by this Indenture or the Tax Code) at Fair Market Value. (ii) Such investments shall be valued by the Trustee not less often than quarterly, provided as to any such valuation made by the Trustee, such valuation shall be at the market value of such investments and the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system. (iii) For purposes of computations required under the Tax Code, investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code and (unless valuation is undertaken at least annually) investments in the Reserve Account shall be valued by the Agency at their present value (within the meaning of section 148 of the Tax Code). (iv) The Trustee shall have no responsibility to determine Fair Market Value or present value of any Permitted Investment, and may rely upon any determination made by or on behalf of the Agency. This Section subparagraph (iv) shall in no way limit the Trustee's obligations under Section 6.08 hereof. Section 6.08. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds made by it and all funds and accounts held by the Trustee established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Agency upon reasonable prior notice, at reasonable hours and under reasonable circumstances. The Trustee shall furnish to the Agency, at least monthly, an accounting of all transactions in the form of its customary statements relating to the proceeds of the Bonds and all funds and accounts held by the Trustee pursuant to this Indenture. The Trustee shall maintain and store such records for a period of one year after the stated maturity of the Bonds. Section 6.09. Appointment of Co -Trustee or Agent. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact -32- business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture, and in particular in case of the enforcement of the rights of the Trustee on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate trustee or co -trustee. The following provisions of this Section 6.09 are adopted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co -trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co -trustee but only to the extent necessary to enable such separate or co - trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co -trustee shall run to and be enforceable by either of them; provided, however, in no event shall the Trustee be responsible or liable for the acts or omissions of any co -trustee. Should any instrument in writing from the Agency be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Agency. In case any separate trustee or co -trustee, or a successor to either, shall become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co -trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co - trustee. Section 6.10. Other Transactions with Agency. The Trustee, either as principal or agent, may engage in or be interested in any financial or other transaction with the Agency. -33- ARTICLE VII MODIFICATION OR AMENDMENT OF THIS INDENTURE Section 7.01. Amendment. This Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without the consent of any Owners, to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency in this Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or powers herein reserved to or conferred upon the Agency; or (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Indenture, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not, in the reasonable determination of the Agency, materially adversely affect the interests of the Owners; or (c) to provide for the issuance of Parity Debt in accordance with Section 3.05. Except as set forth in the preceding paragraph, this Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Agency to pay the principal, interest or redemption premiums (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, or (ii) reduce the percentage of Bonds required for the written consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee without its prior written consent. In addition, the Trustee shall be entitled to an opinion of counsel concerning the Supplemental Indenture's lack of any material adverse effect on the Owners and that all conditions precedent for any supplement or amendment has been satisfied. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII, this Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties hereto or thereto and all Owners, as the case may be, shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any amendment or modification hereof pursuant to this Article VII, the Agency may determine that any or all of the Bonds shall bear a notation, by endorsement in form approved by the Agency, as to such amendment or modification and in that case upon demand of the Agency, the Owners of such Bonds shall present such Bonds for that purpose at the Principal Corporate Trust Office, and thereupon a suitable notation as to such action shall be made on such Bonds. In lieu of such notation, the Agency may determine that new Bonds shall be prepared at the expense of the Agency and executed in exchange for any or all of the Bonds, -34- and in that case, upon demand of the Agency, the Owners of the Bonds shall present such Bonds for exchange at the Principal Corporate Trust Office, without cost to such Owners. Section 7.04. Amendment by Mutual Consent. The provisions of this Article VII shall not prevent any Owner from accepting any amendment as to the particular Bond held by such Owner, provided that due notation thereof is made on such Bond. -35- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS Section 8.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) if default shall be made by the Agency in the due and punctual payment of the principal or sinking fund payment of or interest or redemption premium (if any) on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) if default shall be made by the Agency in the observance of any of the covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, other than a default described in the preceding clause (a), and such default shall have continued for a period of sixty (60) days following receipt by the Agency of written notice from the Trustee or any Owner of the occurrence of such default provided that if in the reasonable opinion of the Agency the failure stated in the notice can be corrected, but not within such 60 day period, such failure will not constitute an event of default if corrective action is instituted by the Agency within such 60 day period and the Agency thereafter diligently and in good faith cures such failure within 120 days; (c) if the Agency files a petition seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction will approve a petition seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or, if under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction will approve a petition; seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or, if under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction will assume custody or control of the Agency or of the whole or any substantial part of its property; or (d) an event of default shall have occurred and be continuing with respect to any Parity Debt. If an Event of Default has occurred and is continuing, the Trustee may, and if requested in writing by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding the Trustee shall exercise any remedies available to the Trustee and the Owners in law or at equity, subject in any event to the provisions of Section 6.03(j). Immediately upon becoming aware of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Agency in writing. With respect to any Event of Default described in clauses (a) or (b) above the Trustee shall, and with respect to any Event of Default described in clause (c) above the Trustee in its sole discretion may, also give such notice to the Owners in the same manner as provided herein for notices of redemption of the Bonds. Section 8.02. Application of Funds Upon Default. So long as an Event of Default exists, all sums received by the Trustee hereunder shall be applied by the Trustee as follows and in the following order: (a) To the payment of the reasonable fees, costs and expenses of the Trustee (including reasonable fees and expenses of its counsel) incurred in and about the performance of its -36- powers and duties under this Indenture and the payment of all reasonable fees, costs and expenses owing to the Trustee pursuant to Section 6.06 hereof; and (b) To the payment of the whole amount of interest on and principal (including Sinking Account installment) of the Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be insufficient to pay the full amount of such interest and principal (including Sinking Account installment), then such amounts shall be applied in the following order of priority: (i) first, to the payment of all installments of interest on the Bonds then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full, (ii) second, to the payment of principal of all installments of the Bonds then due and unpaid (including Sinking Account installment), on a pro rata basis in the event that the available amounts are insufficient to pay all such principal and Sinking Account installments in full, and (iii) third, to the payment of interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Section 8.03. Limitation on Owner's Right to Sue. No Owner of any Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding shall have made Written Request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such Written Request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under this Indenture, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Owners of the Outstanding Bonds. The right of any Owner of any Bond to receive payment of the principal of (and premium, if any) and interest on such Bond as herein provided, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions of this Section 8.03 or any other provision of this Indenture. Section 8.04. Non -Waiver. Nothing in this Article VIII or in any other provision of this Indenture or in the Bonds, shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Tax Revenues and other amounts pledged hereunder, the principal of and interest and redemption premium (if any) on the Bonds to the respective Owners on the respective Interest Payment Dates, as herein provided, or affect or impair the -37- right of action, which is also absolute and unconditional, of the Owners or the Trustee to institute suit to enforce such payment by virtue of the contract embodied in the Bonds. A waiver of any default by any Owner or the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners and the Trustee by the Law or by this Article VIII may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners and the Trustee. If a suit, action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Owners or the Trustee, the Agency, the Trustee and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Section 8.05. Actions by Trustee as Attorney -in -Fact. Any suit, action or proceeding which any Owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners by taking and holding the Bonds or Parity Debt shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact, provided, however, the Trustee shall have no duty or obligation to exercise any such right or remedy unless it has been indemnified to its satisfaction from any loss, liability or expense (including fees and expenses of its outside counsel and the allocated costs and disbursements of its in-house counsel). Section 8.06. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law. Section 8.07. Parties Interested Herein. Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the Agency and the Trustee, their officers, employees and agents, and the Owners any right, remedy or claim under or by reason of this Indenture, or any covenant, condition or stipulation of this Indenture, and all covenants, stipulations, promises and agreements in this Indenture shall be for the sole and exclusive benefit of the Agency and the Trustee, their officers, employees and agents, and the Owners. -38- ARTICLE IX MISCELLANEOUS Section 9.01. Benefits Limited to Parties. Nothing in this Indenture, expressed or implied, is intended to give to any person other than the Agency, the Trustee and the Owners, any right, remedy or claim under or by reason of this Indenture. Any covenants, stipulations, promises or agreements in this Indenture contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Trustee and the Owners. Section 9.02. Successor is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture either the Agency or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Agency or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 9.03. Discharge of Indenture. If the Agency shall pay and discharge the entire indebtedness on all Bonds or any portion thereof in any one or more of the following ways: . (a) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on all or the applicable portion of Outstanding Bonds, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee or another Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established pursuant to this Indenture, is fully sufficient to pay all or the applicable portion of Outstanding Bonds, including all principal, interest and redemption premiums; or (c) by irrevocably depositing with the Trustee or another Trustee, in trust, Defeasance Obligations in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to this Indenture, be fully sufficient to pay and discharge the indebtedness on all Bonds or the applicable portion of (including all principal, interest and redemption premiums) at or before maturity; and, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given pursuant to Section 2.03(c) or provision satisfactory to the Trustee shall have been made for the giving of such notice, then, at the election of the Agency, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Tax Revenues and other funds provided for in this Indenture and all other obligations of the Trustee and the Agency under this Indenture shall cease and terminate with respect to all Outstanding Bonds or, if applicable, with respect to that portion of the Bonds which has been paid and discharged, except only (i) the obligation of the Trustee to transfer and exchange Bonds hereunder, (ii) the obligations of the Agency under Section 6.06 hereof, and (iii) the obligation of the Agency to pay or cause to be paid to the Owners, from the amounts so deposited with the Trustee, all sums due thereon and to pay the Trustee all fees, expenses and costs of the Trustee. In the event the Agency shall, pursuant to the foregoing provision, pay and discharge any portion or all of the Bonds then Outstanding, the Trustee shall be authorized to take such actions and execute and deliver to the Agency all such instruments as may be necessary or desirable to evidence such discharge, including, without limitation, selection by lot of Bonds of any maturity of the Bonds that the Agency has determined to pay and discharge in part. -39- In the case of a defeasance or payment of all of the Bonds Outstanding, any funds thereafter held by the Trustee which are not required for said purpose or for payment of amounts due the Trustee pursuant to Section 6.06 shall be paid over to the Agency. Section 9.04. Execution of Documents and Proof of Ownership by Owners. Any request, declaration or other instrument which this Indenture may require or permit to be executed by any Owner may be in one or more instruments of similar tenor, and shall be executed by such Owner in person or by their attorneys appointed in writing. Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, declaration or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. The ownership of Bonds and the amount, maturity, number and date of ownership thereof shall be proved by the Registration Books. Any request, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the Agency or the Trustee and in accordance therewith; provided, however, that the Trustee shall not be deemed to have knowledge that any Bond is owned by or for the account of the Agency unless the Agency is the registered Owner or the Trustee has received written notice that any other registered Owner is such an affiliate. Section 9.05. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are owned or held by or for the account of the Agency (but excluding Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Upon request of the Trustee, the Agency shall specify to the Trustee those Bonds disqualified pursuant to this Section 9.05. Trustee may conclusively rely on any such demand, request, direction, consent or waiver. Section 9.06. Waiver of Personal Liability. No member, officer, agent or employee of the Agency shall be individually or personally liable for the payment of the principal of or interest or any premium on the Bonds; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law. Section 9.07. Destruction of Canceled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or canceled pursuant to the provisions of this Indenture, the Trustee shall destroy such bonds and upon request of the Agency provide the Agency a certificate of destruction. The Agency shall be entitled to rely upon any statement of fact contained in any certificate with respect to the destruction of any such Bonds therein referred to. Section 9.08. Notices. Any notice, request, complaint, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or mailed by first class, registered or certified mail, postage prepaid, or sent by telegram, addressed as follows: -40- If to the Agency: Tustin Community Redevelopment Agency 300 Centennial Way Tustin, CA 92780 Attention: Executive Director Phone: (714) 573-3000 Fax: (714) 838-1602 If to the Trustee: The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, CA 90017-4104 Attention: Corporate Trust Department Phone: (213) 630-6249 Fax: (213) 630-6480 The Agency and the Trustee by notice given hereunder, may designate different addresses to which subsequent notices, certificates or other communications will be sent. Section 9.09. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Indenture shall for any reason be held illegal, invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Indenture. The Agency hereby declares that it would have adopted this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Indenture may be held illegal, invalid or unenforceable. If, by reason of the judgment of any court, the Trustee is rendered unable to perform its duties hereunder, all such duties and all of the rights and powers of the Trustee hereunder shall, pending appointment of a successor Trustee in accordance with the provisions of Section 6.01 hereof, be assumed by and vest in the Treasurer of the Agency in trust for the benefit of the Owners. The Agency covenants for the direct benefit of the Owners that its Treasurer in such case shall be vested with all of the rights and powers of the Trustee hereunder, and shall assume all of the responsibilities and perform all of the duties of the Trustee hereunder, in trust for the benefit of the Bonds, pending appointment of a successor Trustee in accordance with the provisions of Section 6.01 hereof. Section 9.10. Unclaimed Moneys. Anything contained herein to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of the interest or premium (if any) on or principal of the Bonds which remains unclaimed for two (2) years after the date when the payments of such interest, premium and principal have become payable, if such money was held by the Trustee at such date, or for two (2) years after the date of deposit of such money if deposited with the Trustee after the date when the interest and premium (if any) on and principal of such Bonds have become payable, shall be repaid by the Trustee to the Agency as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Bond Owners shall look only to the Agency for the payment of the principal of and interest and redemption premium (if any) on of such Bonds. Section 9.11. Execution in Counterparts. This Indenture 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. Section 9.12. Governing Law. This Indenture shall be construed and governed in accordance with the laws of the State. -41- IN WITNESS WHEREOF, the TUSTIN COMMUNITY REDEVELOPMENT AGENCY, has caused this Indenture to be signed in its name by its officer thereunto duly authorized and attested by its Secretary, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. Attest: Pamela Stoker Secretary -42- TUSTIN COMMUNITY REDEVELOPMENT AGENCY By David C. Biggs Executive Director THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By Teresa Fructuoso Vice President Quint & Thimmig LLP EXHIBIT A FORM OF BOND United States of America State of California Orange County TUSTIN COMMUNITY REDEVELOPMENT AGENCY Tax Allocation Bond (MCAS -Tustin Redevelopment Project Area), Series 2010 INTEREST RATE MATURITY DATE DATED DATE CUSIP % I September 1, November _, 2010 REGISTERED OWNER: CEDE & CO. PRINCIPAL SUM: DOLLARS 08/13/10 09/23/10 The TUSTIN COMMUNITY REDEVELOPMENT AGENCY, a public body, corporate and politic, duly organized and existing under and by virtue of the laws of the State of California (the "Agency"), for value received hereby promises to pay to the Registered Owner stated above, or registered assigns (the "Registered Owner"), on the Maturity Date stated above (subject to any right of prior redemption hereinafter provided for), the Principal Sum stated above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond, unless (i) this Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth (15th) day of the month immediately preceding an Interest Payment Date (the "Record Date"), in which event it shall bear interest from such Interest Payment Date, or (ii) this Bond is authenticated on or before February 15, 2011, in which event it shall bear interest from the Dated Date above; provided however, that if at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond, until payment of such Principal Sum in full, at the Interest Rate per annum stated above, payable semiannually on each March 1 and September 1, commencing March 1, 2011, or, if such day is not a Business Day (as such term is defined in the Indenture, hereinafter defined), on the next succeeding Business Day (each an "Interest Payment Date"), calculated on the basis of 360 -day year comprised of twelve 30 -day months. Principal hereof and premium, if any, upon early redemption hereof are payable upon surrender of this Bond at the Principal Corporate Trust Office (as such term is defined in the Indenture) of The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), or at such other place as designated by the Trustee. Interest hereon (including the final interest payment upon maturity or earlier redemption) is payable by check of the Trustee mailed by first class mail, postage prepaid, on the Interest Payment Date to the Registered Owner hereof at the Registered Owner's address as it appears on the registration books maintained by the Trustee as of the Record Date for which such Interest Payment Date occurs; provided however, that payment of interest may be by wire transfer to an account in the United States of America to any registered owner of Bonds in the aggregate principal amount of $1,000,000 or more upon Exhibit A 20006.05 Page 1 written instructions of any such registered owner filed with the Trustee for that purpose on or before the Record Date preceding the applicable Interest Payment Date. This Bond is one of a duly authorized issue of bonds of the Agency designated as "Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS-Tustin Redevelopment Project Area), Series 2010" (the "Bonds"), of an aggregate principal amount of dollars ($ ), all of like tenor and date (except for such variation, if any, as may be required to designate varying series, numbers, maturities, interest rates, or redemption and other provisions) and all issued pursuant to the provisions of Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the California Health and Safety Code, commencing with section 33640 of said Code (the "Redevelopment Law"), and pursuant to Resolution No. 10-_ of the Agency, adopted October 19, 2010, and an Indenture of Trust, dated as of November 1, 2010, entered into by and between the Agency and the Trustee (the "Indenture"), authorizing the issuance of the Bonds. Additional bonds, or other obligations may be issued on a parity with the Bonds, but only subject to the terms of the Indenture. Reference is hereby made to the Indenture (copies of which are on file at the office of the Agency) and all indentures supplemental thereto and to the Redevelopment Law for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the Tax Revenues (as that term is defined in the Indenture), and the rights thereunder of the registered owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Agency thereunder, to all of the provisions of which Indenture the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued by the Agency for the purpose of providing funds to (a) finance redevelopment activities within or for the benefit of the Agency's MCAS-Tustin Redevelopment Project Area, (b) fund a reserve account for the Bonds, and (c) pay certain expenses of the Agency in issuing the Bonds. The Bonds are special obligations of the Agency and this Bond and the interest hereon and on all other Bonds and the interest thereon (to the extent set forth in the Indenture), are payable from, and are secured by a pledge of, security interest in and lien on the Tax Revenues (as defined in the Indenture) derived by the Agency from the Redevelopment Project and amounts in certain funds and accounts maintained under the Indenture. There has been created and will be maintained by the Agency, the Special Fund (as defined in the Indenture) into which Tax Revenues shall be deposited and from which the Agency shall transfer amounts to the Trustee for payment of the principal of and the interest and redemption premium, if any, on the Bonds when due. As and to the extent set forth in the Indenture, all such Tax Revenues are exclusively and irrevocably pledged to and constitute a trust fund, in accordance with the terms hereof and the provisions of the Indenture and the Redevelopment Law, for the security and payment or redemption of, including any premium upon early redemption, and for the security and payment of interest on, the Bonds. In addition, the Bonds shall be additionally secured at all times by a first and exclusive pledge of, security interest in and lien upon all of the moneys in the Special Fund, the Debt Service Fund, the Interest Account, the Principal Account, the Sinking Account, the Reserve Account, and the Redemption Account (as such terms are defined in the Indenture). Except for the Tax Revenues and such moneys, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium, if any, on the Bonds. The Bonds maturing on or before September 1, , are not subject to optional redemption prior to maturity. The Bonds maturing on or after September 1, , are subject to redemption, at the option of the Agency on any date on or after September 1, , as a whole or in part, from any available source of funds, at a redemption price equal to the principal Exhibit A Page 2 amount thereof, together with accrued interest to the date fixed for redemption, without premium. The Bonds maturing on September 1, (the " Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on September 1 in each year thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity. In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Agency, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Agency. The Bonds maturing on September 1, (the " Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on September 1 in each year thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September if Amount (September 1) Amount t Maturity. Exhibit A Page 3 In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Agency, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Agency. As provided in the Indenture, notice of redemption shall be given by first class mail no less than thirty (30) nor more than sixty (60) days prior to the redemption date to the respective registered owners of any Bonds designated for redemption at their addresses appearing on the Bond registration books maintained by the Trustee, but neither failure to receive such notice nor any defect in the notice so mailed shall affect the sufficiency of the proceedings for redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default, as defined in the Indenture, shall occur, the principal of all Bonds may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture, but such declaration and its consequences may be rescinded and annulled as further provided in the Indenture. The Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 and any integral multiple thereof. Subject to the limitations and conditions and upon payment of the charges, if any, as provided in the Indenture, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations and of the same maturity. This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Corporate Trust Office of the Trustee, but only in the manner and subject to the limitations provided in the Indenture, and upon surrender and cancellation of this Bond. Upon registration of such transfer a new fully registered Bond or Bonds, of any authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The Trustee may refuse to transfer or exchange (a) any Bonds during the fifteen (15) days prior to the date established for the selection of Bonds for redemption, or (b) any Bonds selected for redemption. The Agency and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Agency and the Trustee shall not be affected by any notice to the contrary. The rights and obligations of the Agency and the registered owners of the Bonds may be modified or amended at any time in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Agency to pay the principal, interest or redemption premiums (if any) at the time and place and at the rate and in the currency provided herein of any Bond without the express written consent of the registered owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC'), to the Agency or the Trustee for registration of Exhibit A Page 4 transfer, exchange, or payment, and any Bond issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. This Bond is not a debt of the City of Tustin, the State of California, or any of its political subdivisions, and neither said City, said State, nor any of its political subdivisions is liable hereon, nor in any event shall this Bond be payable out of any funds or properties other than those of the Agency. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time and manner as required by the Redevelopment Law and the laws of the State of California, and that the amount of this Bond, together with all other indebtedness of the Agency, does not exceed any limit prescribed by the Redevelopment Law or any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the Trustee's Certificate of Authentication hereon shall have been manually signed by the Trustee. Exhibit A Page 5 IN WITNESS WHEREOF, the Tustin Community Redevelopment Agency has caused this Bond to be executed in its name and on its behalf with the facsimile signature of its Executive Director and attested by the facsimile signature of its Secretary, all as of Dated Date stated above. ATTEST: TUSTIN COMMUNITY REDEVELOPMENT AGENCY By Secretary Executive Director TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within -mentioned Indenture. Authentication Date: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee By: Authorized Signatory Exhibit A Page 6 ASSIGNMENT For value received, the undersigned do(es) hereby sell, assign and transfer unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within Certificate and do(es) hereby irrevocably constitute and appoint attorney, to transfer the same on the registration books of the Trustee, with full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program) pursuant to Securities and Exchange Commission Rule 17 Ad -15. NOTICE: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Certificate in every particular, without alteration or enlargement or any change whatsoever. Exhibit A Page 7 PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 20, 2010 NEW ISSUE—BOOK-ENTRY ONLY RATING: _ S&P: See "RATING" herein. In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, (ii) is not _ included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, and (iii) is not taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. In addition, _ in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See "TAX MATTERS" = herein. 5 TUSTIN TUSTIN COMMUNITY REDEVELOPMENT AGENCY (Orange County, California) Tax Allocation Bonds ° (MCAS -Tustin Redevelopment Project Area), Series 2010 _ BUIL OURFUTURE 1{ONORINO OU0. PAST Dated: Date of Delivery Due: September 1, as shown below Proceeds from the sale of the $ * Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 (the "Bonds"), will be used by the Tustin Community Redevelopment Agency (the "Agency") to (a) finance redevelopment activities within or for the benefit of the Agency's 12 MCAS -Tustin Redevelopment Project Area, (b) fund a reserve account for the Bonds, and (c) provide for the costs of issuing the Bonds. See "FINANCING PLAN" herein. p - Interest on the Bonds will be payable semi-annually on each March 1 and September 1, commencing March 1, 2011 (each, an "Interest Payment Date"). The Bonds will be 2 = issued in fully registered form without coupons and will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book -entry form only in denominations of $5,000 c or any integral multiple thereof. Purchasers of such beneficial interests will not receive physical certificates representing their interests in the Bonds. Payment of principal of, interest and premium, if any, on the Bonds will be made directly to DTC or its nominee, Cede & Co., so long as DTC or Cede & Co. is the registered owner of the Bonds. E Disbursement of such payments to the DTC Participants (as defined herein) is the responsibility of DTC and disbursement of such payments to the Beneficial Owners (as defined herein) is the responsibility of the DTC Participants, as more fully described herein. See "THE BONDS—Book-Entry System" herein. r The Bonds will be issued under and pursuant to an Indenture of Trust, dated as of November 1, 2010 (the "Indenture"), by and between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"). The Bonds are special obligations of the Agency and are payable solely from and secured by a pledge of the J Tax Revenues (as defined herein), subject to the provisions of the Indenture permitting the application thereof for other purposes, and by a pledge of amounts in certain funds and accounts established under the Indenture, as further discussed herein. The Bonds are subject to optional and mandatory sinking account redemption prior to maturity. See "THE BONDS—Redemption" herein. – THE BONDS ARE SPECIAL OBLIGATIONS OF THE AGENCY PAYABLE SOLELY FROM THE TAX REVENUES, AS DESCRIBED HEREIN, AND AMOUNTS IN – CERTAIN FUNDS AND ACCOUNTS MAINTAINED UNDER THE INDENTURE AND ARE NOT A DEBT OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA (THE "STATE") OR ANY POLITICAL SUBDIVISIONS THEREOF (OTHER THAN THE AGENCY, TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), AND NONE OF THE AUTHORITY, THE CITY OR THE STATE OR ANY POLITICAL SUBDIVISIONS THEREOF (OTHER THAN THE AGENCY) IS LIABLE THEREFOR. THE BONDS ARE NOT PAYABLE FROM, AND ARE NOT SECURED BY, ANY FUNDS OF THE AGENCY, OTHER THAN THE TAX REVENUES PLEDGED PURSUANT TO THE INDENTURE. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR a STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE MEMBERS OF THE AGENCY NOR ANY PERSONS RESPONSIBLE FOR THE EXECUTION OF THE BONDS IS LIABLE PERSONALLY FOR PAYMENT OF THE BONDS BY REASON OF THEIR ISSUANCE. MATURITY DATES- PRINCIPAL AMOUNTS. INTEREST RATES. PRICES OR YIELDS AND CUSIP NUMBERS 4' $ Serial Bonds CUSIPt Prefix: 901048 Maturity Principal Interest Price or CUSIPt Maturity Principal Interest Price or CUSIPt (September I) Amount Rate Yield Suffix (September 1) Amount Rate Yield fix $ _% Term Bonds due September 1, Price: %, to Yield _%; CUSIPt: 901048 s $ _% Term Bonds due September 1, Price: %, to Yield _%; CUSIPt: 901048 This cover page is not intended to be a summary of the Bonds or the security therefor. Investors are advised to read the Official Statement in its entirety to obtain information essential to the making of an informed investment decision with respect to the Bonds. C n E The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to the approval as to their legality by Quint & Thimmig LLP, San Francisco, s. California, Bond Counsel. Certain other legal matters related to this offering will be passed upon for the Authority and the Agency by Woodruff, Spradlin & Smart, P.C., - - Costa Mesa, California, Agency Counsel, and by Quint & Thimmig LLP, San Francisco, California, as Disclosure Counsel. It is expected that the Bonds in definitive form will be available for delivery to DTC in New York, New York on or about November 18, 2010. STONE & YOUNGBERG F November 2010 *Preliminary, subject to change. t Copyright 2010, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by the CUSIP Service Bureau, operated by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the Agency and are included solely for the convenience of the registered owners of the Bonds. The Agency is not responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Agency. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from sources which are believed to be reliable but such information is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with and as part of this transaction but the Underwriter does not guarantee the accuracy or completeness of such information. All summaries of the Indenture and other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions. While the City of Tustin maintains an internet website for various purposes, none of the information on such website is incorporated by reference herein or intended to assist investors in making any investment decision or to provide any continuing information with respect to the Bonds. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. This Official Statement contains forward looking statements by the Agency concerning future conditions affecting the Agency, the City, the State and the United States which may relate to its business operations and financial condition of the Agency. The Official Statement contains the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" or variations of those terms to identify "forward looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 2000 Section 21E of the U.S. Securities and Exchange Act of 1934, as amended, and Section 27A of the U.S. Securities and Exchange Act of 1933, as amended. You should not rely on these forward-looking statements which speak only as to the Agency's expectations as of the date of this Official Statement. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Except as required by law, neither the Agency, the City or the Underwriter undertake any duty to update any forward looking statements after the date of this Official Statement, either to confirm any statement to reflect actual results or to reflect the occurrence of unanticipated events. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SECTION 3(a)(2) OF SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THE INDENTURE HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. TABLE OF CONTENTS Page INTRODUCTION..................................................................................1 Page General...................................................................................1 Purpose of Issuance..............................................................1 24 TheCity..................................................................................1 24 TheAgency............................................................................1 The Redevelopment Project................................................2 Tax Allocation Financing.....................................................2 26 TheBonds..............................................................................2 26 Source of Payment for the Bonds.......................................3 27 Reserve Account...................................................................3 31 ParityDebt.............................................................................3 Fiscal Consultant's Report...................................................4 RiskFactors............................................................................4 Continuing Disclosure.........................................................4 Adjustments to Tax Increment Revenues ....................... TaxMatters............................................................................4 Factors Which May Affect Tax Revenues ....................... Professionals Involved in the Offering ..............................4 Real Estate and General Economic Risks ....................... Forward -Looking Statements.............................................5 Limited Obligations...........................................................45 OtherMatters........................................................................5 No Acceleration on Default..............................................45 Other Information................................................................5 Bankruptcy.......................................................................... ESTIMATED SOURCES AND USES OF FUNDS ............................. 6 FINANCINGPLAN..............................................................................6 Investment Risk..................................................................46 DEBT SERVICE SCHEDULE................................................................ 7 THEBONDS...........................................................................................7 CONSTITUTIONAL AND STATUTORY PROVISIONS General Provisions...............................................................7 AFFECTING TAX REVENUES..........................................................47 Redemption...........................................................................8 Property Tax Limitations -Article XIIIA ..........................47 Book -Entry System.............................................................10 Challenges to Article XIIIA............................................... TAX ALLOCATION FINANCING...................................................11 Implementing Legislation.................................................47 General.................................................................................11 UnitaryProperty ................................................................48 Allocation of Taxes.............................................................11 Property Tax Collection Procedures ............................... SECURITY FOR THE BONDS...........................................................12 Appropriations Limitations -Article XIIIB ...................... Pledge of Tax Revenues.....................................................12 State Board of Equalization and Property Security of Bonds; Equal Security ....................................12 Assessment Practices....................................................... Special Fund; Deposit of Tax Revenues ..........................13 Exclusion of Tax Revenues for General Obligation Deposit of Amounts by Trustee.......................................13 Bonds Debt Service.......................................................... Issuance of Parity Debt......................................................15 Proposition218................................................................... Issuance of Subordinate Debt...........................................16 AB1290................................................................................50 THECITY..............................................................................................16 Future Initiatives................................................................ THEAGENCY......................................................................................17 Low and Moderate Income Housing .............................. AgencyMembers................................................................17 Statement of Indebtedness................................................51 Agency Administration.....................................................17 CERTAIN LEGAL MATTERS............................................................52 AgencyPowers...................................................................17 ENFORCEABILITY OF REMEDIES..................................................52 Redevelopment Projects....................................................18 RATING.................................................................................................52 Outstanding Indebtedness of the Agency ......................20 CONTINUING DISCLOSURE............................................................52 Agency Financial Statements............................................20 ABSENCE OF LITIGATION...............................................................53 Redevelopment Plan..........................................................21 TAXMATTERS.....................................................................................53 Redevelopment Plan Limits..............................................21 UNDERWRITING................................................................................56 Annual Tax Receipts to Tax Levy....................................22 MISCELLANEOUS..............................................................................56 APPENDIX A - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX B - GENERAL INFORMATION REGARDING THE CITY APPENDIX C - AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR THE FISCAL YEAR ENDEDJUNE30,2009 APPENDIX D - FISCAL CONSULTANT'S REPORT APPENDIX E - FORM OF BOND COUNSEL'S OPINION APPENDIX F - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX G - BOOK -ENTRY ONLY SYSTEM Page Appeals of Assessed Values.............................................23 Proposition 13 Inflationary Adjustments ....................... 24 Proposition 8 Reductions .................................................. 24 AB1389................................................................................25 THE REDEVELOPMENT PROJECT..................................................26 General................................................................................ 26 Description of the Redevelopment Project ..................... 26 Redevelopment Activity ................................................... 27 Redevelopment Plan Limitations .................................... 31 Tax Sharing Agreements...................................................31 Assessed Valuation............................................................31 Appeals of Assessed Values.............................................33 Tax Revenue Projections and Debt Service Coverage.. 34 Adjustments to Tax Increment Revenues ....................... 36 Factors Which May Affect Tax Revenues ....................... 37 Real Estate and General Economic Risks ....................... 44 Limited Obligations...........................................................45 No Acceleration on Default..............................................45 Bankruptcy.......................................................................... 45 Federal Tax -Exempt Status of the Bonds ........................ 46 Investment Risk..................................................................46 Secondary Market..............................................................46 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING TAX REVENUES..........................................................47 Property Tax Limitations -Article XIIIA ..........................47 Challenges to Article XIIIA............................................... 47 Implementing Legislation.................................................47 UnitaryProperty ................................................................48 Property Tax Collection Procedures ............................... 48 Appropriations Limitations -Article XIIIB ...................... 49 State Board of Equalization and Property Assessment Practices....................................................... 50 Exclusion of Tax Revenues for General Obligation Bonds Debt Service.......................................................... 50 Proposition218................................................................... 50 AB1290................................................................................50 Future Initiatives................................................................ 51 Low and Moderate Income Housing .............................. 51 Statement of Indebtedness................................................51 CERTAIN LEGAL MATTERS............................................................52 ENFORCEABILITY OF REMEDIES..................................................52 RATING.................................................................................................52 CONTINUING DISCLOSURE............................................................52 ABSENCE OF LITIGATION...............................................................53 TAXMATTERS.....................................................................................53 UNDERWRITING................................................................................56 MISCELLANEOUS..............................................................................56 APPENDIX A - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX B - GENERAL INFORMATION REGARDING THE CITY APPENDIX C - AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR THE FISCAL YEAR ENDEDJUNE30,2009 APPENDIX D - FISCAL CONSULTANT'S REPORT APPENDIX E - FORM OF BOND COUNSEL'S OPINION APPENDIX F - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX G - BOOK -ENTRY ONLY SYSTEM TUSTIN COMMUNITY REDEVELOPMENT AGENCY 300 Centennial Way Tustin, CA 92780 (714)573-3000 (714) 832-0825 (Fax) http://www.tustinca.org Agency Board/City Council Jerry Amante, Chair/Mayor John Nielsen, Vice Chair/Mayor Pro Tem Debora Gavello, Boardmember/Councilmember Doug Davert, Boardmember/Councilmember Jim Palmer, Boardmember/Councilmember Agency/City Staff and Officials David C. Biggs, Executive Director/City Manager Christine A. Shingleton, Assistant Executive Director/Assistant City Manager George Jeffries, Treasurer/City Treasurer Pamela Stoker, Secretary/City Clerk Pamela Arends-King, Director of Finance Douglas C. Holland, Agency Counsel/City Attorney Special Services Fieldman, Rolapp & Associates Irvine, California Financial Advisor The Bank of New York Mellon Trust Company, N.A. Los Angeles, California Trustee David Taussig & Associates Newport Beach, California Fiscal Consultant Quint & Thimmig LLP San Francisco, California Bond Counsel and Disclosure Counsel OFFICIAL STATEMENT TUSTIN COMMUNITY REDEVELOPMENT AGENCY Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 INTRODUCTION General This Official Statement of the Tustin Community Redevelopment Agency (the "Agency") provides information regarding the sale by the Agency of $ * aggregate principal amount of its Tustin Community Redevelopment Agency (Tustin Redevelopment Project) Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 (the 'Bonds"). Definitions of certain capitalized terms used in this Official Statement are set forth in APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE. This Official Statement contains brief descriptions of the Bonds, the Indenture, the Agency and the Agency's MCAS -Tustin Redevelopment Project Area (the "Redevelopment Project"). Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to specific documents are qualified in their entirety by reference to such documents and references to the Bonds are qualified in their entirety by reference to the form of the Bonds included in the Indenture. Copies of the Indenture and other documents described in this Official Statement may be obtained from the Agency as described under the subheading "Other Information" below. Purpose of Issuance Proceeds from the sale of the Bonds will be used to (a) finance redevelopment activities within and for the benefit of the Redevelopment Project (the "2010 Project"), (b) fund a reserve account for the Bonds, and (c) provide for the costs of issuing the Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" and "FINANCING PLAN." The City The City of Tustin (the "City") is located in Orange County (the "County"), approximately 41 miles south of the City of Los Angeles and approximately 90 miles north of the City of San Diego. Incorporated in 1927, the City operates as a general law city with a Council -Manager form of government. The Mayor is selected by the City Council from among its members. For certain information with respect to the City, see "THE CITY" and APPENDIX B—GENERAL INFORMATION REGARDING THE CITY. The Agency The Agency was established pursuant to the California Community Redevelopment Law, constituting Part 1 of Division 24 of the California Health and Safety Code (the * Preliminary, subject to change. "Redevelopment Law"), and was activated by the City Council by Ordinance No. 696-A, enacted by the City Council of the City on October 20, 1976. The Agency has the authority, and is charged generally with the responsibility, to redevelop and upgrade blighted areas of the City. The members of the City Council serve as the governing body of the Agency and exercise all rights, powers, duties and privileges of the Agency. See "THE AGENCY." The Redevelopment Project The Redevelopment Project, established in 2003, is comprised of 1,508.6 acres, including 1,504.5 acres that were part of the former Marine Corps Air Station Tustin and 4.1 acres that are located outside of the former base boundaries, at the northwest corner of Edinger Avenue and Jamboree Road. Development of the Redevelopment Project, known as Tustin Legacy, is expected to include 4,210 homes, over 10 million square feet of non-residential space including major office, retail, entertainment, business park, educational and community support facilities. Significant acreage will be dedicated to parkland and recreational open spaces which will feature a two-mile community lineal park with walking spaces, playgrounds, tranquil natural areas and sports facilities. The total assessed valuation of taxable property in the Redevelopment Project in Fiscal Year 2010-11 is approximately $1,172,858,826, which is $1,171,744,748 greater than the adjusted assessed valuation of $1,114,078 in the base year (2002-03). Assessed valuations in the Redevelopment Project are subject to numerous risks which could result in decreases from those reported for Fiscal Year 2010-11. See "BONDOWNERS' RISKS." Also see "THE REDEVELOPMENT PROJECT." The Agency maintains two other redevelopment project areas, the Town Center Redevelopment Project and the South Central Redevelopment Project, which are not involved in this financing. Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or "base roll," is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (the tax increment revenues) are allocated to the applicable redevelopment agency and may be pledged by the redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. The Bonds The Bonds are being issued pursuant to the Redevelopment Law, a resolution adopted by the Agency on [October 19, 2010], and an Indenture of Trust, dated as of November 1, 2010 (the "Indenture"), by and between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"). See "THE BONDS" and APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE. The Bonds will be issued in denominations of $5,000 each or integral multiples thereof. Interest on the Bonds will be payable on each March 1 and September 1, commencing March 1, 2011. Principal of and interest on the Bonds will be payable by the Trustee to The Depository -2- Trust Company ("DTC") which will be responsible for remitting such principal and interest to the DTC participants which will in turn be responsible for remitting such principal and interest to the beneficial owners of the Bonds. No physical distribution of the Bonds will be made to the public. See "THE BONDS—Book-Entry System." Source of Payment for the Bonds The Bonds are special obligations of the Agency and are payable from and secured by a pledge of Tax Revenues and amounts in certain funds and accounts held under the Indenture. The term "Tax Revenues" is defined in the Indenture as all taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Redevelopment Project pursuant to Article 6 of Chapter 6 (commencing with section 33670) of the Law and section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws, and as provided in the Redevelopment Plan, and all payments, subventions and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, excluding all other amounts of such taxes (if any) (i) which are required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to section 33334.3 of the Redevelopment Law, (ii) which constitute supplemental subventions payable by the State to the Agency under and pursuant to Chapter 1.5 of Part 1 of Division 4 of Title 2 (commencing with section 16110) of the California Government Code, (iii) which constitute amounts required to be paid by the Agency pursuant to the Pass -Through Agreements, except and to the extent such amounts so payable are payable on a basis subordinate to the payment of the Notes, and (iv) which constitute amounts payable by the Agency under sections 33607.5 or 33607.7 of the Law for payments to affected taxing entities, except and to the extent such amounts so payable are payable on a basis subordinate to the payment of the Bonds. The Tax Revenues are not subject to the pledge and lien of any indebtedness of the Agency other than the Bonds and any Parity Debt hereafter issued in accordance with the Indenture, and certain other obligations which are made or are by their terms subordinate to the payment of the Bonds. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING TAX REVENUES" and "THE AGENCY—Outstanding Indebtedness of the Agency." The Bonds are not payable from, and are not secured by, any funds of the Agency other than the Tax Revenues and amounts in certain funds and accounts pledged therefore under the Indenture. See "SECURITY FOR THE BONDS." Reserve Account A reserve account (the "Reserve Account") will be established and held under the Indenture in order to secure the payment of principal of and interest on the Bonds in an amount, as of the Closing Date, equal to the Reserve Requirement. If, on any Interest Payment Date for the Bonds, the amounts on deposit under the Indenture to pay the principal of or interest due on the Bonds are insufficient therefor, the Trustee will draw on the Reserve Account to replenish the Interest Account, the Principal Account or the Sinking Account, in that order, to make up such deficiencies. See "SECURITY FOR THE BONDS—Deposit of Amounts by Trustee Reserve Account" and APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE for additional information on the Reserve Account. Parity Debt The Indenture provides that in addition to the Bonds, the Agency may provide for the issuance of Parity Debt secured by a lien on Tax Revenues on a parity with the Bonds to finance redevelopment activities within or of benefit to the Redevelopment Project in such principal amount as shall be determined by the Agency. The Agency may deliver Parity Debt subject to -3- certain specific conditions set forth in the Indenture. See "SECURITY FOR THE BONDS— Issuance of Parity Debt." Fiscal Consultant's Report David Taussig & Associates, Newport Beach, California (the "Fiscal Consultant") has been retained to prepare a report (the "Fiscal Consultant's Report") for the Bonds. See APPENDIX D—FISCAL CONSULTANT'S REPORT. Risk Factors Prospective investors should review this Official Statement and the appendices hereto in their entirety and should consider certain risk factors associated with the purchase of the Bonds, some of which have been summarized in the section herein entitled "BONDOWNERS' RISKS." Continuing Disclosure The Agency will covenant, pursuant to a continuing disclosure certificate (the "Continuing Disclosure Certificate") to be executed on the date of delivery of the Bonds, for the benefit of owners and beneficial owners of the Bonds, to provide certain financial information and operating data related to the Agency and the Redevelopment Project by not later than nine months following the end of the Agency's Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report and notices of material events will be filed by the Agency with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report and any notices of material events is summarized below under the caption "CONTINUING DISCLOSURE." The form of the Continuing Disclosure Certificate is set forth in APPENDIX F— FORM OF CONTINUING DISCLOSURE CERTIFICATE. The covenants of the Agency in the Continuing Disclosure Certificate have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2 -12(b)(5). Tax Matters In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, and (iii) is not taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See "TAX MATTERS." Professionals Involved in the Offering The proceedings of the Agency in connection with the issuance of the Bonds are subject to the approval as to their legality of Quint & Thimmig LLP, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the Agency by Quint & Thimmig LLP, San Francisco, California, as Disclosure Counsel, and by Woodruff, Spradlin & Smart, P.C., Costa Mesa, California, Agency Counsel. The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as the Trustee under the Indenture. Fieldman, Rolapp and Associates, Irvine, California, is serving as financial advisor to the Agency for the Bonds (the "Financial Advisor"). The Fiscal Consultant has been retained to prepare the Fiscal Consultant's -4- Report for the Bonds. The fees of Bond Counsel, Disclosure Counsel, the Financial Advisor and the Trustee are contingent upon the sale and delivery of the Bonds. Forward -Looking Statements This Official Statement, and particularly the information contained under the headings entitled "FINANCING PLAN," "ESTIMATED SOURCES AND USES OF FUNDS," "SECURITY FOR THE BONDS," "THE REDEVELOPMENT PROJECT," "BONDOWNERS' RISKS" and APPENDIX B—GENERAL INFORMATION REGARDING THE CITY, contains statements relating to future results that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 2000. When used in this Official Statement, the words "estimate," "forecast," "intend," "expect" 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 Agency is not obligated to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. See "BONDOWNERS' RISKS" and "LIMITATIONS ON TAX REVENUES." Other Matters There follows in this Official Statement brief descriptions of the Bonds, the security for the Bonds, the Indenture, the Agency, the City, the Redevelopment Project, and certain other information relevant to the issuance of the Bonds. 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. All statements herein with respect to such documents are qualified in their entirety by reference to each such document for the complete details of all of their respective terms and conditions. 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. Copies of the Indenture are available for inspection during business hours at the corporate trust office of the Trustee. The information and expressions of opinion herein speak only as of the date of this Official Statement and are subject to change without notice. Neither delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the City since the date hereof. All financial and other information presented in this Official Statement has been provided by the Agency and the City from their records, except for information expressly attributed to other sources. The presentation of information, including the table of receipts from taxes and other revenues, is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial or other affairs of the Agency or the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. Other Information This Official Statement speaks only as of its date and the information contained herein is subject to change without notice. Copies of the Indenture are available from the Agency upon -5- written request to the Agency, 300 Centennial Way, Tustin, CA 92780, Attention: Executive Director. The Agency may impose a charge for copying, mailing and handling expenses related to any request for documents. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth a summary of the estimated sources and uses of funds associated with the issuance and sale of the Bonds. Sources of Funds Par Amount of Bonds Plus: Original Issue Premium Total Sources Uses of Funds Deposit to Redevelopment Fund (1) Deposit to Reserve Account (2) Costs of Issuance (3) Total Uses (1) Represents amount required to finance the 2010 Project. See "FINANCING PLAN." (2) Represents an amount equal to the initial Reserve Account Requirement for the Bonds. (3) Includes Underwriter's discount, fees and expenses of the Trustee, the Financial Advisor, the Fiscal Consultant, Bond Counsel and Disclosure Counsel, printing expenses and other costs of issuance. FINANCING PLAN Proceeds from the sale of the Bonds will be used to (a) finance the 2010 Project, (b) fund a reserve account for the Bonds, and (c) provide for the costs of issuing the Bonds. The types of facilities proposed to be financed are various infrastructure improvements yet to be completed located within and outside the Redevelopment Project boundaries (for which a benefit resolution shall have been adopted by the Agency), including traffic and circulation mitigation, street and roadway improvements, including grading, paving, curbs and gutters, sidewalks, street signalization and signage, street lights, parkway and landscaping thereto, and storm drains and flood control channels, runoff management improvements and water quality mitigation measures, integrated utilities backbone, telemetry, noise mitigation expenses associated with roadway projects, public parkland and recreation facilities, right-of- way and easements necessary for any such facilities. The initial priority project will be the extension of Tustin Ranch Road from Warner Avenue on the south to Walnut Avenue on the north, including the Tustin Ranch Road bridge and interchange at Edinger Avenue along with the integrated improvements associated with the roadway improvement including necessary and integrated utility backbone systems. -6- DEBT SERVICE SCHEDULE The following table sets forth the scheduled annual debt service for the Bonds. Bond Year Ending Principal (September 11 Amount (1) Interest Total 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 TOTALS (1) Includes sinking fund installments THE BONDS General Provisions The Bonds will be delivered in fully registered form, without coupons, in the denomination of $5,000 each or any integral multiple thereof. Interest on the Bonds will be payable semiannually on each March 1 and September 1, commencing March 1, 2011 (each, an "Interest Payment Date"), to the Owner thereof as of the close of business on the fifteenth (15th) calendar day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) calendar day is a business day (each, a "Record Date"). Principal of the Bonds will be payable on September 1 in each of the years and in the amounts shown on the inside cover page hereof. The Bonds will be dated as of their date of delivery. Each Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (i) it is executed during the period from the day after the Record Date for an Interest Payment Date to -7- and including such Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or (ii) it is executed on or prior to the Record Date for the first Interest Payment Date, in which event it will bear interest from the date of its initial delivery; provided, however, that if, at the time of registration of any Bond, interest with respect to such Bond is in default, such Bond will bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Bond. Interest on the Bonds will be payable in lawful money of the United States of America on each Interest Payment Date to the Owner thereof as of the close of business on the Record Date. Subject to the book -entry system established for the Bonds (see "Book -Entry System" below), such interest to be paid by check of the Trustee, mailed by first class mail no later than the Interest Payment Date to the Owners at their addresses as they appear, on such Record Date, on the bond registration books maintained by the Trustee; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds filed with the Trustee prior to any Record Date, interest on such Bonds will be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing) by wire transfer of immediately available funds to an account in the continental United States designated in such written request. Payments of defaulted interest with respect to the Bonds will be paid by check to the registered Owners of the Bonds as of a special record date to be fixed by the Trustee, notice of which special record date shall be given to the Owners of the Bonds not less than ten days prior thereto. The principal of and premium, if any, on the Bonds are payable when due upon surrender thereof at the principal corporate trust office of the Trustee in San Francisco, California, in lawful money of the United States of America. Redemption Optional Redemption of Bonds. The Bonds maturing on or before September 1, , are not subject to optional redemption prior to maturity. The Bonds maturing on or after September 1, , are subject to redemption, at the option of the Agency on any date on and after September 1, , as a whole or in part, by lot, within a maturity, from any available source of funds, at a redemption price equal to the principal amount thereof, together with a accrued interest to the date fixed for redemption, without premium. The Agency is required to give the Trustee written notice of its intention to optionally redeem Bonds under the Indenture with a designation of the maturities to be redeemed at least forty-five (45) days, but not more than seventy-five (75) days, or such shorter period as shall be acceptable to the Trustee, prior to the date fixed for such redemption, and shall transfer to the Trustee for deposit in the Debt Service Fund all amounts required for such redemption on or prior to the date fixed for such redemption. The maturity or maturities of Bonds to be called for redemption shall be determined by the Agency. If the Agency shall fail to select a particular maturity or maturities for redemption, such redemption shall be made on a pro rata basis. Sinking Account Redemption of Bonds. The Bonds maturing on September 1, (the Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on September 1 in each year thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis {as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity. In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Agency, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Agency. The Bonds maturing on September 1, (the " Term Bonds") are subject to mandatory redemption, in part by lot, from Sinking Account payments set forth in the following schedule on September 1, , and on September 1 in each year thereafter to and including September 1, , at a redemption price equal to the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption; provided, however, that if some but not all of the Term Bonds have been optionally redeemed, the total amount of Sinking Account payments to be made subsequent to such redemption shall be reduced in an amount equal to the principal amount of the Term Bonds so redeemed by reducing each such future Sinking Account payment on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as shall be designated pursuant to written notice filed by the Agency with the Trustee. Redemption Date Principal Redemption Date Principal (September 1) Amount (September 1) Amount t Maturity. In lieu of such redemption, the Trustee may apply amounts in the Sinking Account to the purchase of Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the Agency, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Term Bonds, as set forth in a Written Request of the Agency. Notice of Redemption. The Trustee on behalf and at the expense of the Agency is required to mail (by first class mail, postage prepaid) notice of any redemption at least thirty (30) but not more than sixty (60) days prior to the redemption date, to (i) the Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and (ii) the Securities Depositories and to one or more Information Services designated in a Written Request of the Agency filed with the Trustee; but such mailing is not a condition precedent to such redemption and neither failure to receive any such notice nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice must state the redemption date and the -9- redemption price, must designate the CUSIP number of the Bonds to be redeemed, must state the individual number of each Bond to be redeemed or must state that all Bonds between two stated numbers (both inclusive) or all of the Bonds Outstanding are to be redeemed, and must require that such Bonds be then surrendered at the Principal Corporate Trust Office for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Notwithstanding the foregoing, in the case of any optional redemption of the Bonds, the notice of redemption shall state that the redemption is conditioned upon receipt by the Trustee of sufficient moneys to redeem the Bonds on the anticipated redemption date, and that the optional redemption shall not occur if, by no later than the scheduled redemption date, sufficient moneys to redeem the Bonds have not been deposited with the Trustee. In the event that the Trustee does not receive sufficient funds by the scheduled optional redemption date to so redeem the Bonds to be optionally redeemed, such event shall not constitute and Event of Default, the Trustee shall send written notice to the owners of the Bonds, to the Securities Depositories and to one or more of the Information Services to the effect that the redemption did not occur as anticipated, and the Bonds for which notice of optional redemption was given shall remain Outstanding for all purposes of the Indenture. Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Agency is required to execute and the Trustee is required to authenticate and deliver to the Owner thereof, at the expense of the Agency, a new Bond or Bonds of the same interest rate and maturity, of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Bond to be redeemed. Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption price of and interest on the Bonds so called for redemption have been duly deposited with the Trustee, such Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price and accrued interest to the redemption date, and no interest shall accrue thereon from and after the redemption date specified in such notice. Manner of Redemption. Whenever any Bonds or portions thereof are to be selected for redemption by lot, the Trustee shall make such selection, in such manner as the Trustee shall deem appropriate, and shall notify the Agency thereof. In the event of redemption by lot of Bonds, the Trustee shall assign to each Bond then Outstanding a distinctive number for each $5,000 of the principal amount of each such Bond. The Bonds to be redeemed shall be the Bonds to which were assigned numbers so selected, but only so much of the principal amount of each such Bond of a denomination of more than $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected. All Bonds redeemed or purchased shall be canceled. Book -Entry System The Bonds will be subject to a book -entry system of registration, transfer and payment and each Bond will initially be registered in the name of Cede & Co, as nominee of The Depository Trust Company, New York, New York ("DTC"). As part of such book -entry system, DTC has been appointed securities depository for the Bonds, and registered ownership may not thereafter be transferred except as provided in the Indenture. The Bonds are being delivered in book -entry form only. Purchasers will not receive securities certificates representing their interests in the Bonds. Rather, in accordance with the book -entry system, purchasers of the Bonds will have beneficial ownership interest in the purchased Bonds through DTC Participants (as hereinafter defined). For more information concerning the book -entry system, see APPENDIX G—BOOK-ENTRY ONLY SYSTEM. -10- TAX ALLOCATION FINANCING General Tax Allocations. The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan for the project area, or base roll, is established as of the date of adoption of the redevelopment plan. Thereafter, except for any period during which the taxable valuation drops below the base year level, the taxing bodies receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (with the exception of taxes derived from increases in the tax rate imposed by Taxing Agencies (hereinafter defined) to support new bonded indebtedness) (the "Tax Increment Revenues") are allocated to the redevelopment agency and may be pledged to the repayment of any indebtedness incurred in financing or refinancing redevelopment. Redevelopment agencies themselves have no authority to levy property taxes and must look exclusively to such allocation of taxes. Allocation of Taxes As provided in the redevelopment plan for the project area, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the State Constitution, taxes levied upon taxable property in the project area each year by or for the benefit of the State, cities, counties, districts or other public corporations (collectively, the "Taxing Agencies"), for fiscal years beginning after the effective date of the redevelopment plan, will be divided as follows: (1) To Taxing Agencies: The portion equal to the amount of those taxes which would have been produced by the then current tax rate, applied to the taxable valuation of such property in the redevelopment project area as last equalized prior to the establishment of the redevelopment project, or base roll, is paid into the funds of those respective Taxing Agencies as taxes by or for said Taxing Agencies; and (2) To the Agency: The portion of said levied taxes each year in excess of the amount referred to in (1) above is allocated to, and when collected, is paid to the agency; provided that the portion of the tax increment revenues which are attributable to a tax rate levied by a taxing agency to pay indebtedness approved by the voters of that taxing agency on or after January 1, 1989, shall be allocated to, and when collected shall be paid into, the fund of such taxing agency. Housing Set -Aside Amounts. Sections 33334.2 and 33334.3 of the Redevelopment Law require each agency to set aside not less than 20% of all Tax Increment Revenues in a low and moderate income housing fund (the "Low and Moderate Income Housing Fund") to be expended for authorized low and moderate income housing purposes (the "Housing Set -Aside Amount"). Amounts on deposit in the Low and Moderate Income Housing Fund may also be applied to pay debt service on bonds, loans or advances used to provide financing for such low and moderate income housing purposes. Under the Redevelopment Law, the Housing Set - Aside Amount could be reduced or eliminated if the agency finds that (1) no need exists in the community to improve or increase the supply of low and moderate income housing, (2) that some stated percentage less than 20% of the tax increment is sufficient to meet the housing need or (3) that other substantial efforts, including the obligation of funds from certain local, state or federal sources for low and moderate income housing, or equivalent impact are being provided for in the community. See "LIMITATIONS ON TAX REVENUES." The Agency has made no -11- such finding and is, therefore, obligated to make such set-aside. No portion of the proceeds of the Bonds is expected to be deposited in the Low and Moderate Income Housing Fund. The Agency is currently setting aside 20 percent of the Redevelopment Project's tax increment revenue and the Fiscal Consultant's projections assume that the Agency will continue to do so for the duration of the plan life of the Redevelopment Project. Tax Sharing Agreements. Pursuant to section 33607.5 of the Redevelopment Law, the Agency is required to implement statutory tax sharing with all taxing entities levying taxes upon property within the Redevelopment Project. See "THE REDEVELOPMENT PROJECT— Tax Sharing Agreements." SECURITY FOR THE BONDS Pledge of Tax Revenues The Bonds and all payments required of the Agency under the Indenture are not general obligations of the Agency but are limited special obligations of the Agency and are secured by an irrevocable pledge of, and are payable as to principal and interest, from Tax Revenues and other funds as hereinafter described, including similar revenues derived from any redevelopment project that may be created by the City in the future. The Bonds and interest thereon are not a debt of the City, the State or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable on them. In no event shall the Bonds or interest thereon be payable out of any funds or properties other than those of the Agency as set forth in the Indenture. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Neither the members of the Agency nor any persons executing the Bonds are liable personally on the Bonds by reason of their issuance. The Agency has no independent power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate or collections, could reduce the amount of Tax Revenues that would otherwise be available to pay the principal of, and interest on, the Bonds. Likewise, broadened property tax exemptions could have a similar effect. See "BONDOWNERS' FACTORS." Security of Bonds; Equal Security The Bonds and any Parity Debt issued in accordance with the Indenture are secured by a pledge of, security interest in and a first and exclusive lien on all of the Tax Revenues, and a first and exclusive pledge of, security interest in and lien upon all of the moneys in the Special Fund and the Debt Service Fund, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. Except for the Tax Revenues and such other moneys on deposit in the funds and accounts established under the Indenture, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium (if any) on the Bonds. In consideration of the acceptance of the Bonds by those who shall hold the same from time to time, the Indenture shall be deemed to be and shall constitute a contract between the Agency and the Owners from time to time of the Bonds, and the covenants and agreements set forth in the Indenture to be performed on behalf of the Agency shall be for the equal and proportionate benefit, security and protection of all Owners of the Bonds without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein. -12- Special Fund; Deposit of Tax Revenues The Indenture establishes a special fund to be known as the "Special Fund," which shall be held by the Agency. The Agency shall transfer all of the Tax Revenues received in any Bond Year to the Special Fund promptly upon receipt thereof by the Agency, until such time during such Bond Year as the amounts on deposit in the Special Fund equal the aggregate amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account, the Sinking Account and the Reserve Account in such Bond Year. All Tax Revenues received by the Agency during any Bond Year in excess of the amount required to be deposited in the Special Fund during such Bond Year, including delinquent amounts if any, shall be released from the pledge and lien under the Indenture for the security of the Bonds and may be applied by the Agency for any lawful purposes of the Agency, including but not limited to the payment of Subordinate Debt, or the payment of any amounts due and owing to the United States of America. Prior to the payment in full of the principal of and interest and redemption premium (if any) on the Bonds and the payment in full of all other amounts payable under the Indenture and under any Parity Debt Instrument, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except as may be provided in the Indenture and in any Parity Debt Instrument. Deposit of Amounts by Trustee There is established in the Indenture a trust fund to be known as the Debt Service Fund, which shall be held by the Trustee in trust. Moneys in the Special Fund shall be transferred by the Agency to the Trustee in the following amounts, at the following times, and deposited by the Trustee in the following respective special accounts, which are established in the Debt Service Fund, and in the following order of priority; provided, however, that if amounts to be so deposited are insufficient to fund the full amount required for the Bonds and any Parity Debt, such amounts shall be allocated pro rata among the Bonds and any Parity Debt: Interest Account. On or before the fifth Business Day preceding each Interest Payment Date, the Agency shall withdraw from the Special Fund and transfer to the Trustee, for deposit in the Interest Account an amount which when added to the amount contained in the Interest Account on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No such transfer and deposit need be made to the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds and any Parity Debt. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed or purchased prior to maturity pursuant to the Indenture). Principal Account; Sinking Account. On or before the fifth Business Day preceding each principal payment date in each year, or date on which any Outstanding Term Bonds become subject to mandatory Sinking Account redemption, beginning September 1, 2011, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit (i) in the Principal Account an amount which, when added to the amount then contained in the Principal Account, will be equal to the principal becoming due and payable on the Outstanding Bonds on the next September 1, and (ii) in the Sinking Account an amount which, when added to the amount then contained in the Sinking Account, will be equal to the aggregate principal amount of the Term Bonds subject to mandatory Sinking Account redemption on such date. In the event that the amount then in the Special Fund, following the transfer described in the preceding paragraph, is not sufficient to fully fund the amounts described in the preceding clauses (i) and (ii), the -13- Trustee shall deposit the available funds in the Special Fund pro rata to the Principal Account and the Sinking Account, based on the aggregate principal and Sinking Account payments then due on the Bonds. No such transfer and deposit need be made to the Principal Account if the amount contained therein is at least equal to the principal or sinking fund installment to become due on the next September 1 on all of the Outstanding Bonds. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Bonds as it shall become due and payable. Reserve Account. In the event that the Trustee has actual knowledge that the amount on deposit in the Reserve Account at any time is less than the Reserve Requirement, the Trustee shall promptly notify the Agency of such fact. Promptly upon receipt of any such notice, the Agency shall transfer to the Trustee, Tax Revenues sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. If there shall then not be sufficient Tax Revenues to transfer an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account, the Agency shall be obligated to continue making transfers as Tax Revenues become available in the Special Fund until there is an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. No such transfer and deposit need be made to the Reserve Account so long as there shall be on deposit therein a sum at least equal to the Reserve Requirement. Amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of making transfers to (i) the Interest Account (and any interest account created for Parity Debt), and (ii) the Principal Account (and any principal account created for Parity Debt) and the Sinking Account (and any sinking account created for Parity Debt) in such order of priority (pro rata to the Principal Account (and any principal account created for Parity Debt) and the Sinking Account (and any sinking account created for Parity Debt), based upon the principal and sinking account payments then due, if the amount then in the Reserve Account, after satisfying any deficiency in the Interest Account (and any interest account created for Parity Debt), is not sufficient to fully satisfy any then deficiencies in the Principal Account (and any principal account created for Parity Debt) and the Sinking Account (and any sinking account created for Parity Debt)), in the event of any deficiency at any time in any of such accounts or for the retirement of all the Bonds or Parity Debt then Outstanding, except that so long as the Agency is not in default under the Indenture, any amount in the Reserve Account in excess of the Reserve Requirement (as determined by the Trustee based upon a valuation of investments held in such account) shall be withdrawn from the Reserve Account semiannually on or before the Business Day preceding each March 1 and September 1 by the Trustee and deposited in the Interest Account (and any interest account created for Parity Debt). If a valuation discloses that amounts in the Reserve Account are less than the Reserve Requirement, which valuation must occur not less than semi-annually, the Agency shall immediately cause the cure thereof from any available moneys. All amounts in the Reserve Account on the Business Day preceding the final Interest Payment Date shall be withdrawn from the Reserve Account and shall be transferred either (i) to the Interest Account and the Principal Account, in such order, to the extent required to make the deposits then required to be made pursuant to the Indenture or, (ii) if the Agency shall have caused to be transferred to the Trustee an amount sufficient to make the deposits required by the Indenture, then, at the Written Request of the Agency, to the Agency for deposit by the Agency into the Debt Service Fund. The Trustee may conclusively presume that there has been no change in the Reserve Requirement unless notified in writing by the Agency. As defined in the Indenture, the term "Reserve Requirement" means, as of any calculation date, an amount, calculated by or on behalf of the Agency and certified to the Trustee in writing, equal to the least of (a) Maximum Annual Debt Service on all Outstanding Bonds and any Parity Debt, (b) 125% of average annual debt service on the Bonds and any SE's Parity Debt, and (c) 10% of the then outstanding principal amount of the Bonds and any Parity Debt. The Reserve Requirement as of the Closing Date is $ Redemption Account. On or before the Business Day preceding any date on which Bonds are to be redeemed, the Trustee shall withdraw from the Debt Service Fund any amount transferred by the Agency for deposit in the Redemption Account, such amount being the amount required to pay the principal of and premium, if any, on the Bonds or Parity Debt to be redeemed on such date. All moneys in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of and premium, if any, on the Bonds or Parity Debt to be redeemed on the date set for such redemption. Interest due on Bonds or Parity Debt to be redeemed on the date set for redemption shall, if applicable, be paid from funds available therefor in the Interest Account. Issuance of Parity Debt In addition to the Bonds, the Agency may issue or incur Parity Debt to finance redevelopment projects within or of benefit to the Redevelopment Project in such principal amount as shall be determined by the Agency. The Agency may issue and deliver any such Parity Debt subject only to the following specific conditions: (a) The Agency shall be in compliance with all covenants set forth in this Indenture and all existing Parity Debt Instruments. (b) Subject to paragraph (e) below, (i) unless there has been no decline in the aggregate assessed value in the Redevelopment Project for five consecutive fiscal years, the prior five year average of Tax Revenues, as evidenced in written documentation from an appropriate official of the County, plus, at the option of the Agency, the Additional Revenues, shall be at least equal to one hundred fifty percent (150%) of Maximum Annual Debt Service which will be Outstanding following the issuance of such Parity Debt; provided, however, that Tax Revenues shall be reduced to the amount by which Tax Revenues would be decreased if all pending assessment appeals were to be determined in favor of the property owners in a proportionate amount equal to the average percent of reductions over the most recent five years of appeals history, as determined by an Independent Redevelopment Consultant. (i) if there has been no decline in the aggregate assessed value in the Redevelopment Project for five consecutive fiscal years, Tax Revenues, for the then current Fiscal Year, based on the most recent assessed valuation of property in the Redevelopment Project, as evidenced in written documentation from an appropriate official of the County, plus, at the option of the Agency, the Additional Revenues, shall be at least equal to one hundred twenty-five percent (125%) of Maximum Annual Debt Service which will be Outstanding following the issuance of such Parity Debt; provided, however, that Tax Revenues shall be reduced to the amount by which Tax Revenues would be decreased if all pending assessment appeals were to be determined in favor of the property owners in a proportionate amount equal to the average percent of reductions over the most recent five years of appeals history, as determined by an Independent Redevelopment Consultant. (c) The aggregate amount of the principal and sinking fund installments of and interest on all Outstanding Bonds, Parity Debt and Subordinate Debt coming due and payable following the issuance of such Parity Debt shall not exceed the maximum amount of tax increment revenues permitted under the Plan Limitations. -15- (d) The aggregate amount of the all Bonds, Parity Debt and Subordinate Debt to be outstanding following the issuance of such Parity Debt shall not exceed the maximum amount of obligations permitted under the Plan Limitations to be outstanding at any time. (e) The Parity Debt shall be payable as to principal on September 1 in each year in which principal becomes due, and shall be payable as to interest semiannually on March 1 and September 1, except that the first installment of interest may be payable on either March 1 or September 1 and shall be for a period not longer than twelve (12) months. (f) The Trustee shall act as trustee for such Parity Debt. (g) The Parity Debt Instrument providing for the issuance of such Parity Debt may provide for the establishment of separate funds and accounts or may make reference to and include any fund or account established under this Indenture. (h) The Parity Debt Instrument providing for the issuance of such Parity Debt shall provide for the deposit of moneys in the Reserve Account if required to increase the balance of the Reserve Account to at least equal to the Reserve Requirement upon the issuance of such Parity Debt. "Additional Revenues" means, as of the date of calculation, the amount of Tax Revenues which, as shown in the Report of an Redevelopment Consultant, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Redevelopment Project due to the completion of construction which is not then reflected on the tax rolls, or due to transfer of ownership or any other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition, the term "increases in the assessed valuation" means the amount by which the assessed valuation of taxable property in the Redevelopment Project is estimated to increase above the assessed valuation of taxable property in the Redevelopment Project (as evidenced in the written records of the County) as of the date on which such calculation is made. Issuance of Subordinate Debt From time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency; provided that (a) the Agency shall be in compliance with all of its covenants set forth in this Indenture and any Parity Debt Instruments, (b) the issuance of such Subordinate Debt (after taking into account the Bonds and all other obligations of the Agency payable from Tax Revenues, as well as all other bonded indebtedness of the Agency) shall not cause the Agency to exceed any applicable Plan Limitations, and (c) the Agency will at all times that the Bonds and any Parity Debt are Outstanding have sufficient capacity to receive Tax Revenues in an amount at least equal to the remaining Debt Service on the Bonds and any Parity Debt as well as all fixed debt service or other obligations of the Agency (including such Subordinate Debt) payable from Tax Revenues. THE CITY The City is located in the County, approximately 41 miles south of the City of Los Angeles and approximately 90 miles north of the City of San Diego. Incorporated in 1927, the City operates as a general law city with a Council -Manager form of government. The Mayor is selected by the City Council from among its members. For certain information with respect to the City, see APPENDIX B—GENERAL INFORMATION REGARDING THE CITY. -16- THE AGENCY Agency Members The Agency was established pursuant to the Redevelopment Law and was activated by the City Council by Ordinance No. 696-A, enacted by the City Council of the City on October 20, 1976. The Agency has the authority, and is charged generally with the responsibility, to redevelop and upgrade blighted areas of the City. The members of the City Council serve as the governing body of the Agency and exercise all rights, powers, duties and privileges of the Agency. The Agency is a separate public body, although it is a City component unit for financial reporting purposes. The members of the governing body of the Agency are as follows: Member Term Expires Jerry Amante, Chair November 2012 John Nielsen, Vice Chair November 2012 Debora Gavello, Boardmember November 2012 Doug Davert, Boardmember November 2010 Jim Palmer, Boardmember November 2010 Agency Administration The City has agreed to provide the Agency with staff, office space and supplies and the Agency has agreed to reimburse the City for such staff services, supplies and equipment. The Agency and the City adopt an annual administrative budget delineating the costs of such services. The Agency reimburses the City out of available tax increment revenues. Such reimbursement is subordinate to any outstanding bonded indebtedness of the Agency including the Bonds. See APPENDIX B—GENERAL INFORMATION CONCERNING THE CITY. Each year the City Council approves a budget submitted by the Agency's Executive Director prior to the beginning of the new fiscal year. The Agency conducts public hearings prior to the budget's adoption. The Board approves supplemental appropriations, when required during the period. In most cases, expenditures are not permitted to exceed appropriations at the function level. At fiscal year-end, all operating budget appropriations lapse to the extent they have not been encumbered. The administrative officers of the Agency are as follows: David C. Biggs, Executive Director and City Manager* Christine A. Shingleton, Assistant Executive Director and Assistant City Manager Pamela Arends-King, Finance Director Doug Stack, Public Works Director George Jeffries, Treasurer Pamela Stoker, Secretary Douglas C. Holland, Agency Counsel Agency Powers All powers of the Agency are vested in its members. Pursuant to the Redevelopment Law, the Agency is a separate public body and exercises governmental functions, including planning and implementing redevelopment projects. -17- The Agency may exercise the right to issue bonds for authorized purposes and to expend their proceeds, and the right to acquire, sell, rehabilitate, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements, including streets, sidewalks, parking and utilities, and can further prepare for use as a building site any real property which it owns or administers. The Agency may, from any funds made available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities or other improvements to be publicly owned and operated, provided that such improvements are of benefit to a redevelopment project and cannot be financed by any other reasonable method. The Agency may not construct or develop buildings, with the exception of public buildings and housing, and must sell or lease cleared property which it acquires within a redevelopment project for redevelopment in conformity with a particular redevelopment plan, and may further specify a period within which such redevelopment must begin and be completed. Redevelopment Projects The Agency currently has three redevelopment projects: (a) the Town Center Redevelopment Project, (b) the South Central Redevelopment Project, and (c) the Redevelopment Project. Only the Redevelopment Project is the subject of this financing. A detailed description of the Redevelopment Project is set forth herein under the caption "THE REDEVELOPMENT PROJECT." A map showing all three of the Agency's redevelopment projects is shown on the following page. -18- LJu No Scale J / �� x. x JR IN L]�' ^(� �� I lit . dM/NJ .KAL I NEIU� ax ��x FITY �, F FAN T,4 f EDINCER lT OF �IFViNE Fik: Bax xix Ncx �xoot August 4, 2010 LEGEND:y' J � TOWN CENTER Ms 3 SOUTH CENTRAL MCAS TUSTIN \ TUS TIN REDEVELOPMENT AGENCY PROJECT AREAS August 4, 2010 Outstanding Indebtedness of the Agency Certification of Agency Indebtedness. Pursuant to section 33675 of the Redevelopment Law, on or before October 1 of each year the Agency must file with the County Auditor a statement of indebtedness certified by the chief fiscal officer of the Agency for each redevelopment project that receives tax increment. The statement of indebtedness is required to contain the date on which any bonds were delivered, the principal amount, term, purpose and interest rate of bonds and the outstanding balance and amount due on bonds. Similar information must be given for each loan, advance or indebtedness that the Agency has incurred or entered into to be payable from tax increment. The Agency has complied with the requirements of section 33675 each year since adoption of the Redevelopment Plan. Section 33675 also provides that the County Auditor is limited in payment of tax increment to the Agency to the amounts shown on the Agency's statement of indebtedness. The section further provides that the statement of indebtedness is prima facie evidence of the indebtedness of the Agency but that the County Auditor may dispute the amount of indebtedness shown on the statement in certain cases. Provision is made for time limits under which the dispute can be made by the County Auditor as well as provisions for determination by the Superior Court in a declaratory relief action of the proper disposition of the matter. The issue in any such action must involve only the amount of the indebtedness and not the validity of any contract or debt instrument, or any expenditures pursuant thereto. An exception is made for payments to a public agency in connection with payments by such public agency pursuant to a bond issue which shall not be disputed in any action under section 33675. Bonded Indebtedness. On April 1, 2007, the Agency entered into two related note purchase agreements in the amounts of $19,900,000 Series B (Tax-exempt) and $5,100,000 Series A (Taxable) (the "Notes") with Citigroup Global Markets, Inc. for the acquisition of a thirty-seven acre parcel of land adjacent to the Redevelopment Project to provide freeway access to and from the Redevelopment Project. Principal is payable in annual payments due in November of each year. Variable rate interest payments are payable monthly based upon the current Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA) on the 2007 Series A Note and the London Interbank Offered Rate (LIBOR) for the 2007 Series B Note. The Notes are secured by a lien on the Tax Revenues. The Notes will be prepaid in full by the Agency on October 29, 2010. Following issuance of the Bonds, the Bonds will be the only bonded indebtedness of the Agency secured by Tax Revenues. See APPENDIX C—AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR THE FISCAL YEAR ENDED JUNE 30, 2009. Agency Financial Statements The Law requires redevelopment agencies to have an independent financial audit conducted each year. The financial audit is also required to include an opinion of the Agency's compliance with laws, regulations and administrative requirements governing activities of the Agency. Audited financial statements for the Agency for the Fiscal Year that ended June 30, 2009, included in Appendix C attached hereto, have been prepared by Macias Gini & O'Connell LLP, Newport Beach, California. The firm's audit was made in accordance with generally accepted auditing standards. As is explained in the Notes to the Agency's financial statements, the Agency follows fund accounting principles reflecting the modified accrual basis of accounting. Pursuant to those principles, revenue is recognized when earned or otherwise becomes available, and expenditures are recognized when incurred. See APPENDIX C— AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR THE FISCAL YEAR ENDED JUNE 30, 2009. The Agency anticipates that its audited financial statements for the Fiscal Year that ended June 30, 2010, will be completed in early December 2010. -20- Redevelopment Plan Under the Redevelopment Law every redevelopment agency is required to adopt, by ordinance, a redevelopment plan for each redevelopment project specifically authorized in the adopted redevelopment plan. A redevelopment plan is a legal document, the content of which is largely prescribed in the Redevelopment Law, rather than a "plan" in the customary sense of the word. The overall objective of the redevelopment plan is to eliminate blighted conditions in the project area by undertaking all appropriate projects pursuant to the Redevelopment Law. Redevelopment Plan Limits In accordance with the Law, redevelopment plans adopted after October 1, 1976 but prior to January 1, 1994 are required to include a time limit on the establishment of indebtedness to be repaid with tax increment and a limit on the amount of tax increment revenue that may be divided and allocated to a project area. In addition, if the plan authorizes the issuance of tax allocation bonds, a limit on the amount of bonded indebtedness that may be outstanding at one time must be included. For those redevelopment plans adopted prior to October 1, 1976 that did not contain these limits, the legislative body was required to amend the redevelopment plans by ordinance not later than December 31, 1986. The amendment must include provisions to limit the number of tax increment dollars that could be allocated to the agency pursuant to the plan, to establish a time limit to create debt to be repaid with tax increment, and to limit the commencement of eminent domain. Chapter 942, Statutes of 1993, established further limits on redevelopment plans. Chapter 942 restricted the life span of redevelopment plans adopted prior to 1994. The time limit for establishing indebtedness was limited to 20 years from the adoption of the redevelopment plan or January 1, 2004, whichever is later. The life of existing redevelopment plans was limited to 40 years from the date of adoption or January 1, 2009, whichever was later. Finally, a redevelopment agency was restricted from paying indebtedness with tax increment beyond 10 years after its redevelopment plan expires except to fund deferred Housing Set Aside requirements and to repay indebtedness incurred prior to January 1, 1994. See "BONDOWNERS' RISKS—Estimates of Tax Revenues." Pursuant to Senate Bill 1096, redevelopment agencies may extend the term of their redevelopment plan's effectiveness and the periods within which the agency, may repay indebtedness by up to two additional years. A one year extension of the time limits for redevelopment projects meeting certain criteria is predicated upon the payment by the agency of its Educational Revenue Augmentation Fund ("ERAF") obligations for each of 2005 and 2006. For redevelopment projects that have less than 10 years of plan effectiveness remaining after June 30, 2005, a one year extension was authorized. For redevelopment projects that have more than 10 years and less than 20 years of plan effectiveness remaining after June 30, 2005, a one year extension was authorized if the city council makes certain findings. For those redevelopment projects with more than 20 years of plan effectiveness remaining after June 30, 2005, no extension of time is authorized. In addition, for redevelopment projects that have less than 10 years of plan effectiveness remaining after June 30, 2006, a one year extension is authorized. For redevelopment projects that have more than 10 years and less than 20 years of plan effectiveness remaining after June 30, 2006, a one year extension is authorized if the city council can make certain findings. For those redevelopment projects with more than 20 years of plan effectiveness remaining after June 30, 2006, no extension of time is authorized. The Redevelopment Project was not eligible for extension by two years pursuant to SB -21- See "THE REDEVELOPMENT PROJECT—Redevelopment Plan Limitations." Annual Tax Receipts to Tax Levy The Agency received a total of $11,922,615 in tax increment revenue from the Redevelopment Project for fiscal year 2009-10. This total is inclusive of revenues from supplemental assessments, homeowner's exemptions, public utilities and prior year collections and net of County withholdings for refunds. The County administration fee of $112,876 relating to all three project areas was deducted from the Agency's fiscal year 2009-10 tax increment revenues. Any property tax levied by the County on real property becomes a lien on that property. A tax levied on personal property does not become a lien against the personal property, but may become a lien on certain real property owned by the owner of the personal property located within the City. Classifications. Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding March 1. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Collections. Secured and unsecured property are entered separately on the assessment roll maintained by the County Assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes which are delinquent. The valuation of property is determined as of January 1 in each year. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year and become delinquent on the following December 10 and April 10. Property taxes on the unsecured roll are due as of the March 1 lien date and become delinquent, if unpaid, on August 31 of the fiscal year. A ten percent (10%) penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Tax Collector. A ten percent (10%) penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. -22- Legislation enacted in 1983 (statues of 1983, Chapter 498), provides for the supplemental assessment and taxation of property upon the occurrence of a change of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next January 1 tax lien date following the change and thus delayed the realization of increased property taxes from the new assessments for up to a year. To the extent such supplemental assessments occur within the Redevelopment Project, Agency revenues may increase. Revenues are paid to the Agency in anticipation of tax receipts. A reconciliation between tax revenue paid to a redevelopment agency and secured tax collections actually received by the County for the redevelopment project is prepared in January. A similar methodology is used for the remainder of the fiscal year, resulting in approximately 85% to 95% of cumulative revenues being allocated through May. Revenue reconciliations due to county assessor roll changes are prepared for secured taxes in April and July, and subsequent final apportionments resulting from collection reconciliations are prepared in July. Unsecured tax revenues are disbursed to redevelopment agencies based upon actual unsecured taxes received by the County. Payments are generally remitted in December, January and July of each fiscal year. A reconciliation payment is made in July concurrent with the final secured reconciliation. A collection charge of twenty-five hundredths of one percent (0.25%) of actual taxes collected is deducted by the County from each secured and unsecured tax disbursement. Collection of taxes based on supplemental assessments will occur throughout the year. Taxes due will be prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated November 1 through March 31, which will be calculated on the basis of the remainder of the current fiscal year and the full twelve months of the next fiscal year. For supplemental tax bills mailed during the months of March through November, the first installment of taxes becomes delinquent on December 11 of the same year, the second installment becomes delinquent after the last day of the month following the month in which the bill was mailed and the second installment becomes delinquent four months later. Appeals of Assessed Values Pursuant to California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in the form prescribed by the State of California (the "State") Board of Equalization, with the appropriate county board of equalization or assessment appeals board. After the applicant and the assessor have presented their arguments, the Appeals Board makes a final decision on the proper assessed value. The Appeals Board may rule in the assessor's favor, in the applicant's favor or the Appeals Board may set its own opinion of the proper assessed value, which may be more. or less than either the assessor's opinion or the applicant's opinion. Any reduction in the valuation ultimately granted applies to the year for which application is made and during which the written application was filed. After a reduction is allowed, the property is reviewed on an annual basis to determine its full cash value and the valuation may be adjusted accordingly. This may result in further reductions or increases in value: Such increases are in accordance with the actual cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it is once again subject to the annual inflationary growth rate limit allowed under Article .XIIIA. -23- Appeals for reduction in the "base year" value of an assessment, if successful, reduce the valuation for the year in which the appeal is taken and prospectively after that. The "base year" is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. Refunds for taxpayer overpayment of property taxes may include refunds for overpayment of taxes in years after that which was appealed. Any taxpayer payment of property taxes that is based on a value that is subsequently adjusted downward will require a refund for overpayment. See "THE REDEVELOPMENT PROJECT—Appeals of Assessed Values." Proposition 13 Inflationary Adjustments Article XIII A of the California Constitution (referred to below as "Proposition 13") and State Board of Equalization ("SBE") Rule 460, subdivision (b)(5) provide that "the full value of real property shall be modified to reflect the percentage change in cost of living ... provided that such value shall not reflect an increase in excess of 2 percent of the taxable value of the preceding lien date." The California Consumer Price Index ("CCPI") establishes the inflation rate used to determine the "percentage change in cost of living." This annual inflationary rate is determined by the SBE and is based on the statewide consumer price index for the previous year (October to October). In most years, the CCPI has exceeded 2 percent and has been reflected in the 2% Proposition 13 limitation on upward valuation adjustments (described under the heading "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING TAX REVENUES—Property Tax Limitations—Article XIIIA"). Since 1978, there have been five occurrences when the inflationary adjustment rate was less than 2%; fiscal years 1983-84, 1995- 96, 1996-97, 1999-00, and 2004-05. The inflationary adjustments for these fiscal years were 1.01%, 1.0119%,1.0111%,1.01853% and 1.01867%, respectively. In more than 30 years since the passage of Proposition 13, the annual inflationary adjustment has never resulted in a reduction to the prior year assessed valuation calculated from the Proposition 13 base year values adjusted for the CCPI annual inflationary rate. As described in greater detail herein, Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. The State Board of Equalization has notified assessors that the California Consumer Price Index to be applied to the fiscal year 2010-11 assessment roll is 0.99736, representing a decrease of 0.237%. Properties whose 2010-11 assessed valuation is determined by a Proposition 8 assessment adjustment would not be subject to the Proposition 13 annual adjustment until the County Assessor restored their valuation to the factored base year valuation, which would then reflect all annual inflation adjustments from the time the property was originally sold or constructed. The Fiscal Consultant has projected Tax Revenues to be received by the Agency based, among other things, upon 0.237% decrease. Should the assessed valuation of taxable property in the Redevelopment Project decrease at the projected annual rate in excess of 0.237%, the Agency's receipt of future Tax Revenues may be adversely affected. Proposition 8 Reductions Proposition 8 provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, W7® destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then -current fair market value or the factored base year value. Pursuant to Proposition 8, for the 2010-11 tax roll, the Orange County Assessor reported that they reviewed the market value of 300,000 single-family homes, condos, townhouses, multi -family, commercial/industrial properties and reduced the value of 84,000 properties throughout the County. Table 3 below summarizes the changes in secured property assessed value in the Redevelopment Project over the last five years. Much of the reduction from 2009-10 to 2010-11 is assumed to be a result of Proposition 8 blanket adjustments. In 2010, the County Assessor reduced the value of 421 residential properties in the Redevelopment Project. Reductions in value of the 421 properties ranged from less than 1 % to more than 68 % depending on the year of purchase. The average reduction was .approximately 6 %. While the Agency expects some decline in total assessed valuation relating to potential future Proposition 8 adjustments, no prediction can be made as to the amount of the decline in total assessed valuation, if any, within the Project Area. See BONDOWNERS'—Factors Which May Affect Tax Revenues and BONDOWNERS'—Real Estate and General Economic Risks." AB 1389 On September 24, 2008, the State enacted a budget for Fiscal Year 2008-09 that included, among other things, the provisions of a bill known as AB 1389 (Chapter 571, Statutes of 2008). AB 1389 required redevelopment agencies, under certain circumstances, to submit reports for Fiscal Years beginning 2003-04 and ending with Fiscal Year 2008-09, to the office of the county auditor in the county in which they are located. These reports were required to include calculations of the tax increment revenues that redevelopment agencies received and payments that redevelopment agencies made pursuant to tax sharing agreements with taxing entities and statutory tax sharing. County auditors were required to review the reports and, if they concurred, issue a finding of concurrence. The State Controller was required to review such reports and submit a report to the Legislative Analyst's office and the Department of Finance identifying redevelopment agencies for which county auditors had not issued a finding of concurrence or which have outstanding pass-through payment liabilities to a local educational agency that exceed the amount of outstanding pass-through over payments to the local educational agency. AB 1389 included penalties for any redevelopment agency listed on the most recent State Controller's report, including a prohibition on issuing bonds or other obligations until the listed agency was removed from the State Controller's report. The Agency is not listed on any of the State Controller's reports. -25- THE REDEVELOPMENT PROJECT The following is a summary description of the Redevelopment Project. Included within this description are sections discussing the present and current conditions of the Redevelopment Project and the future development within the Redevelopment Project. These descriptions have been supplied by the Agency. There can be no assurance that the future developments discussed below will be completed in the manner or in the time periods described in this Official Statement. General The City established the Redevelopment Project and approved the redevelopment plan for the Redevelopment Project by Ordinance No. 1276, enacted by the City Council of the City on June 13, 2003, as amended by Ordinance No. 1334, enacted by the City Council of the City on April 3, 2007 (to describe the Agency's program to acquire real property by eminent domain in the Redevelopment Project). All real property in the Redevelopment Project is subject to the controls and restrictions of the Redevelopment Plan. The Redevelopment Plan provides further that no new improvement is to be constructed, and no existing improvement is to be substantially modified, altered, repaired or rehabilitated, except in accordance with the Redevelopment Plan and development and design controls and, in the discretion of the Agency, in accordance with architectural, landscape and site plans submitted to and approved by the Agency. The Redevelopment Plan requires that new construction shall comply with all applicable State statutes and local laws in effect, including, but not limited to, fire, building, electrical, heating, and zoning codes of the City. The Redevelopment Plan allows for commercial, residential and public uses within the Redevelopment Project. The Agency may permit an existing but nonconforming use to remain so long as the existing building is in good condition and is generally compatible with the development and uses in the Redevelopment Project. The owner of any property with a nonconforming use must be willing to enter into an owner participation agreement with the Agency and agree to the imposition of such reasonable restrictions as are necessary to protect the development and use of the Redevelopment Project. Within the limits, restrictions and controls established in the Redevelopment Plan, the Agency is authorized to establish land coverage, setback requirements, design criteria, and other development and design controls necessary for the proper development of both private and public areas within the Redevelopment Project. Under certain circumstances, the Agency is authorized to permit a minor variation from the limits, restrictions and controls established by the Redevelopment Plan. However, no variation shall be granted which changes the basic land use or which permits a substantial departure from the Redevelopment Plan provisions. In permitting a variation, the Agency shall impose such conditions as are necessary to protect the public health, safety or welfare, and to assure compliance with the purposes of the Redevelopment Plan. No minor variation permitted by the Agency shall be effective until conditional uses, variances, or other zoning changes, if any, have been effectuated by the City to the extent necessary to obtain consistency with such minor variations permitted by the Agency. Description of the Redevelopment Project The Redevelopment Project, established in 2003, is comprised of 1,508.6 acres, including 1,504.5 acres that were part of the former Marine Corps Air Station Tustin (MCAS -Tustin) and 4.1 acres that are located outside of the former base boundaries, at the northwest corner of Edinger Avenue and Jamboree Road. Development of the Redevelopment Project, known as -26- Tustin Legacy, is expected to include low to medium-high density residential uses, transitional/ emergency housing, commercial retail, office, business park and educational and community support facilities with up to 4,210 homes anticipated and over 10 million square feet of non-residential space. Significant land area will also be dedicated to parkland and recreational open spaces and will feature a two-mile community lineal park with walking spaces, playgrounds, tranquil natural areas and sports facilities. The major objectives of the Redevelopment Project as described in the Redevelopment Plan and focus on the elimination and prevention of the spread of blight and deterioration of the Redevelopment Project by: 1. The acquisition of certain real property and assembly of adequate sites for the development and construction of uses in conformance with the Redevelopment Plan; 2. The demolition or removal of certain buildings, structures and other improvements; 3. Providing for opportunities for participation by owners and tenants presently located in the Non -Base Property and for participation by future owners and tenants within the entire Redevelopment Project, and the extension of preferences to business occupants and other tenants desiring to remain or relocated within the redeveloped Redevelopment Project; 4. The management of any property acquired by and under the ownership and control of the Agency; 5. Providing relocation assistance to any displaced Redevelopment Project occupants; 6. The installation, construction, or reconstruction of streets, utilities, and other public improvements and facilities, including but not limited to, parks, recreational facilities and community facilities; 7. The disposition of property for uses in accordance with the Redevelopment Plan; 8. The redevelopment of land by private enterprise or public agencies for use in accordance with the Redevelopment Plan; 9. The rehabilitation of structures and improvements; 10. The expansion, preservation and improvement of the community's supply of housing available to low and moderate income persons and families; 11. The installation of new or replacement of existing public improvements, facilities, and utilities in the area which are currently inadequately served with regard to such improvements, facilities and utilities of new or replacement of existing public improvements, facilities and utilities in areas which are currently inadequately served with regard to such improvements, facilities and utilities; and 12. Hazardous substance release cleanup. Redevelopment Activity The Agency has been responsible for administering the conveyance, development and leasing of City -owned properties conveyed to the City by the Navy under the terms of an Economic Development Conveyance Agreement approved on May 13, 2002. Since 2002, a significant amount of acreage owned by the City within the Redevelopment Project intended for -27- conveyance or leasing to private entities, public agencies, and non-profit institutions has been committed to uses and development consistent with the Redevelopment Plan through conveyance agreements, disposition and development agreements, or interim lease agreements intended for eventual conveyance, as appropriated. Under the Redevelopment Plan, significant private and institutional development has occurred within the Redevelopment Project over the last several years despite the economic recession, including the following: • As of September 2010, 1,671 dwelling units have been constructed or 40% of the potential 4,210 dwelling units that would be permitted within the Redevelopment Project. Major housing projects completed have been all ownership tenure and include 565 homes at Tustin Field 1 and Tustin Field Il, 735 homes at Columbus Square, and 381 homes at Columbus Grove. The City has recognized that the lack of affordable housing can be a barrier to a strong economy and has required that at least twenty percent of the housing within the Redevelopment Project to be sold at affordable housing prices to address the critical need for affordable housing in the region. This is important to the City and Orange County because only 11% of Orange County residents can afford to buy a median -price home. To date, the Agency has required and facilitated 70 Very Low income, 87 Low income and 116 Moderate income households (for a total of 273 affordable households) being able to purchase for -sale Affordable Housing Units in the Redevelopment Project. • Approximately one million square feet of retail space has been constructed within a regional Class A retail center identified as the "District at Tustin Legacy." • Two community college districts have completed campus improvements including the Rancho Santiago Community College Law Enforcement Training Facility and Phase 1 of the South Orange County Community College District's Advanced Technology Education Campus. • The Orange County Rescue Mission has completed a transitional homeless facility, known as the Village of Hope, that contains 192 units. • The County of Orange Social Services Department has completed The Tustin Family Campus, a facility intended to provide a supportive living environment to meet the unmet needs of abused and neglected children and their families accommodating as many as 90 children and their parents in residence. A considerable amount of demolition has been completed and will occur in the overall redevelopment of the Redevelopment Project. Since adoption of the Redevelopment Project, significant demolition has included the removal of runways and tarmac areas, demolition of obsolete and substandard buildings and military housing, and demolition of pre-existing roadways and obsolete utility systems. Over 80% of the materials generated as a result of these demolition activities have also been recycled on-site and are being used for construction of public and private streets. In addition, significant progress has been made in both the Navy's responsibilities for investigating and remediating former military contaminants. In addition to private developments within the Redevelopment Project, over $130 million of infrastructure and related capital improvement projects have been completed to date. An additional $300 million in infrastructure are in the design phase. Work has been completed on the following infrastructure and roadways with all related utility systems, including storm drains, dry utilities and traffic control improvements. • Kensington Park Road • Valencia Avenue (from Red Hill Avenue to Kensington Park Road) -28- • Landsdowne Avenue • Edinger Avenue widening — from approximately 1400 ft. east of Red Hill Avenue to Harvard Avenue • Armstrong Avenue — from Valencia Avenue to future Warner Avenue • Park Avenue — from Warner Avenue to Tustin Ranch Road • Moffett Avenue — from Harvard to the Peters Canyon Channel • Tustin Ranch Road — from Warner Avenue to Barranca Parkway • Barranca Parkway widening — from Jamboree Road to Tustin Ranch Road • Warner Avenue — from Tustin Ranch Road to Jamboree Road • Modification to the Warner Ramp at Jamboree Road and the transition area of the west leg of the Eastern Transportation Corridor • Severyn's Road • A Regional Hiking and Bike Trail segment paralleling the Southern California Regional Rail Authority right-of-way in the northeast portion of the Project. • Significant national and regional recognition has also been given to Tustin for its progress in dealing with the complexity of development of a former military base. • In August 2006, the City's Assistant City Manager Christine Shingleton was awarded the Community Redevelopment Leadership award for efforts in redeveloping the former MCAS - Tustin by the Association of Defense Communities, the largest organization in the country representing active and closed military facilities. • In August 2008, the City of Tustin was awarded the Base Redevelopment Community of the Year by the Association of Defense Communities, for its significant progress in redevelopment of the former MCAS -Tustin. • In February 2007, the Orange County, California Branch of the American Society of Civil Engineers, awarded the City of Tustin the Land Development Project of the Year award for its significant progress, and its unique public/private partnership approaches to development. • In May 2010, the City of Tustin received the "Media Award" from the Orange County Chapter of the American Planning Association for completion of a written history, documentary video, and exhibits on the history of the former Marine Corps Air Station. Visit the City's web site at www.tustinca.org to view The Tustin Hangars: Titans of History video. • In August 2010, the City of Tustin was awarded, the Most Innovative Community Project of the Year by the Association of Defense Communities also for completion of the written history, documentary video and exhibits on the history of the former Marine Corps Air Station. In addition to the project's progress and successes to date, there is still a considerable amount of new development within the Redevelopment Project yet to come and a Master Plan and "Vision" for the future build out of the Project over the next twenty years. The current economic conditions have caused some delays with anticipated future development, but as conditions improve, the development of major residential and commercial projects will add large amounts of value to the Redevelopment Project. -29- One of the largest remaining portions of the project, would be the development of 820 acre master planned urban activity center, called the "Urban Community Core" in the center of the Redevelopment Project which is still anticipated, of which approximately 420 acres will be available for private residential and non-residential development. The 820 acres includes public and private park and open spaces, school uses, and local and Tustin Legacy backbone infrastructure right-of-way areas. The community will be a place to Live, Work, Shop and Play. Some of the unique planned amenities for this future development would include the development of a lineal park that will traverse the development and enhance the view of the nearby Saddleback Mountains. The parkland will include walkable spaces, playgrounds, sports parks, and tranquil natural areas. Plans for additional development include 2,105 new dwelling units, 6.7 million square feet of non-residential space, and new roadways, community facilities and infrastructure. Twelve parcels owned by Tustin Legacy Community with a net assessed value of $86,494,510 were transferred back to the City after the Fiscal Year 2010-2011 Assessor's Roll was finalized on January 1, 2010. The tax-exempt status for the twelve parcels has been reflected in the tax increment projection herein. The The Agency plans to continue with the original vision of Tustin Legacy. Currently, it is reviewing the best way to proceed with future sale of the property and development. An official plan on disposition of remaining property will be completed in several months. Other new development activity expected shortly include the following: • A Master Plan is in preparation for the Tustin Legacy Community Park, a 25 -acre active sports park, to be located next to the Columbus Square neighborhoods, construction funds have already been appropriated for this project. • Plans are near completion for a new fire station to be constructed at Edinger and Kensington Park Road, construction funds have already been appropriated for this project. • South Orange County Community College District will be proceeding with demolition of most of the remaining military buildings on its site and intends to proceed with a subsequent development phase shortly. • The County of Orange is moving forward with planning efforts on development of an 84 acre regional park at Tustin Legacy and has plans for development of a Sheriff's Regional Law Enforcement facility and a regional animal control facility. Delays in development are largely a result of active environmental remediation which the Navy is still undertaking on the County sites. • Construction will begin shortly on several smaller developer vertical building sites within the Project. "Augusta" will have 60 single family homes and "Mirabella" will have 60 single family townhouses (both at Columbus Square). "Coventry Court" will be a 240 unit senior citizen apartment complex with 153 affordable units at Columbus Square. Bills Redevelopment Plan Limitations The following table shows the current Redevelopment Plan limitations: Table 1 Redevelopment Project Redevelopment Plan Limitations Plan Expiration Date (2) (3): 1/21/2035 or from date of Auditor's Certification Last Date to Establish Debt (1) (2): 1/21/2025 or from date of Auditor's Certification Last Date to Receive Tax Increment 1/21/2050 Expiration Date for Eminent Domain Authority 12 years from effective date of Ordinance 1276 or 7/16/2048; modified to 6/13/2015 Cumulative Tax Increment Limit (3): $833,000,000 Bonded Indebtedness Limit (4): $180,000,000 (1) The Agency shall not establish or incur loans, advances, or indebtedness to finance in whole or in part the Project beyond 20 years from the date the County of Orange Auditor makes a certification pursuant to Section 33492.9 of CRL. Loans, advances or indebtedness may be repaid over a period of time beyond said limit. This time limit shall not prevent the Agency from incurring debt to be paid from the Low and Moderate Income Housing Fund or establishing more debt in order to fulfill the Agency's housing obligations under Section 33413 of the CRL. (2) County Auditor's Certificate per Redevelopment Plan. (3) The Fiscal Consultant's Report estimates that tax increment revenues collected through June 30, 2010, have totaled $50,100,000. See "BONDOWNERS' RISKS— Estimates of Tax Revenues." (4) The Agency currently has no bonds outstanding for the Redevelopment Project. Tax Sharing Agreements Pursuant to section 33607.5 of the Redevelopment Law, the Agency is required to implement statutory tax sharing ("Statutory Payments") with all taxing entities levying taxes upon property within the Redevelopment Project. Statutory Payments are calculated annually using the Redevelopment Project assessed value and each taxing entities share of the tax levy. Tier 1 payments are calculated using 25% of the annual non -housing (80%) tax increment revenue that exceeds the adjusted base year revenue. Tier 2 payments commence in the eleventh year and the Agency must pay an additional 21% of the incremental increase in non- housing tax increment revenues exceeding amounts in the tenth payment year. Tier 3 payments commence in the 31st year and the Agency must pay an additional 14% of the incremental increase exceeding amounts in the 30th year. The Agency currently is required to make Tier 1 payments, through Fiscal Year 2017-18. Beginning in Fiscal Year 2018-19 the Agency will be required to make the Tier 2 payments and beginning in Fiscal Year 2038-39 the Agency will be required to make the Tier 3 payments. The Statutory Payments have been identified and amounts have been subtracted out of the tax increment revenues to project revenues available for the this financing. Assessed Valuation The Base Year assessed valuation was established in Fiscal Year 2002-03 in the amount of $1,114,078. The total assessed valuation of taxable property in the Redevelopment Project in fiscal year 2010-11 is $1,172,858,826, with $1,171,744,748 of such amount representing incremental assessed value in excess of the adjusted assessed valuation in the Base Year ($1,114,078). A breakdown of the Fiscal Year 2010-11 assessed valuation in the Redevelopment Project by category of use is as follows: -31- Category Residential Commercial Total Secured Unsecured Total: Table 2 Redevelopment Project Breakdown of Assessed Valuation by Category of Use Number of Parcels (1) Net Taxable Value (2) 2,075 $ 924,951,737 18 199,273,294 % of Total 78.86% 16.99 2,105 1,124,225,031 96.12 48,633,795 4.15 $1,172,858,826 100.00% Source: David Taussig & Associates (1) Includes parcels with a net assessed value equal to $0. Excludes parcels owned by public agencies based on the final fiscal year 2010-11 County Assessor's roll. (2) Based on final fiscal year 2010-11 County Assessor's roll. The following table shows the actual assessed values for Fiscal Years 2006-07 to 2010-11 based upon the County Auditor/ Controller's equalized rolls and incremental values of property within the Redevelopment Project based on an exclusion of assessed values from the unsecured roll. Table 3 Redevelopment Project Historical Taxable Values and Tax Increment Revenues Fiscal Years Ended June 30, Unsecured Land Improvements Personal Property Exemptions Total Unsecured GRAND TOTAL 0 0 1,114,078 0 1,114,078 $1,114,078 Annual Incremental Value Change in Value from Prior Year % Change in Total Value 2006-07 2007-08 2008-09 2009-10 2010-11 $523,696,799 $622,238,494 $ 884,529,289 $ 535,509,005 $ 478,829,435 134,461,228 Base Year 547,000,540 2002-03 Secured 0 Land $ 346,322 0 Improvements 0 Personal Property 0 Exemptions 0 Total Secured 0 Unsecured Land Improvements Personal Property Exemptions Total Unsecured GRAND TOTAL 0 0 1,114,078 0 1,114,078 $1,114,078 Annual Incremental Value Change in Value from Prior Year % Change in Total Value 2006-07 2007-08 2008-09 2009-10 2010-11 $523,696,799 $622,238,494 $ 884,529,289 $ 535,509,005 $ 478,829,435 134,461,228 304,351,051 547,000,540 630,218,371 663,888,365 0 0 0 346,322 585,449 0 (927,180) (945,723) (20,465,275) (19,078,218) 658,158,027 925,662,365 1,430,584,106 1,145,608,423 1,124,255,031 311,726 717,637 511,374 2,935,728 639,677 607,068 734,689 25,959,037 30,700,881 29,854,979 68,543 292,079 16,329,384 18,449,247 18,139,139 (141,100) 0 (227,435) 0 0 846,237 1,744,405 42,572,360 52,085,856 48,633,795 $659,004,264 $927,406,770 $1,473,156,466 $1,197,694,279 $1,172,858,826 Source: David Taussig & Associates $657,890,186 $926,292,692 $1,472,042,388 $1,196,580,201 $1,171,744,748 385,262,796 268,402,506 545,749,696 (275,462,187) (24,835,453) 140.74% 40.73% 58.85% -18.70% -2.08% -32- The aggregate total taxable value for the ten largest taxpayers for Fiscal Year 2010-11 totals $238,576,856. This amount is 20.36% of the Redevelopment Project incremental value and 21.22% of the total Redevelopment Project secured assessed value. Table 4 Redevelopment Project Largest Fiscal Year 2010-11 Property Taxpayers, by Assessed Value Appeals of Assessed Values During Fiscal Years 2005-2006 through 2009-2010, a total of 311 appeals for property with assessed value totaling $395,900,536 were filed in the Redevelopment Project. There were 295 appeals which were resolved with a total reduction in value of $198,486,000, a 11.76% decline. The remaining 16 appeals are pending. The projections of Tax Revenues in the tables herein are not adjusted for these or other appeals. To the extent these appeals are resolved in favor of the property owner, Tax Revenues will be reduced. See APPENDIX D—FISCAL CONSULTANT'S REPORT. Based upon information received by the City from CoreLogic, within the Redevelopment Project, 39 residential units have been given Notices of Default or Noticed for Trustees' Sale during the six months from February 1, 2010, through July 31, 2010. Only three residential units in the Redevelopment Project are bank owned. No commercial property foreclosure notices have been served. Of the 1,681 units completed (for which certificates of occupancy have been issued by the City), 42 (or 2.5%) of the units are in some stage of the foreclosure process -33- % of Total Secured % of Number of Assessed Assessed Incremental Property Owner Primary Land Use Parcels Valuation (1) Valuation Value Vestar Kimco Tustin LP Commercial 14 $154,066,340 13.70% 13.15% Costco Wholesale Corporation Commercial 2 24,031,807 2.14 2.05 Lowes HIW Commercial 1 19,410,217 1.73 1.66 Tustin Coventry Multi -Family Residential 1 16,242,903 1.44 1.39 ORA Astoria 60 (2) Single Family Residential 60 10,774,380 0.96 0.92 ORA Mirabella 60 (2) Single Family Residential 7 4,283,315 0.38 0.37 ORA Verandas 53 (2) Single Family Residential 8 3,785,428 0.34 0.32 Lennar Homes of California Inc Single Family Residential 8 2,744,492 0.24 0.23 Orange County Rescue Mission Commercial 1 1,764,930 0.16 0.15 Trinh, Michael Single Family Residential 2 1,473,044 0.13 0.13 104 $238,576,856 21.22% 20.36% Source: David Taussig & Associates (1) Total 2010-11 secured assessed valuation is $1,124,225,031. (2) Related entities. Appeals of Assessed Values During Fiscal Years 2005-2006 through 2009-2010, a total of 311 appeals for property with assessed value totaling $395,900,536 were filed in the Redevelopment Project. There were 295 appeals which were resolved with a total reduction in value of $198,486,000, a 11.76% decline. The remaining 16 appeals are pending. The projections of Tax Revenues in the tables herein are not adjusted for these or other appeals. To the extent these appeals are resolved in favor of the property owner, Tax Revenues will be reduced. See APPENDIX D—FISCAL CONSULTANT'S REPORT. Based upon information received by the City from CoreLogic, within the Redevelopment Project, 39 residential units have been given Notices of Default or Noticed for Trustees' Sale during the six months from February 1, 2010, through July 31, 2010. Only three residential units in the Redevelopment Project are bank owned. No commercial property foreclosure notices have been served. Of the 1,681 units completed (for which certificates of occupancy have been issued by the City), 42 (or 2.5%) of the units are in some stage of the foreclosure process -33- Tax Revenue Projections and Debt Service Coverage The following tables depict the projected gross tax increment revenues and the net tax increment revenues available to pay debt service on the Bonds. The projected growth in real property taxable values does not include anticipated value added from the identified new developments described under the subheading "Redevelopment Activity" above. Table 5 Redevelopment Project Projection of Gross Tax Increment Revenue (1) Fiscal Real Personal Total Year Property Property Value 2011 $1,111,495,117 $18,724,588 $1,130,219,705 2012 1,111,495,117 18,724,588 1,130,219,705 2013 1,111,495,117 18,724,588 1,130,219,705 2014 1,133,725,019 18,724,588 1,152,449,607 2015 1,156,399,520 18,724,588 1,175,124,108 2016 1,179,527,510 18,724,588 1,198,252,098 2017 1,203,118,060 18,724,588 1,221,842,648 2018 1,227,180,422 18,724,588 1,245,905,010 2019 1,251,724,030 18,724,588 1,270,448,618 2020 1,276,758,511 18,724,588 1,295,483,099 2021 1,302,293,681 18,724,588 1,321,018,269 2022 1,328,339,554 18,724,588 1,347,064,142 2023 1,354,906,345 18,724,588 1,373,630,933 2024 1,382,004,472 18,724,588 1,400,729,060 2025 1,409,644,562 18,724,588 1,428,369,150 2026 1,437,837,453 18,724,588 1,456,562,041 2027 1,466,594,202 18,724,588 1,485,318,790 2028 1,495,926,086 18,724,588 1,514,650,674 2029 1,525,844,608 18,724,588 1,544,569,196 2030 1,556,361,500 18,724,588 1,575,086,088 2031 1,587,488,730 18,724,588 1,606,213,318 2032 1,619,238,505 18,724,588 1,637,963,093 2033 1,651,623,275 18,724,588 1,670,347,863 2034 1,684,655,740 18,724,588 1,703,380,328 2035 1,718,348,855 18,724,588 1,737,073,443 2036 1,752,715,832 18,724,588 1,771,440,420 2037 1,787,770,149 18,724,588 1,806,494,737 2038 1,823,525,552 18,724,588 1,842,250,140 2039 1,859,996,063 18,724,588 1,878,720,651 2040 1,897,195,984 18, 724,588 1,915,920,572 Source: David Taussig & Associates, Inc. (1) Property values are assumed to have 0% growth through fiscal year 2012-13 and 2% growth thereafter. (2) Based on the application of 1% tax rate to incremental taxable value. (3) Reflects recent delinquencies not expected to continue beyond Fiscal Year 2013-14. -34- (2) (3) Value Gross Less Over Tax Plus Estimated Tax Base of Increment Unitary Levy Increment $1,114,078 Revenue Revenue Shortfall Revenue $1,129,105,627 $11,291,056 $12,796 ($50,000) $11,253,852 1,129,105,627 11,291,056 12,796 (50,000) 11,253,852 1,129,105,627 11,291,056 12,796 (50,000) 11,253,852 1,151,335,529 11,513,355 12,796 (50,000) 11,476,151 1,174,010,030 11,740,100 12,796 0 11,752,896 1,197,138,020 11,971,380 12,796 0 11,984,176 1,220,728,570 12,207,286 12,796 0 12,220,081 1,244,790,932 12,447,909 12,796 0 12,460,705 1,269,334,540 12,693,345 12,796 0 12,706,141 1,294,369,021 12,943,690 12,796 0 12,956,486 1,319,904,191 13,199,042 12,796 0 13,211,837 1,345,950,064 13,459,501 12,796 0 13,472,296 1,372,516,855 13,725,169 12,796 0 13,737,964 1,399,614,982 13,996,150 12,796 0 14,008,945 1,427,255,072 14,272,551 12,796 0 14,285,346 1,455,447,963 14,554,480 12,796 0 14,567,275 1,484,204,712 14,842,047 12,796 0 14,854,843 1,513,536,596 15,135,366 12,796 0 15,148,162 1,543,455,118 15,434,551 12,796 0 15,447,347 1,573,972,010 15,739,720 12,796 0 15,752,516 1,605,099,240 16,050,992 12,796 0 16,063,788 1,636,849,015 16,368,490 12,796 0 16,381,286 1,669,233,785 16,692,338 12,796 0 16,705,133 1,702,266,250 17,022,663 12,796 0 17,035,458 1,735,959,365 17,359,594 12,796 0 17,372,389 1,770,326,342 17,703,263 12,796 0 17,716,059 1,805,380,659 18,053,807 12,796 0 18,066,602 1,841,136,062 18,411,361 12,796 0 18,424,156 1,877,606,573 18,776,066 12,796 0 18,788,861 1,914,806,494 19,148,065 12,796 0 19,160,861 Source: David Taussig & Associates, Inc. (1) Property values are assumed to have 0% growth through fiscal year 2012-13 and 2% growth thereafter. (2) Based on the application of 1% tax rate to incremental taxable value. (3) Reflects recent delinquencies not expected to continue beyond Fiscal Year 2013-14. -34- Table 6 Redevelopment Project Projection of Tax Revenues Source: David Taussig & Associates, Inc. (1) Estimated at 1% of gross tax increment revenue. -35- Tax Less Less Less Fiscal Increment County Housing Statutory Tax Year Revenue Admin (1) Set -Aside Pass-Throughs Revenues 2011 $11,253,852 ($112,911) ($2,228,188) ($2,265,717) $6,647,036 2012 11,253,852 (112,911) (2,228,188) (2,265,717) 6,647,036 2013 11,253,852 (112,911) (2,228,188) (2,265,717) 6,647,036 2014 11,476,151 (115,134) (2,272,203) (2,310,288) 6,778,526 2015 11,752,896 (117,401) (2,327,099) (2,390,806) 6,917,590 2016 11,984,176 (119,714) (2,372,892) (2,476,033) 7,015,537 2017 12,220,081 (122,073) (2,419,602) (2,562,964) 7,115,443 2018 12,460,705 (124,479) (2,467,245) (2,651,634) 7,217,347 2019 12,706,141 (126,933) (2,515,842) (2,742,077) 7,321,289 2020 12,956,486 (129,437) (2,565,410) (2,834,329) 7,427,310 2021 13,211,837 (131,990) (2,615,969) (2,928,426) 7,535,452 2022 13,472,296 (134,595) (2,667,540) (3,024,405) 7,645,756 2023 13,737,964 (137,252) (2,720,142) (3,122,304) 7,758,266 2024 14,008,945 (139,961) (2,773,797) (3,222,160) 7,873,027 2025 14,285,346 (142,726) (2,828,524) (3,324,014) 7,990,083 2026 14,567,275 (145,545) (2,884,346) (3,427,905) 8,109,479 2027 14,854,843 (148,420) (2,941,284) (3,533,873) 8,231,264 2028 15,148,162 (151,354) (2,999,362) (3,641,961) 8,355,485 2029 15,447,347 (154,346) (3,058,600) (3,752,211) 8,482,190 2030 15,752,516 (157,397) (3,119,024) (3,864,666) 8,611,429 2031 16,063,788 (160,510) (3,180,656) (3,979,370) 8,743,253 2032 16,381,286 (163,685) (3,243,520) (4,096,368) 8,877,713 2033 16,705,133 (166,923) (3,307,642) (4,215,706) 9,014,862 2034 17,035,458 (170,227) (3,373,046) (4,337,430) 9,154,755 2035 17,372,389 (173,596) (3,439,759) (4,498,967) 9,260,067 2036 17,716,059 (177,033) (3,507,805) (4,664,101) 9,367,120 2037 18,066,602 (180,538) (3,577,213) (4,832,537) 9,476,315 2038 18,424,156 (184,114) (3,648,009) (5,004,341) 9,587,693 2039 18,788,861 (187,761) (3,720,220) (5,179,582) 9,701,298 2040 19,160,861 (191,481) (3,793,876) (5,358,328) 9,817,176 Source: David Taussig & Associates, Inc. (1) Estimated at 1% of gross tax increment revenue. -35- Table 7 Redevelopment Project Projection of Tax Revenues, Debt Service and Debt Service Coverage (1) Debt Service Coverage Source: David Taussig & Associates, Inc.; Stone & Youngberg LLC for debt service data. (1) Preliminary, subject to change. Notwithstanding the foregoing, if assessed value does not grow as shown in Table 5 and Tax Revenues remain constant at the 2010-11 level, the debt service coverage of such amount against maximum annual debt service on the Bonds occurring in the 20_-_ fiscal year would be—to 1. No assurances are provided by the Agency as to the certainty of the projected tax increment revenues shown on the foregoing tables. Actual revenues may be higher or lower than what has been projected and are subject to valuation changes resulting from new developments or transfers of ownership not specifically identified herein, actual resolution of outstanding appeals, future filing of appeals, or the non-payment of taxes due. Adjustments to Tax Increment Revenues Property Tax Administrative Costs. The County currently reduces the amount of total tax increment revenue allocated to the Agency from the Redevelopment Project to cover property -36- (1) Fiscal Tax Bond Year Revenues Debt Service 2011 $6,647,036 2012 6,647,036 2013 6,647,036 2014 6,778,526 2015 6,917,590 2016 7,015,537 2017 7,115,443 2018 7,217,347 2019 7,321,289 2020 7,427,310 2021 7,535,452 2022 7,645,756 2023 7,758,266 2024 7,873,027 2025 7,990,083 2026 8,109,479 2027 8,231,264 2028 8,355,485 2029 8,482,190 2030 8,611,429 2031 8,743,253 2032 8,877,713 2033 9,014,862 2034 9,154,755 2035 9,260,067 2036 9,367,120 2037 9,476,315 2038 9,587,693 2039 9,701,298 2040 9,817,176 (1) Debt Service Coverage Source: David Taussig & Associates, Inc.; Stone & Youngberg LLC for debt service data. (1) Preliminary, subject to change. Notwithstanding the foregoing, if assessed value does not grow as shown in Table 5 and Tax Revenues remain constant at the 2010-11 level, the debt service coverage of such amount against maximum annual debt service on the Bonds occurring in the 20_-_ fiscal year would be—to 1. No assurances are provided by the Agency as to the certainty of the projected tax increment revenues shown on the foregoing tables. Actual revenues may be higher or lower than what has been projected and are subject to valuation changes resulting from new developments or transfers of ownership not specifically identified herein, actual resolution of outstanding appeals, future filing of appeals, or the non-payment of taxes due. Adjustments to Tax Increment Revenues Property Tax Administrative Costs. The County currently reduces the amount of total tax increment revenue allocated to the Agency from the Redevelopment Project to cover property -36- tax administrative costs. Legislation enacted in 1990 (SB 2557), and in 1992 (SB 1559) authorizes county auditors to determine property tax administrative costs proportionately attributable to local jurisdictions and, for the 1990-91 and 1991-92 Fiscal Years, to invoice the jurisdictions for such costs. Commencing in the 1992-93 Fiscal Year, the amounts due as local agencies' contribution to covering county administrative costs are to be allocated to the county as part of the overall system for the redistribution of property taxes (as opposed to being paid pursuant to invoices). SB 2557 expressly includes redevelopment agencies as jurisdictions that are to be charged for property tax administrative costs. The County's administrative and collection fee for fiscal year 2009-10 is estimated at $113,000, or approximately 0.943 percent of the projected 2008-09 gross Redevelopment Project revenue. As a result, the property tax administrative charge for future fiscal years is estimated at two percent of gross Redevelopment Project revenue. The following information should be considered by prospective investors in evaluating whether to invest in the Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the Bonds, and the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Factors Which May Affect Tax Revenues The ability of the Agency to pay principal of and interest on the Bonds depends on the timely receipt of Tax Revenues as projected herein. See THE REDEVELOPMENT PROJECT— Tax Revenue Projections and Debt Service Coverage and APPENDIX D—FISCAL CONSULTANT'S REPORT. Projections of Tax Revenues are based on the underlying assumptions relating to tax increment revenues of the Redevelopment Project. Tax Revenues allocated to the Agency (which constitute the ultimate source of payment of principal of and interest on the Bonds, as discussed herein) are determined by the amount of incremental valuation of taxable property in the Redevelopment Project, the current rate or rates at which property in the Redevelopment Project is taxed and the percentage of taxes collected in the Redevelopment Project, adjusted to reflect prior claims on the tax increment revenues, such as required deposits to the Low and Moderate Income Housing Fund and Statutory Payments which are senior in right of payment to the Bonds. A number of factors which may affect tax increment revenues, and consequently, Tax Revenues, are outlined below. Reductions in Assessed Value. The projections of tax increment revenues contained in this Official Statement are based on current assessed valuations within the Redevelopment Project, and certain assumed growth. A tax rate equal to $1.00 per $100 of assessed value applied to the taxable property in the Redevelopment Project is assumed along with certain projected increases or decreases in property values due to inflationary changes which may be allowed under Article XIIIA of the California Constitution. The Agency believes that the projections of tax increment revenues and the assumptions upon which the projections are based are reasonable. However, substantial growth in assessed value has occurred in the Redevelopment Project in recent years, and correspondingly, the Agency expects assessment appeals to increase until property values stabilize. Any future decrease in the assessed valuation of the Redevelopment Project (or any increase at a rate less than assumed), any general decline in the economic stability of the area, a relocation out of a Redevelopment Project by one or more major property owners, successful appeals by property owners for a reduction in a property's assessed value, or other events that permit reassessment of property at lower values, either on a case by case basis or as a blanket reduction due to a general decline in property values (see "Proposition 8 Adjustments" below) and any property tax refunds which may result therefrom, -37- the destruction of property caused by natural disasters or any delinquencies in the payment of property taxes and any potential acquisition of property by the Agency or other public entities will reduce the tax increment revenues allocated to, or received by, the Agency and correspondingly may have an adverse impact on the Tax Revenues and ability of the Agency to pay principal and interest on the Bonds. Article XIIIA. On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis -Gann Initiative) to the State Constitution which imposes certain limitations on taxes that may be levied against real property. This amendment, which added Article XIIIA to the State Constitution, among other things, defines full cash value of property to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under 'full cash value,' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." This full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by substantial damage, destruction or other factors. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING TAX REVENUES—Property Tax Limitations -Article XIIIA for a more complete discussion of Article XIIIA. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value of that property, except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and on any bonded indebtedness for the acquisition or improvement of real property which is approved after July 1, 1978, by two-thirds of the votes cast by voters voting on such indebtedness. However, pursuant to an amendment to the California Constitution, redevelopment agencies are prohibited from receiving any of the tax increment revenue attributable to tax rates levied to finance bonds approved by the voters on or after January 1, 1989. In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amend the terms "purchase" and "change of ownership," for purposes of determining full cash value of property under Article XIIIA, to not include the purchase or transfer of (1) real property between spouses, and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amends Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence and buy or build another of equal or lesser value within two years in the same county (or in certain cases, another county), to transfer the old residence's assessed value to the new residence. Prior to 2010-11, for each fiscal year since Article XIIIA has become effective (the 1978-79 fiscal year), the annual increase for inflation has been at least 2% except in five fiscal years as shown below: 1981-82 .........................................1.000% 1995-96 .........................................1.190 1996-97 .........................................1.110 1998-99 .........................................1.853 2004-05 .........................................1.867 For the 2010-11 fiscal year, however, because the Revenue and Taxation Code does not distinguish between positive and negative changes in the California Consumer Price Index used for purposes of the inflation factor, there was a decrease of 0.237%, reflecting the actual change in the California Consumer Price Index, as reported by the State Department of Finance. The Agency has projected tax increment revenues based on 2% annual inflationary increases in real -38- property values beginning in 2012-13. If the annual inflationary adjustments are less than these assumed amounts, Tax Revenues will be reduced from those projected. Proposition 8 Adjustments. Proposition 8, approved in 1978, provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then -current fair market value or the factored base year value. The State Board of Equalization has approved this reassessment formula and such formula has been used by county assessors statewide. This methodology has been approved by the Fourth District Court of Appeals in a case in which the California Supreme Court declined further review. The Agency's ability to generate sufficient Tax Revenues to pay debt service on the Bonds will be dependent on the economic strength of the Redevelopment Project. Since Proposition 8 adjustments are closely tied to the economics of an area, and primarily, real estate development, factors which adversely affect real estate development may adversely affect Tax Revenues. Such factors include general economic conditions, fluctuations in the real estate market, fluctuations in interest rates, unexpected increases in development costs and other factors such as unavailability of credit. If further Proposition 8 adjustments are made by the County Assessor in future years because of declines in the fair market value of properties caused by the lack of real estate development in the area generally, Tax Revenues may be adversely affected and as a possible consequence its ability to repay the Bonds may be adversely affected. Based on current residential market conditions, it is likely that the County Assessor will continue to review market values and make blanket adjustments to residential property assessed values in future tax years if warranted. The Agency cannot predict how any such blanket reductions in assessed values will affect the assessed value of properties within the Redevelopment Project. Assessment Appeals. Assessment appeals may be filed by property owners seeking a reduction in the assessed value of their property. After t1le property owner files an appeal, the County's Appeals Board will hear the appeal and make a determination as to whether or not there should be a reduction in assessed value for a particular property and the amount of the reduction, if any. To the extent that any reductions are made to the assessed valuation of such properties with appeals currently pending, or appeals subsequently filed, tax increment revenues, and correspondingly, Tax Revenues will be reduced. Such reductions may have an adverse affect on the Agency's ability to pay debt service on the Bonds. As of July 2010, appeals are pending for 16 property owners within the Redevelopment Project for the 2009-10 tax year. The projections of Tax Revenues in the tables herein are not adjusted for these or other appeals. To the extent these appeals are resolved in favor of the property owner, Tax Revenues will be reduced. Plan Limitations. The Agency's receipt of tax increment revenues is subject to the statutorily -imposed plan limitations described in the Redevelopment Plan, including the limitation on the final date to receive tax increment revenues and a limit on the maximum amount of tax increment revenues that may be allocated to the Agency. Tax Revenues are limited by the Plan Limitations. See THE REDEVELOPMENT PROJECT—Plan Limitations. The Redevelopment Project is not projected to reach its tax increment limit based on the parameters of the projections herein and in the Fiscal Consultant's Report. However, if growth -39- in assessed valuation exceeds 5% per year on average, the Redevelopment Project would exceed its tax increment limit prior to maturity of the Bonds. For example, at an average of 10% per year, the Redevelopment Project would exceed its tax increment limit in FY 2032-33. Earthquake, Fire and Other Risks. Natural and man-made disasters and hazards, including, without limitation, earthquakes, fires, floods, mudslides and other calamities, may have the effect of reducing tax increment revenues through reduction of aggregate assessed valuations within the boundaries of the Redevelopment Project. According to the City's General Plan, the City is located in a seismically active region and the Redevelopment Project could be impacted by a major earthquake originating from the numerous faults in the area including the Whittier Fault and the Newport -Inglewood Fault. The City's General Plan lists groundshaking and liquefaction as the primary seismic risk to Stanton from a major earthquake along 3 faults located 8 miles or less away from the City. The City lies outside the boundaries of the identified 100 -year flood plain of the Santa Ana River and the Santiago River. However, like most of the County, the City lies within the dam inundation area for failure of the Prado Dam and Reservoir. The City's Emergency Operations Plan includes a hazard analysis for earthquake, flood, and fire risk required to comply with FEMA requirements for disaster relief funding. Hazardous Substances. An environmental condition that may result in the reduction in the assessed value of parcels in the Redevelopment Project would be the discovery of a hazardous substance that would limit the beneficial use of the property. In general, the owners and operators of an assessed parcel 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 Superfund Act, is the most well known and widely applicable of these laws but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition on the 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 assessed parcels be affected by a hazardous substance would be to reduce the marketability and value of the parcel by the costs of remedying the condition, since the purchaser, upon becoming owner, will become obligated, along with the seller, to remedy the condition. In the case of the Redevelopment Project, the federal government under the Department of the Navy pursuant to their responsibilities as the previous occupant of the site has certain specific responsibilities for certain known contamination issues related to previous military operations on the site and for unknown contamination issues that might arise in the future on the subject site. The Navy conducted an Environmental Baseline Study (EBS) had has developed a Base Realignment and Closure Cleanup Plan for the site and commenced remediation of military contaminants to support reuse of the property as proposed in the Redevelopment Plan. Hundreds of sites at the former military facility have been investigated, documented and remediated by the Department of the Navy, as needed and required under CERCLA. Agency staff actively participate with Navy staff and state and federal regulatory agencies (the United States Environmental Protection Agency, California Environmental Protection Agency/ Department of Toxic Substances Control, and the Regional Water Quality Control Board) in reviewing and commenting on Navy remediation documents and in assisting the Navy in selecting remedies that support rapid economic redevelopment and reuse of the site. The following excerpts from the Federal statutes apply to hazardous materials located on sites transferred by the Navy, and are provided for information purposes only. FM Comprehensive Environmental Responses Compensation and Liability Act (CERCLA, 42 USC 9620). "The United States is required, at the time of transfer of title of real property, to provide covenants and warranties which: Assure that all response action necessary to protect human health and the environment with respect to any substance remaining on the property on the date of transfer has been taken before the date of transfer, and commit to undertake any additional remedial action found to be necessary after the date of such transfer." The National Defense Authorization Action for Fiscal Year 1993 as amended (Public Law No. 102-434), Section 330. "The Secretary of Defense, in the case of Base Closure Property transferred to any state or political subdivision of a state or to any other person or entity that acquires ownership or control, shall hold harmless defend and indemnify that person or entity from any suit, claim, demand or action, liability, judgment, cost or other fee arising out of any claim for personal injury or property damage that results from, or is in any manner predicated upon, the release or threatened release of any hazardous substance, pollutant or contaminant or petroleum or petroleum derivative as a result of Department of Defense activities." These two provisions above establish the responsibility of the United States to select and implement remedies which protect human health and the environment prior to transfer; to return and remediate any subsequently discovered contamination; and to hold a subsequent transferee harmless for certain consequences of pre -transfer of Department of Defense activities. Each quitclaim deed from the Navy is also expected to contain additional covenant language with regard to the above provisions, as well as the Finding of Suitability to Transfer (FOST) or Finding of Suitability to Lease (FOSL) and any Lease In Furtherance of Conveyance (LIFOC) provided by the Navy for the identified carve -out areas not yet ready for conveyance by the federal government. Additional Bonds. As referenced under the caption "SOURCES OF PAYMENTS FOR THE BONDS—Issuance of Additional Debt," the Agency may issue or incur obligations payable from Tax Revenues on a parity with its pledge of Tax Revenues to payment of debt service on the Bonds. The existence of and the potential for such obligations increase the risks associated with the Agency's payment of debt service on the Bonds in the event of a future decrease in the Agency's collection of Tax Revenues. Development Risks. The Agency's collection of Tax Revenues is directly affected by the economic strength of the Redevelopment Project. Projected development within the Redevelopment Project will be subject to all the risks generally associated with real estate development projects, including unexpected delays, disruptions and changes. Real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in real estate market and interest rates, unexpected increases in development costs and other similar factors. Further, real estate development operations within the Redevelopment Project could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in the Redevelopment Project is delayed or halted, the economy of the Redevelopment Project could be affected, causing a reduction in Tax Revenues available to pay debt service on the Bonds. Certain Bankruptcy Risks. The enforceability of the rights and remedies of the Owners and the obligations of the Agency may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose. -41- Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights. Limited Obligations. The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate must necessarily reduce the amount of tax increment revenues, and consequently, Tax Revenues that would otherwise be available to pay the principal of, and interest on the Bonds. Interpretation of and Future Changes in the Law; Voter Initiatives. The Redevelopment Law is a complex body of law and its application to the Agency, the Redevelopment Plan and the Redevelopment Project may be subject to different interpretations by the Agency, taxing entities and other interested parties, including with respect to Plan Limitations, Low and Moderate Income Housing Fund obligations and Statutory Payments. In addition to the existing limitations on tax increment revenues described in this Official Statement, the California electorate or Legislature could adopt future limitations with the effect of reducing tax increment revenues payable to the Agency. State of California Fiscal Issues. ERAF. In connection with its approval of the budget for the 1992-93, 1993-94, 1994-95, 2002-03, 2003-04, 2004-05, 2005-06, and 2008-09 Fiscal Years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency's tax increment, net of amounts due to other taxing agencies, to school districts for such Fiscal Years for deposit in the Education Revenue Augmentation Fund ("ERAF"). The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. In 2008, the State Legislature adopted, and the Governor of the State signed, legislation, Chapter 751, Statutes 2008 (AB 1389) ("AB 1389"), that among other things required redevelopment agencies to pay into ERAF in Fiscal Year 2008-09, prior to May 10, 2009, an aggregate amount of $350 million, of which the Agency was to pay $840,000. AB 1389 provided that part of the ERAF obligation of the Agency was calculated based on the gross tax increment received by the Agency and the other part of the ERAF obligation of the Agency was calculated based on net tax increment revenues (after any pass-through payments to other taxing entities). AB 1389 provided that required transfers to ERAF were subordinate to payments on bonds secured by tax increment revenues. On April 30, 2009, a California superior court in California Redevelopment Association v. Genest (County of Sacramento) (Case No. 34- 2008-00028334) held that the required payment by redevelopment agencies into ERAF in Fiscal Year 2008-09 pursuant to AB 1389 violated the California constitution and invalidated and enjoined the operation of the California Health and Safety Code section requiring such payment. On May 26, 2009, the State filed a notice that it would appeal the decision of the superior court. On September 28, 2009, the State noticed its withdrawal of its appeal of California Redevelopment Association v. Genest. SERAF. In connection with various legislation related to the budget for the State for its Fiscal Year 2009-10, in late July 2009, the State legislature adopted, and the Governor of the State signed, Assembly Bill No. 26 (the "2009 SERAF Legislation"). -42- The 2009 SERAF Legislation mandates that redevelopment agencies in the State make deposits to the Supplemental Educational Revenue Augmentation Fund ("SERAF") that is established in each county treasury throughout the State, in the aggregate amounts of $1.7 billion for Fiscal Year 2009-10, which were due prior to May 10, 2010, and $350 million for Fiscal Year 2010-11, which are due prior to May 10, 2011. The California Redevelopment Association, the Union City Redevelopment Agency and the Fountain Valley Redevelopment Agency filed a lawsuit in Sacramento Superior Court on October 20, 2009, challenging the constitutionality of the 2009 SERAF Legislation and seeking to prevent the State from taking redevelopment funds for non -redevelopment purposes. Subsequently, the Court certified all redevelopment agencies in the State as a class of plaintiffs in the lawsuit. The Court announced .its ruling in the case on May 4, 2010, in which it upheld the constitutionality of the 2009 SERAF Legislation. The Agency made the required SERAF payment for Fiscal Year 2009-10 on May 10, 2010 of $6,197,557 (of which $2,860,311 was paid from the Redevelopment Project). The Agency has preliminarily estimated that the additional amount payable by it pursuant to the 2009 SERAF Legislation will be $1,274,732 (of which $588,317 will be paid from the Redevelopment Project) for Fiscal Year 2010-11. Pursuant to the 2009 SERAF Legislation, redevelopment agencies may use any funds that are legally available and not legally obligated for other uses, including reserve funds, proceeds of land sales, proceeds of bonds or other indebtedness, lease revenues, interest and other earned income, as well as borrowing funds from the Low and Moderate Income Housing Fund. The Agency believes it will have sufficient funds to pay the full amount of the 2010-11 SERAF payment when due. Potential sources of funds used to pay the 2010-11 SERAF include: tax increment revenues from Fiscal Year 2010-11, and available moneys on deposit in Agency funds. Additionally, the Agency could, in the future, access the bond market to fund the tax shifts. The 2009 SERAF Legislation contains provisions that subordinate the obligation of redevelopment agencies to make the SERAF payments specified therein to certain indebtedness. Health and Safety Code, §33690 (a) (3) states: "The obligation of any agency to make the payments required pursuant to this subdivision shall be subordinate to the lien of any pledge of collateral securing, directly or indirectly, the payment of the principal, or interest on any bonds of the agency including, without limitation, bonds secured by a pledge of taxes allocated to the agency pursuant to Section 33670 of the California Health and Safety Code." The 2009 SERAF Legislation imposes various restrictions on redevelopment agencies that fail to timely make the required SERAF payments, including (i) a prohibition on adding or expanding project areas, (ii) a prohibition on the incurrence of additional debt, (iii) limitations on the encumbrance and expenditure of funds, including funds for operation and administration expenses, and (iv) commencing with the July 1 following the due date of a SERAF annual payment that is not timely made, a requirement that the applicable redevelopment agency allocate an additional five percent (5%) of all taxes that are allocated to the redevelopment agency under the Redevelopment Law for low- and moderate -income housing for the remainder of the time that the applicable redevelopment agency receives allocations of tax revenues under the Redevelopment Law. The 5% additional housing set-aside penalty provision referred to in the 2009 SERAF Legislation (the "Penalty Set -Aside Requirement") would be in addition to the 20% of such tax revenues already required to be used for low- and moderate -income housing purposes. A redevelopment agency that borrows from amounts required to be allocated to its housing set- aside funds to make required SERAF payments but does not timely repay the funds, will also be -43- subject to the Penalty Set -Aside Requirement. If the Agency borrows funds from the Housing Fund to make the SERAF payment in Fiscal Year 2010-11, and does not repay the funds within the specified time frame, it would be subject to the Penalty Set -Aside Requirement. The Agency did not borrow funds from the Housing Fund to make the SERAF payment due May 10, 2010 and does not expect to borrow funds from the SERAF payment due May 10, 2011. While the 2009 SERAF Legislation contains provisions that subordinate the obligation of redevelopment agencies to make the SERAF payments specified therein to certain indebtedness (which would include a subordination of the Agency's obligations with respect to the new SERAF payments to the Agency's obligation to pay debt service on the Bonds), there is no provision in the 2009 SERAF Legislation subordinating the Penalty Set -Aside Requirement to any indebtedness of a redevelopment agency that fails to timely make the SERAF payments mandated by the SERAF Legislation. On August 30, 2010, the California Redevelopment Association and the other plaintiffs in the lawsuit challenging the 2009 SERAF Legislation have filed an appeal to the Court's May 4, 2010 decision. The Agency cannot predict the ultimate outcome of any such appeal. Further, the Agency cannot predict what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures and the repercussions they may have on the Fiscal Year 2010-11 State Budget and future State budgets. These developments at the State level may, in turn, affect local governments and agencies, including the Agency. The State Legislature may adopt other legislation requiring redevelopment agencies to make other payments to ERAF or SERAF or to make other payments. The impact that current and future State fiscal shortfalls will have on the Agency is unknown at this time. In prior years, the State has experienced budgetary difficulties and balanced its budget by requiring local political subdivisions, such as the County and the Agency, to fund certain costs theretofore borne by the State. Information about the State budget and State spending is regularly available from various State offices, including the Department of Finance, the Office of the Legislative Analyst and the State Treasurer. However, none of such information is incorporated by such reference. Real Estate and General Economic Risks Tax increment revenues as presented herein as available for payment of any indebtedness of the Agency are based upon the latest actual assessed values for the 2010-11 Fiscal Year. Redevelopment of real property within the Redevelopment Project by the Agency, as well as private development in the Redevelopment Project, may be adversely affected by changes in general economic conditions, fluctuations in the real estate markets and interest rates, unexpected increases in development costs, changes in or new governmental policies including governmental policies to restrict or control certain kinds of development and by other similar factors. If development and redevelopment activities in the Redevelopment Project encounter significant obstacles of the kind described herein or other impediments, the economy of the area in and around the Redevelopment Project could be adversely affected, causing reduced taxable valuation of property in the Redevelopment Project, a reduction of the tax increment revenues and a consequent reduction in Tax Revenues available to repay the Bonds. Due to the decline in the general economy of the region, owners of property within the Redevelopment Project may be less able or less willing to make timely payments of property taxes, causing a delay or stoppage of tax increment revenues received by the Agency from the Redevelopment Project. -44- Limited Obligations NEITHER THE BONDS, NOR THE OBLIGATIONS OF THE AGENCY UNDER THE INDENTURE ARE A DEBT OF THE CITY OR THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY, TO THE LIMITED EXTENT DESCRIBED HEREIN), AND NONE OF THE CITY, THE STATE OR ANY OF ITS OTHER POLITICAL SUBDIVISIONS ARE LIABLE THEREFOR. THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS ARE PAYABLE FROM AND SECURED BY AN ASSIGNMENT OF AMOUNTS PAYABLE BY THE AGENCY ON THE BONDS AND, IF NEEDED, THE OBLIGATIONS OF THE AGENCY UNDER THE INDENTURE AND THE BONDS ARE LIMITED OBLIGATIONS OF THE AGENCY, PAYABLE ONLY OUT OF CERTAIN FUNDS OF THE AGENCY AS SET FORTH IN THE INDENTURE. THE BONDS DO NOT CONSTITUTE INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NONE OF THE MEMBERS OF THE AGENCY OR THE CITY COUNCIL OR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE. No Acceleration on Default The Indenture does not provide for an acceleration of the principal of the Bonds following the occurrence of an Event of Default under and as defined in the Indenture. The Indenture does not contain provisions with respect to the acceleration of the Agency's obligations thereunder upon the occurrence of an event of default under the Indenture. In the event of default under the Indenture, as a practical matter, the Trustee will be limited to obtaining the moneys in the debt service funds held under the Indenture and enforcing the covenant of the Agency to pay the Tax Revenues on an annual basis to the extent of such Tax Revenues. No real or personal property in the Redevelopment Project is pledged to secure the Bonds and it is not anticipated that the Agency will have available moneys sufficient to pay any of the Bonds in full upon the occurrence of an event of default. Bankruptcy The enforceability of the rights and remedies of the owners of the Bonds and the obligations of the Agency may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies: the exercise by the United States of America of the powers delegated to it by the federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights. On July 30, 1992 the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries holding that ad valorem property taxes levied by a county in the State of Washington after the date that the property owner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured creditor with a prior lien on the property. Similar results were reached by several circuit courts in other circuits. Subsequently, however, Section 362(b)(18) of the Bankruptcy Code was enacted, effectively overturning this line of decisions and providing that local -45- governments may rely on statutory property tax liens to secure payment of property taxes after the filing of a bankruptcy petition. Federal Tax -Exempt Status of the Bonds Tax -Exempt Status of Interest on the Bonds. The Internal Revenue Code of 1986, as amended (the "Code") imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of Bond proceeds, limitations on the investment earnings of Bond proceeds prior to expenditure, a requirement that certain investment earnings on Bond proceeds be paid periodically to the United States and a requirement that the issuers file an information report with the Internal Revenue Service (the "IRS"). The Agency has covenanted in certain of the documents referred to herein that they will comply with such requirements. Failure to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance of such Bonds. Audit. As a part of a larger reorganization of the IRS, the IRS commenced operation of its Tax Exempt and Government Entities Division (the "TE/GE Division"), as the successor to its Employee Plans and Exempt Organizations division. The TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations is expected to increase significantly under the TE/GE Division. There is no assurance that an IRS examination of the Bonds, if one is undertaken, will not adversely affect the tax-exempt status or market value of such Bonds. Investment Risk Funds held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See Appendix A attached hereto for a summary of the definition of Permitted Investments. The funds and accounts of the Agency, into which a portion of the proceeds of the Bonds will be deposited and into which all Tax Revenues are initially deposited, may be invested by the Agency in any investment authorized by law. All investments, including the Permitted Investments and those authorized by law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. Further, the Agency cannot predict the effects on the receipt of Tax Revenues if the County were to suffer significant losses in its portfolio of investments or if the County or the City were to become insolvent or declare bankruptcy. See "BONDOWNERS' RISKS—Bankruptcy." Secondary Market There can be no guarantee that there will be a secondary market for the Bonds, or, if a secondary market exists, that the Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon the then prevailing circumstances. Such prices could be substantially different from the face amount of the Bonds. XIM CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING TAX REVENUES Property Tax Limitations -Article XIIIA California voters, on June 6, 1978, approved an amendment (commonly known as both Proposition 13 and the Jarvis -Gann Initiative) to the California Constitution. This amendment, which added Article XIII A to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property to mean "the county assessor's valuation of real property as shown on the fiscal year 1975-76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. The amendment further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in October 1986 by initiative which exempts any bonded indebtedness approved by two-thirds (55% in certain instances) of the votes cast by the voters for the acquisition or improvement of real property from the one percent limitation. In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amend Article XIIIA. Proposition 58 amends Article XIIIA to provide that the terms "purchased" and "change of ownership," for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amends Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence's assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60. Challenges to Article XIIIA There have been many challenges to Article XIIIA of the California Constitution. Recently, the United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. The Agency cannot predict whether there will be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the Agency's receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property. Implementing Legislation Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA. -47- The apportionment of property taxes in fiscal years after 1978-79 has been revised pursuant to Statutes of 1979, Chapter 282 which provides relief funds from State moneys beginning in fiscal year 1978-79 and is designed to provide a permanent system for sharing State taxes and budget surplus funds with local agencies. Under Chapter 282, cities and counties receive about one-third more of the remaining property tax revenues collected under Proposition 13 instead of direct State aid. School districts receive a correspondingly reduced amount of property taxes, but receive compensation directly from the State and are given additional relief. Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs except for certain utility property assessed by the State Board of Equalization which is allocated by a different method discussed herein. Unitary Property AB 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with the fiscal year 1988-89, assessed value derived from State -assessed unitary property (consisting mostly of operational property owned by utility companies and herein defined as "Unitary Property") is to be allocated county -wide as follows: (i) each tax rate area will receive the same amount from each assessed utility received in the previous fiscal year unless the applicable county -wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro -rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro -rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State -assessed property has been changed to January 1. Railroad property will continue to be assessed and revenues allocated to all tax rate areas where the railroad property is sited. To administer the allocation of unitary tax revenues to redevelopment agencies, the County no longer includes the taxable value of utilities as part of the reported taxable values of the Redevelopment Project. For fiscal year 2009-10, the Agency received $12,742 of unitary revenue for the Redevelopment Project. The projection of Tax Revenues assumes the County will not remit unitary revenue in future years for the Redevelopment Project. See "THE REDEVELOPMENT PROJECT—Tax Increment Revenue Projections." Property Tax Collection Procedures Classifications. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." Secured and unsecured properties are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against unsecured property, but may become a lien on certain other property owned by the taxpayer. Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain -48- property of the taxpayer; and (4) seizure and sale of the personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes which are delinquent. Penalties. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption and a $15 Redemption Fee. If taxes are unpaid for a period of five years or more, the property is recorded in a "Power to Sell" status and is subject to sale by the county tax collector. A 10% penalty also applies to the delinquent taxes on property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. Delinquencies. The valuation of property is determined as of January 1 each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1. Unsecured taxes enrolled by July 31, if unpaid, are delinquent August 31 at 5:00 p.m. and are subject to penalty; unsecured taxes added to the roll after July 31, if unpaid, are delinquent on the last day of the month succeeding the month of enrollment. Supplemental Assessments. Legislation enacted in 1983 (Chapter 498, Statutes of 1983) provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Chapter 498 provided increased revenue to redevelopment agencies to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January 1 lien date. To the extent such State supplemental assessments occur within the Redevelopment Project, the Tax Revenues for the Redevelopment Project may increase. Tax Collection Fees. In 1990, the State Legislature enacted Senate Bill 2557 (Chapter 466, Statutes of 1990) ("SB 2557") which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions on a prorated basis. Two recent decisions have interpreted the provisions of SB 2557 and have upheld the inclusion of redevelopment agencies as a local government agency which must share the cost of property tax administration. The 1992 enactment of Senate Bill 1559 (Chapter 697) and the decision of the California Court of Appeal in Arcadia Redevelopment Agency v. Ikemoto have clarified that redevelopment agencies, such as the Agency, are to share in the cost of property tax administration charged by most California. counties, including the County. During fiscal years 2007-08 and 2008-09, the County withheld approximately $123,204 and $205,807, respectively, from the Agency for such administrative costs with respect to the Redevelopment Project. Appropriations Limitations -Article XIIIB On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. The principal effect of Article XIIIB is to limit the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. -49- Effective November 30, 1980, the California Legislature added section 33678 to the Redevelopment Law which provided that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness will not be deemed the receipt by such agency of proceeds of taxes levied by or on behalf of the agency within the meaning of Article XIIIB, nor will such portion of taxes be deemed receipt of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including section 33678 of the Redevelopment Law. State Board of Equalization and Property Assessment Practices On December 10, 1998, the State Board of Equalization ("SBOE") approved revisions to its guidelines regarding the valuation of intangible business and commercial property for property tax purposes. The SBOE approved these revisions over the objections of the California Assessors Association ("CAA"), an organization representing all 58 County Assessors in California. The Agency is not able to predict whether the revised SBOE guidelines will cause any reductions in tax increment revenues and, hence, in Tax Revenues. However, the Agency does not believe that the SBOE's adoption of the revised guidelines will affect its ability to pay debt service on the Bonds. Exclusion of Tax Revenues for General Obligation Bonds Debt Service An initiative to amend the California Constitution entitled "Property Tax Revenues Redevelopment Agencies" was approved by California voters at the November 8, 1988 general election. Under prior law, a redevelopment agency using tax increment revenue received additional property tax revenue whenever a local government increased its property tax rate to pay off its general obligation bonds. This initiative amended the California Constitution to allow the California Legislature to prohibit redevelopment agencies from receiving any of the property tax revenues raised by increased property tax rates imposed by local governments to make payments on their bonded indebtedness. The initiative only applies to tax rates levied to finance general obligation bonds approved by the voters on or after January 1, 1989. Any revenue reduction to redevelopment agencies would depend on the number and value of the general obligation bonds approved by voters in prior years, which tax rate will reduce due to increased valuation subject to the tax or the retirement of the indebtedness. The Agency does not receive a significant amount of tax increment as a result of general obligation bond tax levies. Proposition 218 On November 5, 1996, California voters approved Proposition 218 -Voter Approval for Local Government Taxes -Limitation on Fees, Assessments, and Charges -Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property -related fees and charges. Tax Revenues securing the Bonds are derived from property taxes which are outside the scope of taxes, assessments and property -related fees and charges which were limited by Proposition 218. AB 1290 In 1993, the California Legislature enacted Assembly Bill 1290 ("AB 1290") which contained several significant changes in the Redevelopment Law. Among the changes made by AB 1290 was a provision that limits the period of time for incurring and repaying loans, advances and indebtedness payable from tax increment revenues. In general, a redevelopment -50- plan may terminate not more than 40 years following the date of original adoption, and loans, advances and indebtedness may be repaid during a period extending not more than 10 years following the date of termination of the redevelopment plan. See "THE REDEVELOPMENT PROJECT—Redevelopment Plan Limitations." Future Initiatives Article XIIIA, Article XIIIB and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Agency's ability to expend revenues. Low and Moderate Income Housing Sections 33334.2 and 33334.3 of the Redevelopment Law require redevelopment agencies to set aside not less than 20 percent of all tax increment revenues from project areas adopted after December 31, 1976 into a low and moderate income housing fund (the Housing Set -Aside Requirement). An agency can reduce the Housing Set -Aside Requirement if the agency annually makes certain findings, consistent with the General Plan Housing Element. These findings are that: (1) no need exists in the community to improve or increase the supply of low and moderate income housing; or, (2) some stated percentage less than 20 percent of the tax increment is sufficient to meet the housing need. In order to make findings (1) or (2), the Agency's finding must be consistent with the Housing Element of the community's General Plan, including its share of the regional housing needs of very low income households and persons and families of low or moderate income. The Agency has not made such findings in the past. Statement of Indebtedness Under the Redevelopment Law, the Agency must file with the County Auditor a statement of indebtedness for the Redevelopment Project by October 1 of each year. As described below, the statement of indebtedness controls the amount of tax increment revenue that will be paid to the Agency in each fiscal year. Each statement of indebtedness is filed on a form prescribed by the State Controller and specifies, among other things: (i) the total amount of principal and interest payable on all loans, advances or indebtedness (including the Bonds and all Additional Bonds) (the "Debt"), both over the life of the Debt and for the current fiscal year, and (ii) the amount of "Available Revenue" as of the end of the previous fiscal year. "Available Revenue" is calculated by subtracting the total payments on Debt during the previous fiscal year from the total revenues (both tax increment revenues and other revenues) received during the previous fiscal year, plus any carry -forward from the prior fiscal year. Available Revenue include amounts held by the Agency and irrevocably pledged to the payment of Debt other than amounts set aside for low- and moderate -income housing. The County Auditor may only pay tax increment revenue to the Agency in any fiscal year to the extent that the total remaining principal and interest on all Debt exceeds the amount of available revenues as shown on the statement of indebtedness. The statement of indebtedness constitutes prima facie evidence of the indebtedness of the Agency; however, the County Auditor may dispute the statement of indebtedness in certain cases. section 33675 of the Redevelopment Law provides for certain time limits controlling any dispute of the statement of indebtedness, and allows for Superior Court determination of such -51- dispute if it cannot be resolved by the Agency and the County. Any such action may only challenge the amount of the Debt as shown on the statement, and not the validity of any Debt or its related contract or expenditures. No challenge can be made to payments to a trustee in connection with a bond issue or payments to a public agency in connection with payments by that public agency with respect to a lease or bond issue. CERTAIN LEGAL MATTERS The legal opinion of Quint & Thimmig LLP, San Francisco, California, as Bond Counsel, approving the validity of the Bonds, will be made available to purchasers at the time of original delivery of the Bonds and the proposed form thereof appears in Appendix E hereto. Bond Counsel's employment as bond counsel is limited to a review of the legal proceedings required for the authorization of the Bonds and to rendering the opinions set forth in Appendix E hereto. Quint & Thimmig LLP, San Francisco, California, is serving as Disclosure Counsel to the Agency. Certain legal matters will be passed upon for the Agency by Woodruff, Spradlin & Smart, P.C., Costa Mesa, California, Agency Counsel. Payment of the fees and expenses of Bond Counsel and Disclosure Counsel is contingent upon the sale and delivery of the Bonds. ENFORCEABILITY OF REMEDIES The remedies available to the Trustee and to the registered owners of the Bonds upon an event of default under the Indenture and any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds are subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. RATING Standard & Poor's ratings Services ("S&P") has assigned the rating of "_" to the Bonds. Such rating reflects only the views of S&P and an explanation of the significance of such rating may be obtained from S&P. There is no assurance that such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P, if in the judgment of the S&P, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE The Agency has covenanted for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the Agency by not later than nine months following the end of the Agency's Fiscal Year (which reporting date would be March 31), commencing with the report for the 2009-10 Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Agency with each Nationally Recognized Municipal ISM Securities Information Repository, and with the appropriate State information depository, if any. The notices of material events will be filed by the Agency with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in the Form of Continuing Disclosure Certificate in Appendix F hereto. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2 -12(b)(5). The Agency has not failed to materially comply with the terms of any previous undertakings with regard to said Rule to provide annual reports or notices of material events. ABSENCE OF LITIGATION At the time the Bonds are delivered, the Agency will certify that, to its best knowledge, there is no litigation pending with respect to which the Agency has been served with process or know to be threatened against the Agency in any court or other tribunal of competent jurisdiction, State or federal, which seeks to enjoin or challenges the authority of the Agency to participate in the transactions contemplated by this Official Statement, the Bonds or the Indenture. TAX MATTERS Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Agency has covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Subject to the Agency's compliance with the above referenced covenants, under present law, in the opinion of Quint & Thimmig LLP, Bond Counsel, interest on the Bonds (i) is excludable from the gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, and (iii) is not taken into account in computing "adjusted current earnings" as described below. Bond Counsel expects to deliver an opinion at the time of delivery of the Bonds in substantially the form set forth in APPENDIX E—FORM OF BOND COUNSEL'S OPINION. Bond Counsel's opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result. The Internal Revenue Code of 1986, as amended (the "Code"), includes provisions for an alternative minimum tax ("AMT") for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation's alternative minimum taxable income ("AMTI"), which is the corporation's taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation's "adjusted current earnings" over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). "Adjusted current earnings" would include certain tax exempt interest, including interest on the Bonds. -53- Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to applicability of any such collateral consequences. The issue price (the "Issue Price") for each maturity of the Bonds is the price at which a substantial amount of such maturity of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside cover page hereof. If the Issue Price of a maturity of the Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity, if any, of the Bonds (the "OID Bonds") and the principal amount payable at maturity is original issue discount. For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Agency complies with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID Bonds. Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from the Issue Price or purchase Bonds subsequent to the initial public offering should consult their own tax advisors. If a Bond is purchased at any time for a price that is less than the Bond's stated redemption price at maturity or, in the case of an OID Bond, its Issue Price plus accreted original issue discount reduced by payments of interest included in the computation of original issue discount and previously paid (the "Revised Issue Price"), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser's election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price even if the purchase price exceeds par. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as "bond premium" and must be -54- amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax exempt bond. The amortized bond premium is treated as a reduction in the tax exempt interest received. As bond premium is amortized, it reduces the investor's basis in the Bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond's basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the "Service") has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Bonds. If an audit is commenced, under current procedures the Service may treat the Agency as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. The Bonds are issued to refund bonds issued before January 1, 2009, and therefore are treated as issued before 2009 for purposes of section 265(b)(7) of the Code relating to interest expense deductibility for financial institutions. The treatment of interest expense for financial institutions owning such Bonds may be less favorable than the treatment provided to owners of tax exempt bonds treated as issued in 2009 or 2010. Financial institutions should consult their tax advisors concerning such treatment. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. -55- UNDERWRITING The Bonds are being purchased for reoffering by Stone & Youngberg LLC (the "Underwriter"). The Underwriter has entered into an agreement with the Agency to purchase the Bonds at a price of $ (being the principal amount of the Bonds of $ less an Underwriter's discount of $ 'plus a net original issue premium of $ ). The agreement pursuant to which the Underwriter will purchase the Bonds provides that the Underwriter will purchase all of the Bonds if any of the Bonds are purchased. The Underwriter intends to reoffer the Bonds to the public initially at the prices or yields set forth on the inside cover page of this Official Statement, which yield may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in reoffering the Bonds to the public. The Underwriter may reoffer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. MISCELLANEOUS The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from, and summaries and explanations of, the Indenture and other documents and statutes contained herein do not purport to be complete, and reference is made to such documents, Indenture and statutes for full and complete statements of their provisions. Unless otherwise noted, all information contained in this Official Statement pertaining to the Agency, the City, the County and the Redevelopment Project has been furnished by the Agency. Any statement in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Agency and the purchasers or registered owners of any of the Bonds. The execution and delivery of this Official Statement has been duly authorized by the Agency. TUSTIN COMMUNITY REDEVELOPMENT AGENCY Executive Director APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE [TO COME] Appendix A THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX B GENERAL INFORMATION REGARDING THE CITY The following information relating to the City of Tustin (the "City") and Orange County (the "County") is supplied solely for purposes of information. Neither the City nor the County is obligated in any manner to pay principal of or interest on the Bonds or to cure any delinquency or default on the Bonds. The Bonds are payable solely from the Tax Revenues and other moneys as described in the Official Statement. The Redevelopment Projects is located within the boundaries of the City. The City is substantially larger than the Project Area, and consequently, the information is presented with that limitation and solely for the general background interest of the information. General The City covers approximately 11.8 square miles in central the County. The City is bounded by the cities of Orange to the north, Santa Ana to the west and Irvine to the south. It has a temperate climate, with a mean average temperature of 63 degrees and average annual rainfall of 13 inches. In 1868 Columbus Tustin, the City's Founder and namesake, purchased with a partner 1,300 acres of Rancho Santiago de Santa Ana, originally with a Spanish land grant. Tustin started "Tustin City" on his portion of the property. The orange industry began in Tustin City in 1875, when the first sizeable grove was planted. The City was soon surrounded by orange, walnut and apricot orchards. Between 1900 and 1950 the production of oranges gradually became the City's major agricultural crop, and processing citrus fruits was the City's most important industry. The rate of agriculture in the City has diminished since the early 1960's as the City has diversified its economic base. The City provides a range of municipal services to its residents with a full-time permanent staff of approximately 289 employees. The City has its own police force and the Orange County Fire Department provides fire protection services on a contractual basis. Street sweeping, park maintenance and building inspection are provided by the City. Trash collection is a contracted service and maintenance of sewer mains is currently provided by the Orange County Sanitation District. The City cooperates with the County in the provisions and maintenance of flood control facilities. Water services are provided within portions of the City, including the Town Center and South Central Project Area by the City of Tustin Water Corporation. Water and sewer services are provided in the easterly portions of the City (i.e., Tustin Ranch) and MCAS Tustin Project Area by the Irvine Ranch Water District. Two other legal entities are financially related to the City -the Tustin Community Redevelopment Agency (the "Agency") and the City of Tustin Water Corporation (the "Water Corporation"). The Agency was formed in 1976 to eliminate blighted areas by encouraging residential, commercial, industrial and recreational development. The Agency is discussed in an earlier section of this Official Statement. Municipal Government The City is a general law city and was incorporated in 1927. The City has a council-manager form of municipal government. The City Council is composed of five members elected biannually at large to four-year alternating terms. The Mayor is selected by the City Council from among its members. The City Manager is appointed by the City Council and serves as the administrative head of the City. The City Manager implements City Council directives and policies and manages the operational functions of the City. The City staff is organized into departments, which provide police, community development, maintenance, general administration, community service and capital improvements. The City employs a staff of approximately 289 full-time employees under the direction of the City Manager. All full-time City employees are covered by the Public Employee's Retirement System, which is administered by the State. Appendix B Page 1 The table below sets out the current City Council members and their incumbency dates. Name Jerry Amante John Nielsen Doug Davert Deborah Gavello Jim Palmer Population Position Mayor Mayor Pro Tem Council Member Council Member Council Member Term Expires November 2010 November 2012 November 2010 November 2012 November 2012 The City's population, as of January 2010, was 75,773 as reported by the California State Department of Finance. A summary of the City's population for the past 10 years is shown below. CITY OF TUSTIN Population Year Population (1) 2001 68,366 2002 69,126 2003 69,753 2004 70,291 2005 70,524 2006 71,383 2007 71,931 2008 73,670 2009 74,736 2010 75,773 (1) State Department of Finance estimate as of January 1 of each year. Commerce The number of establishments in the City selling merchandise subject to sales tax and the valuation of taxable transactions is presented in the following table. CITY OF TUSTIN Taxable Retail Sales ($000) Source: California State Board of Equalization. (1) Latest available full -year data. Appendix B Page 2 Taxable Sales ($000) 2004 2005 2006 2007 -2008(1) Retail Stores Apparel Stores $ 52,248 $ 53,843 $ 51,148 $ 65,705 $ 67,409 General Merchandise 142,377 139,692 150,321 202,882 263,531 Food Stores 40,638 43,297 47,589 51,967 55,713 Eating And Drinking Places 125,334 126,619 132,694 152,829 175,280 Home Furnishings/ Appliances 50,872 51,721 38,224 33,196 62,537 Building Materials/Farm Implements 97,250 91,931 91,129 82,316 6,823 Auto Dealers/Supplies 603,186 626,897 611,396 543,012 402,335 Service stations 80,433 91,272 101,974 106,334 112,072 Other Retail Stores 229,000 264,432 250,427 259,490 224,785 Retail Stores Totals 1,421,338 1,489,704 1,474,902 1,497,731 1,440,485 All Other Outlets 249,336 263,385 281,184 327,578 331,956 Total All Outlets $1,670,674 $1,753,089 $1,756,086 $1,825,309 1,772,441 Source: California State Board of Equalization. (1) Latest available full -year data. Appendix B Page 2 Effective Buying Income The following table shows the City's median household effective buying income for 2005 through 2009. CITY OF TUSTIN Effective Buying Income Total Effective Buying Income Year Area (000's Omitted) 2005 POOR 2007 2008 2009 Tustin California United States Tustin California United States Tustin California United States Tustin California United States Tustin California United States Source: Nielsen Claritas, Inc. $ 1,585,433 720,798,106 5,894,663,364 $ 1,717,303 764,120,962 6,107,092,244 $ 1,858,733 814,894,438 6,300,794,040 $ 1,901,250 832,531,445 6,443,994,426 $ 1,904,143 844,823,319 6,571,536,768 Appendix B Page 3 Median Household Effective Buying Income $50,466 44,681 40,529 $52,701 46,275 41,255 $56,126 48,203 41,792 $56,337 48,952 42,303 $57,325 49,736 43,252 Employment The following table summarizes the labor force, employment and unemployment figures over the past five years for the City, County, the State, and the nation as a whole. Year and Area 2005 Tustin Orange County California United States 2006 Tustin Orange County California United States 2007 Tustin Orange County California United States 2008 Tustin Orange County California United States 2009 Tustin Orange County California United States LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT Yearly Average for Years 2005 through 2009 Civilian Labor Force Unemployment Employment Unemployment Rate 41,500 40,000 1,500 3.7% 8 17,544,800 16,592,200 952,600 5.4 149,297,833 141,707,250 7,590,583 5.1 42,000 40,600 1,400 3.3% 17,718,500 16,851,600 866,900 4.9 151,427,583 144,427,000 7,000,583 4.6. 42,200 40,600 1,600 3.8% 17,970,800 17,011,000 959,800 5.4 153,167,750 146,093,917 7,073,833 4.6 42,500 40,300 2,200 5.2% 1,625,300 1,539,800 85,500 5.3 18,251,600 16,938,300 1,313,200 7.2 153,124,000 146,047,000 7,078,000 4.6 41,600 37,900 3,700 8.9% 1,594,200 1,451,000 143,200 9.0 18,250,200 16,163,900 2,086,200 11.4 154,142,000 139,877,000 14,265,000 9.3 Source: California Employment Development Department; March 2009 Benchmark. * Each year, the State recalculates data for preceding years and reports it on a rolling basis beginning in March. As a result, there are periods where full historical data is not available for a particular city, county, or MSA. Appendix B Page 4 The City is included within the Orange County Metropolitan Statistical Area. Services, retail trade and manufacturing are the principal sources of employment. The following table shows employment statistics for the County for the past five years. These figures are county -wide statistics and may not necessarily accurately reflect employment trends in the City. ORANGE COUNTY MSA Wage and Salary Workers by Industry (in thousands) Source: State of California, Employment Development Department, March 2009 Benchmark. (1) Does not represent total of columns. Appendix B Page 5 2005 2006 2007 2008 2009 Total, All Industries (1) 1,496,500 1,524,300 1,520,500 1,486,200 1,375,400 Farm 5,600 5,300 5,000 4,600 3,900 Non -Farm: 1,491,000 1,518,900 1,515,500 1,481,600 1,371,400 Goods Producing 283,500 289,900 284,000 265,900 228,600 Mining and Logging 700 600 600 600 500 Construction 99,900 106,600 103,100 91,200 73,600 Manufacturing 182,900 182,700 180,400 174,100 154,500 Service Providing 1,207,400 1,229,000 1,231,500 1,215,700 1,142,800 Trade, Transportation & Utilities 269,800 272,800 277,000 271,600 250,000 Wholesale Trade 83,000 83,700 86,900 86,700 80,100 Retail Trade 158,100 160,800 161,200 155,600 141,900 Information 32,800 31,900 31,200 30,100 27,400 Financial Activities 138,400 138,200 127,700 113,100 105,600 Professional & Business Services 264,300 274,500 273,300 266,600 239,000 Educational & Health Services 133,500 137,700 142,600 150,700 151,100 Leisure & Hospitality 165,000 169,600 172,900 176,400 169,700 Other Services 48,400 47,700 47,400 46,500 42,800 Government 155,300 156,700 159,400 160,800 157,300 Source: State of California, Employment Development Department, March 2009 Benchmark. (1) Does not represent total of columns. Appendix B Page 5 Construction Activity The following is a summary of the valuation of building permits issued in the City for the past five years. CITY OF TUSTIN Building Permit Valuation ($000s) Source: Construction Industry Research Board, 'Building Permit Summary." (1) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings and non-residential alterations and additions. Totals may not add due to rounding. Education The City is served by the Tustin Unified School District, which operates 18 elementary schools, 5 middle schools, 4 high schools and alternative and adult education programs, totaling over 22,000 students. In addition, there are 10 private and parochial schools serving the community. Eight community colleges are located from 5 to 20 miles from the City. The Rancho Santiago Community College District (RSCCD) and South Orange County Community College District (SOCCCD) operate two facilities with the City; The RSCCCD operates the Regional Law Enforcement Training Facility and the SOCCCD operates and Advanced Technology Education Campus. Chapman University, CSU -Fullerton, Concordia College, UC -Irvine among several institutions also offer college and graduate level courses of study within easy reach of the City. Health Care The closest hospital services provided to Tustin are located on the City's northwesterly boundary within the City of Santa Ana at Western Medical Center. Western Medical Center is a 283 -licensed bed acute care hospital designated as a Level II trauma center and centrally located in the heart of Orange County. The trauma center services are composed of physicians in the specialties of General Surgery, Emergency Medicine, Anesthesiology, Orthopedic Surgery and Neurosurgery. The Trauma Services department at Western Medical provides immediate care and on-going follow-up for designated trauma patients in a collaborative setting. Multidisciplinary practice planning, coordinating and facilitating total care of all trauma admissions is under the direction of the Trauma Medical Director and the Associate Medical Director. The program operates 24 hours, 7 days a week and cares for a total spectrum of patients and of all ages. Appendix B Page 6 2005 2006 2007 2008 2009 Residential Single Family $59,904 $133,864 $61,427 $28,672 $12,918 Multi -Family 0 8,034 0 5,533 1,330 Alteration/Additions 3,010 5,146 4,940 3,913 3,046 Total $62,914 $147,034 $66,366 $38,118 $17,294 Non -Residential (1) New Commercial $ 1,591 $25,641 $12,279 $ 1,840 $ 0 New Industry 0 992 1,106 0 0 Other 3,079 5,128 2,429 2,731 2,331 Alteration/ Additions 16,675 16,508 30,447 12,693 11,836 Total $21,345 $48,270 $46,261 $17,264 $14,167 Single Family Units 308 648 307 152 73 Multi Family Units 0 106 0 41 9 Total 308 754 307 193 82 Source: Construction Industry Research Board, 'Building Permit Summary." (1) Includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings and non-residential alterations and additions. Totals may not add due to rounding. Education The City is served by the Tustin Unified School District, which operates 18 elementary schools, 5 middle schools, 4 high schools and alternative and adult education programs, totaling over 22,000 students. In addition, there are 10 private and parochial schools serving the community. Eight community colleges are located from 5 to 20 miles from the City. The Rancho Santiago Community College District (RSCCD) and South Orange County Community College District (SOCCCD) operate two facilities with the City; The RSCCCD operates the Regional Law Enforcement Training Facility and the SOCCCD operates and Advanced Technology Education Campus. Chapman University, CSU -Fullerton, Concordia College, UC -Irvine among several institutions also offer college and graduate level courses of study within easy reach of the City. Health Care The closest hospital services provided to Tustin are located on the City's northwesterly boundary within the City of Santa Ana at Western Medical Center. Western Medical Center is a 283 -licensed bed acute care hospital designated as a Level II trauma center and centrally located in the heart of Orange County. The trauma center services are composed of physicians in the specialties of General Surgery, Emergency Medicine, Anesthesiology, Orthopedic Surgery and Neurosurgery. The Trauma Services department at Western Medical provides immediate care and on-going follow-up for designated trauma patients in a collaborative setting. Multidisciplinary practice planning, coordinating and facilitating total care of all trauma admissions is under the direction of the Trauma Medical Director and the Associate Medical Director. The program operates 24 hours, 7 days a week and cares for a total spectrum of patients and of all ages. Appendix B Page 6 Emergency care is also provided for other conditions, including chronic medical problems and minor injuries and illnesses. The hospital provides emergency services for more than 20,000 patients per year. Other Community Facilities In November 2009, the City completed construction of an expanded new 32,000 square foot Tustin Library. Orange County Public Libraries leases the new Tustin Library from the City and operates the building through the County's library system services. The system contains over 124,195 volumes, and a collection of recordings, tapes and films. Transportation The Santa Ana Freeway (Interstate 5), a major northwest -southeast corridor, crosses through the central section of the City, the Costa Mesa Freeway (State Route 55) crosses north -south along the western edge of the City and the West Leg of the Eastern Transportation Corridor (State Route 267) is located to the east of the City's boundaries, with a transitional area of the West Leg of the Eastern Transportation Corridor traversing the southerly portion of the City adjacent to Jamboree Road. The City is also within minutes of the San Diego Freeway (Interstate 405, traveling north to the Los Angeles International Airport), the Riverside Freeway (State Route 91, traveling east -west) to the north and the Orange Freeway (State Route 57, traveling north -south) to the west and the San Joaquin Toll Road. Air cargo and passenger flight services are provided at several nearby facilities, including John Wayne Airport in Orange County (2 miles south) and the Ontario International Airport (50 miles northeast). The Orange County Transportation Authority (OCTA) also serves the area. Greyhound Bus Lines provides service to other local areas and additional transcontinental service. Commercial and passenger rail services are provided by Union Pacific and an Amtrak passenger station is located approximately two miles from the City. Trucking services are provided through numerous common and contract carriers. The Port of Long Beach is approximately 45 miles to the northwest and the Port of Los Angeles is approximately 50 miles northwest of the City. Both ports are within easy freeway access. Recreation The City operates the Clifton C. Miller Community Center, the Tustin Area Senior Center, the Columbus -Tustin Sports Fields and Gymnasium, and the Tustin Family Youth Center. In addition, there are more than a dozen parks and recreational facilities located throughout the City. City residents are offered the use of the City's facilities depending on their intended purpose for both active recreational facilities and passive open space uses such as ball fields, multi-purpose fields and open turf, game courts, tot lots, and picnic facilities, natural open pace, pedestrian and bicycle paths, community buildings and on-site parking. The County also currently operates the Peters Canyon Regional Park within the northwesterly portion of the City, an 84 acre urban regional park is proposed in the MCAS Tustin Project Area, and the County maintains a coordinated system of trails including bikeways, equestrian trails and hiking trails within the City. Tustin also has many private recreational facilities. While some facilities (e.g., private parks, tennis courts, swimming pools) are available only to residents of a general area or development, others are available to the public for a fee (the Tustin Ranch Golf Course), In addition, the City is centrally located for a wide variety of entertainment and recreational activities, including, among many others, Disneyland and Knott's Berry Farm. The ocean to the south along the Southern California coastline offer a variety of water sports and the mountains to the north and east provide other kinds of outdoor recreational activities, including hiking, lake recreation, and winter skiing. Appendix B Page 7 THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR THE FISCAL YEAR ENDED JUNE 30, 2009 Appendix C THIS PAGE INTENTIONALLY LEFT BLANK TUSTIN COMMUNITY REDEVELOPMENT AGENCY Annual Financial Report June 30, 2009 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Annual Financial Report June 30, 2009 Table of Contents Page(s) IndependentAuditor's Report ....................................................................................................................... 1 Management's Discussion and Analysis (Unaudited)........................................................................................ 3 Basic Financial Statements Statementof Net Assets........................................................................................................................ 8 Statementof Activities.......................................................................................................................... 9 Balance Sheet — Governmental Funds................................................................................................ 10 Reconciliation of the Balance Sheet of Governmental Funds to the Statementof Net Assets.............................................................................................................. 13 Statement of Revenues, Expenditures and Changes in Fund Balances — GovernmentalFunds................................................................................................................... 14 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...................................... 17 Notes to Financial Statements............................................................................................................. 19 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance (Including the Provisions Contained in the Guidelines for Compliance Audits of Redevelopment Agencies) and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 33 1201 Dove Street, Suite 680 Newport Beach, CA 92660 949.221.0025 MACIAS GINI & OICONNELL LLP Certified Public Accountants & Management Consultants The Board of Directors of the Tustin Community Redevelopment Agency Independent Auditor's Report We have audited the accompanying financial statements of the governmental activities and each major fund of the Tustin Community Redevelopment Agency (Agency), a component unit of the City of Tustin, California as of and for the year ended June 30, 2009, which collectively comprise the Agency's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Agency's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Agency as of June 30, 2009, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 24, 2009, on our consideration of the Agency's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. WWW. cpa.com An Independent Member of the BDO Seidman Alliance The management's discussion and analysis identified in the accompanying table of contents is not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. ae,:� � IcR Certified Public Accountants Newport Beach, California November 24, 2009 TUSTIN COMMUNITY REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2009 MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the Tustin Community Redevelopment Agency (Agency), we offer readers of the Agency's financial statements this narrative overview and analysis of the financial activities of the Agency for the fiscal year ended June 30, 2009. FINANCIAL HIGHLIGHTS • Agency assets exceeded its liabilities at the close of fiscal year 2008-09 by $72,968,466. Net assets consist of $15,756,553 in capital net assets, $22,720,295 in restricted net assets and $34,491,618 in unrestricted net assets. • The Agency's total net assets decreased by $2,543,836 during fiscal year ended June 30, 2009. This was mostly due to increased expenditures for various community development and capital improvement projects. • At the close of fiscal year 2008-09, the Agency's governmental funds reported a combined ending fund balance of $82,268,199, an increase of $2,694,725 from the prior year. Fund balance consists of $49,777,973 reserved for specific purposes and $32,490,226 in unreserved — undesignated. • Total Agency debt decreased by $11,143,000 during fiscal year 2,008-09, which consisted entirely of principal payments. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the Agency's basic financial statements. The Agency's basic financial statements are comprised of three components: 1) government -wide financial statements, (2) fund financial statements, and (3) notes to the basic financial statements. Government -wide financial statements The government -wide financial statements are designed to provide readers with a broad overview of the Agency's finances, in a manner similar to a private -sector business. The statement of net assets presents information on all of the Agency's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Agency is improving or deteriorating. TUSTIN REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 Government -wide financial statements (Continued) The statement of activities presents information showing how the Agency's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, all of the current year's revenues and expenses are taken into account regardless of when cash is received or paid (e.g., uncollected taxes and earned but unpaid interest expense). The basic services of the Agency are considered to be governmental activities including Community Development and Interest Expense on Long-term Debt. All Agency activities are financed with property tax increment, rental income and investment income. The government -wide financial statements can be found on pages 8 and 9 of this report. Fund financial statements Fund financial statements are designed to report information about groupings of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The Agency uses fund accounting to ensure and demonstrate compliance with legal requirements. The Agency only has governmental fund types. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Agency maintains individual governmental funds organized by their type (debt service and capital projects funds). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances. The fund financial statements can be found on pages 10 — 16 of this report. 4 TUSTIN REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 Notes to the basic financial statements The notes provide additional information that is essential to a full. understanding of the data provided in the government -wide and fund financial statements. The notes to the basic financial statements can be found on pages 19 — 32 of this report. GOVERNMENT -WIDE FINANCIAL ANALYSIS The Agency's combined net assets are $72,968,466 as outlined in Table 1. This is a decrease of $2,543,836 from the prior year balance of $75,512,302. Liabilities: Other liabilities TABLE 1 17,076,552 213% Long-term liabilities outstanding Net Assets 25,832,000 (30%) Total Liabilities Fv07-08 Fv08-09 % Change Assets: Current and restricted assets $ 85,381,742 $ 100,120,565 17% Capital assets 32,557,861 15,756,553 (52%) Total Assets 117,939,603 115,877,118 (2)% Liabilities: Other liabilities 5,452,301 17,076,552 213% Long-term liabilities outstanding 36,975,000 25,832,000 (30%) Total Liabilities 42,427,301 42,908,652 11% Net Assets: Invested in capital assets 32,557,861 15,756,553 (52%) Restricted 56,628,272 22,270,295 (61%) Unrestricted (13,673,831) 34,491,618 (352%) Total Net Assets 75.512302 $ 72 968,466 (3%) Statement of Activities The statement of activities shows how the government's net assets changed during fiscal year 2008-09. On the following page is a summary of changes in net assets. During the current fiscal year, the Agency's net assets decreased $2,543,836. This was mostly due to increased expenditures for various community development and capital improvement projects. 5 TUSTIN REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 TABLE 2 Changes in Net Assets Expenses: Program Expenses: Community development 5,577,908 Interest on long-term debt 4,689,887 Total Expenses 10,267,795 Change in net assets 9,521,054 Net Assets - Beginning of Year Net Assets - End of Year FFOv8=09 $ 19,297,179 2,138,075 44.349 21,479.603 20,456,657 3.566.782 24.023.439 (2,543,836) 65,991,248 75,512,302 75.512.302 $ 72,968,466 % Chanee 14% (26%) 63% 9% 267% (24%) 134% (127%) 14% (3%) The 14% increase in Tax Increment Revenues from prior year is due to the increase in base tax increment for the Marine Base Project Area. The 267% increase in Community Development Expenses is due to the completion of an arterial highway extension project that benefited the project areas and transferred to the City of Tustin. FINANCIAL ANALYSIS OF AGENCY FUNDS As noted earlier, the Agency uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental funds The focus of the Agency's governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the Agency's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a Government's net resources available for spending at the end of the fiscal year. Refer to pages 10 — 16 for more detail of governmental funds. As of June 30, 2009, the Agency's governmental funds reported combined ending fund balances of $82,268,199, an increase of $2,694,725 in comparison with the prior year. Of the $82,268,199, $36,568,042 constitutes unreserved - undesignated fund balance. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed (1) to pay debt service of $1,776,505, (2) to prepaid items of $37,678, (3) to land held for resale of $27,050,000, and (4) for a variety of low income housing purposes of $16,835,974. 6 FFy07 08 Revenues: General Revenues: Tax increment $ 16,882,739 Investment and rental 2,878,870 Other revenues 27,240 Total Revenues 19,788,849 Expenses: Program Expenses: Community development 5,577,908 Interest on long-term debt 4,689,887 Total Expenses 10,267,795 Change in net assets 9,521,054 Net Assets - Beginning of Year Net Assets - End of Year FFOv8=09 $ 19,297,179 2,138,075 44.349 21,479.603 20,456,657 3.566.782 24.023.439 (2,543,836) 65,991,248 75,512,302 75.512.302 $ 72,968,466 % Chanee 14% (26%) 63% 9% 267% (24%) 134% (127%) 14% (3%) The 14% increase in Tax Increment Revenues from prior year is due to the increase in base tax increment for the Marine Base Project Area. The 267% increase in Community Development Expenses is due to the completion of an arterial highway extension project that benefited the project areas and transferred to the City of Tustin. FINANCIAL ANALYSIS OF AGENCY FUNDS As noted earlier, the Agency uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental funds The focus of the Agency's governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the Agency's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a Government's net resources available for spending at the end of the fiscal year. Refer to pages 10 — 16 for more detail of governmental funds. As of June 30, 2009, the Agency's governmental funds reported combined ending fund balances of $82,268,199, an increase of $2,694,725 in comparison with the prior year. Of the $82,268,199, $36,568,042 constitutes unreserved - undesignated fund balance. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed (1) to pay debt service of $1,776,505, (2) to prepaid items of $37,678, (3) to land held for resale of $27,050,000, and (4) for a variety of low income housing purposes of $16,835,974. 6 TUSTIN REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets At the end of 2009, the Agency had $15,756,553 invested in a broad range of capital assets, including buildings and furniture, fixtures and equipment. The 67% decrease in Land & CIP is due to the completion of an arterial highway extension project that benefited the project areas and transferred to the City of Tustin. TABLE 3 Capital Assets at Year -End Lone -term debt At the end of fiscal year 2009, the Agency had total bonded debt outstanding of $25,832,000, which is an $11,143,000 decrease from the prior year. Outstanding bonded debt can be found on pages 29-30 in the notes to the basic financial statements. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of Agency finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Finance Director, City of Tustin, 300 Centennial Way, Tustin, California, 92780, or call (714) 573-3060. 7 Fy07-08 Fy08-09 % Change Land & CIP $ 24,840,923 $ 8,260,099 (67%) Building 11,024,198 11,024,198 0% Furniture and fixtures, and equipment 443,998 443,998 0% Accumulated depreciation ( 3,751,258) ( 3,971,742) 6% Total S 32.557.861 15.756.553 (52%) Lone -term debt At the end of fiscal year 2009, the Agency had total bonded debt outstanding of $25,832,000, which is an $11,143,000 decrease from the prior year. Outstanding bonded debt can be found on pages 29-30 in the notes to the basic financial statements. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of Agency finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Finance Director, City of Tustin, 300 Centennial Way, Tustin, California, 92780, or call (714) 573-3060. 7 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Statement of Net Assets June 30, 2009 Assets: Cash and investments Receivables: Taxes receivable Interest receivable Loans receivable Notes receivable Allowance for uncollectibles Advances to City of Tustin Prepaid items Land held for resale Restricted assets: Investments with fiscal agent Capital assets, not depreciated Capital assets, net of accumulated depreciation Total assets Liabilities: Accounts payable Deposits payable Interest payable Due to the City of Tustin Noncurrent liabilities: Due within one year Due in more than one year Total liabilities Net assets: Invested in capital assets Restricted for: Debt service Low and moderate housing Unrestricted Total net assets Governmental Activities $ 50,850,592 698,721 120,913 1,116,170 4,575,980 (5,290,790) 19,284,171 37,678 27,050,000 1,677,130 8,260,099 7,496,454 115,877,118 2,560,113 2,510 43,588 14,470,441 7,913,000 17,919,000 42,908,652 15,756,553 5,854,321 16,865,974 34,491,618 $ 72,968,466 See Accompanying Notes to Financial Statements. 8 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Statement of Activities For the Year Ended June 30, 2009 Functions/Programs: Governmental activities: Community services Interest on long term debt Total governmental activities General revenues: Taxes: Tax increment Rental income Investment earnings Miscellaneous Total general revenues Change in net assets Net assets, beginning Net assets, ending See Accompanying Notes to Financial Statements. 7 Expenses Net (Expenses) Revenue and Change in Net Assets Governmental Activities $ 20,456,657 $ (20,456,657) 3,566,782 (3,566,782) $ 24,023,439 (24,023,439) 19,297,179 583,962 1,554,113 44,349 21,479,603 (2,543,836) 75,512,302 $ 72,968,466 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Balance Sheet Governmental Funds June 30, 2009 Liabilities: Accounts payable $ - $ - $ 2,331,236 Deposits payable - - - Deferred revenue 139,119 134,553 134,861 Due to City of Tustin 4,650,000 5,365,014 4,455,427 Total liabilities 4,789,119 5,499,567 6,921,524 Fund balances: Reserved for: Debt service 3,221,562 2,632,759 - Prepaid items - - - Land held for resale - - - Low income housing - - - Unreserved - undesignated - - - Total fund balances (deficits) 3,221,562 2,632,759 - Total liabilities and fund balances $ 8,010,681 $ 8,132,326 $ 6,921,524 See Accompanying Notes to Financial Statements. 10 Debt Service Funds South Central Town Center Marine Base Project Area Project Area Project Area Assets: Cash and investments $ 1,485,715 $ 1,203 $ 2,296 Investments with fiscal agents - 1,677,130 - Receivables: Taxes receivable 64,823 23,281 486,525 Interest receivable 32,085 2,655 4,647 Loans receivable - - - Notes receivable - - - Allowance for uncollectibles - - - Advances to City of Tustin 6,428,058 6,428,057 6,428,056 Prepaid items - - - Land held for resale - - - Total assets $ 8,010,681 $ 8,132,326 $ 6,921,524 Liabilities: Accounts payable $ - $ - $ 2,331,236 Deposits payable - - - Deferred revenue 139,119 134,553 134,861 Due to City of Tustin 4,650,000 5,365,014 4,455,427 Total liabilities 4,789,119 5,499,567 6,921,524 Fund balances: Reserved for: Debt service 3,221,562 2,632,759 - Prepaid items - - - Land held for resale - - - Low income housing - - - Unreserved - undesignated - - - Total fund balances (deficits) 3,221,562 2,632,759 - Total liabilities and fund balances $ 8,010,681 $ 8,132,326 $ 6,921,524 See Accompanying Notes to Financial Statements. 10 Capital Proiects Funds South Central Town Center South Central Low Income Town Center Low Income Project Area Housing Project Area Housing $ 15,492,305 $ 6,719,206 $ 9,930,612 $ 7,106,549 450 17,258 450 10,164 4,647 26,159 7,745 27,265 - 912,119 - 204,051 - 1,434,910 - 320,535 - (2,119,424) - (350,831) 4,986 15,000 1,346 15,000 1,345,000 705,000 - - $ 16,847,388 $ 7,710,228 $ 9,940,153 $ 7,332,733 $ 68,967 $ 7,150 $ 3,447 $ 5,468 - - - 2,510 721 230,043 1,202 176,365 69,688 237,193 4,649 184,343 4,986 15,000 1,346 15,000 1,345,000 705,000 - - - 6,753,035 - 7,133,390 15,427,714 - 9,934,158 - 16,777,700 7,473,035 9,935,504 7,148,390 $ 16,847,388 $ 7,710,228 $ 9,940,153 $ 7,332,733 (Continued) 11 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Balance Sheet Governmental Funds (Continued) June 30, 2009 Assets: Cash and investments Investments with fiscal agents Receivables: Taxes receivable Interest receivable Loans receivable Notes receivable Allowance for uncollectibles Advances to City of Tustin Prepaid items Land held for resale Total assets Liabilities: Capital Projects Funds Marine Base Total Marine Base Low Income Governmental Project Area Housing Funds $ 7,257,288 $ 2,855,418 $ 50,850,592 - - 1,677,130 450 95,320 698,721 8,408 7,302 120,913 - - 1,116,170 - 2,820,535 4,575,980 - (2,820,535) (5,290,790) - - 19,284,171 1,346 - 37,678 25,000,000 - 27,050,000 $ 32,267,492 $ 2,958,040 $ 100,120,565 Accounts payable $ 136,487 $ 7,358 $ 2,560,113 Deposits payable - - 2,510 Deferred revenue 1,305 1,133 819,302 Due to City of Tustin - - 14,470,441 Total liabilities 137,792 8,491 17,852,366 Fund balances: Reserved for: Debt service - - 5,854,321 Prepaid items 1,346 - 37,678 Land held for resale 25,000,000 - 27,050,000 Low income housing - 2,949,549 16,835,974 Unreserved - undesignated 7,128,354 - 32,490,226 Total fund balances (deficits) 32,129,700 2,949,549 82,268,199 Total liabilities and fund balances $ 32,267,492 $ 2,958,040 $ 100,120,565 See Accompanying Notes to Financial Statements. 12 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2009 Amounts reported for governmental activities in the Statement of Net Assets are different because: Fund balances for governmental funds $ 82,268,199 When capital assets that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds. However, the Statement of Net Assets includes those capital assets among the assets of the Agency as a whole. Beginning balance, net of depreciation $ 32,557,861 Current year additions 732,622 Current year deletions (17,313,446) Current year depreciation (220,484) Ending balance, net of depreciation 15,756,553 Deferred revenues which are deferred because they are not currently available are taken into revenue in the Statement of Activities and, accordingly, increases the net assets on the Statement of Net Assets. 819,302 Long-term liabilities applicable to the Agency's governmental activities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. All liabilities, both current and long-term, are reported in the Statement of Net Assets. (25,832,000) Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. (43,588) Net assets of governmental activities $ 72,968,466 See Accompanying Notes to Financial Statements. 13 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2009 Debt Service Funds Expenditures: Current: Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess of revenues over (under) expenditures 632,000 254,085 - 1,105,000 99,030 550,665 157,000 10,038,000 1701 nen 731,030 1,909,750 10,976,470 3,221,563 2,734,759 (4,077,817) Other financing sources (uses): South Central Town Center Marine Base Transfers in Project Area Project Area Project Area Revenues: (20,176,849) (10,046,985) (7,010,397) Taxes $ 3,564,558 $ 4,470,290 $ 6,761,962 Use of money and property 388,035 174,219 134,591 Rental income - - - Other revenue - - 2,100 11,088,214 Total revenues 3,952,593 4,644,509 6,898,653 Expenditures: Current: Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess of revenues over (under) expenditures 632,000 254,085 - 1,105,000 99,030 550,665 157,000 10,038,000 1701 nen 731,030 1,909,750 10,976,470 3,221,563 2,734,759 (4,077,817) Other financing sources (uses): Transfers in - - - Transfers out (20,176,849) (10,046,985) (7,010,397) Total other financing sources (uses) (20,176,849) (10,046,985) (7,010,397) Net change in fund balances (16,955,286) (7,312,226) (11,088,214) Fund balances (deficits), beginning 20,176,848 9,944,985 11,088,214 Fund balances (deficits), ending $ 3,221,562 $ 2,632,759 $ - See Accompanying Notes to Financial Statements. 14 Capital Proiects Funds 141,412 South Central 136,504 Town Center South Central Low Income Town Center Low Income Project Area Housing Project Area Housing $ - $ 939,605 $ - $ 1,139,482 24,086 144,962 31,430 152,761 15,000 104,762 - - 4,343 11,128 - 1,128 43,429 1,200,457 31,430 1,293,371 141,412 436,476 136,504 363,400 601,135 - 1,767 - - 713,223 - 713,223 742,547 1,149,699 138,271 1,076,623 (699,118) 50,758 (106,841) 216,748 20,176,849 - 10,046,985 - 20,176,849 - 10,046,985 - 19,477,731 50,758 9,940,144 216,748 (2,700,031) 7,422,277 (4,640) 6,931,642 $ 16,777,700 $ 7,473,035 $ 9,935,504 $ 7,148,390 (Continued) 15 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds (Continued) For the Year Ended June 30, 2009 Revenues: Taxes Use of money and property Rental income Other revenue Total revenues Expenditures: Current: Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess of revenues over (under) expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances (deficits), beginning Fund balances (deficits), ending Capital Projects Funds Marine Base Total Marine Base Low Income Governmental Project Area Housing Funds $ - $ 2,421,282 35,263 53,071 464,200 - 25,650 - $ 19,297,179 1,138,418 583,962 44,349 525,113 2,474,353 21,063,908 279,355 580,886 2,981,118 71,329 - 674,231 - 11,143,000 713,223 3,570,834 350,684 1,294,109 18,369,183 174,429 1,180,244 2,694,725 7,010,397 - 37,234,231 - - (37,234,231) 7,010,397 - 7,184,826 1,180,244 2,694,725 24,944,874 1,769,305 79,573,474 $ 32,129,700 $ 2,949,549 $ 82,268,199 See Accompanying Notes to Financial Statements. 16 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2009 Amounts reported for governmental activities in the Statement of Activities are different because: Net change in fund balances - total governmental funds When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital asset activities for the fiscal year are as follows: Capital asset additions 732,622 Capital asset transfer to City (17,313,446) Depreciation expense (220,484) Deferred revenue does not provide for current financial resources and, therefore, is not reported as revenues in the governmental funds. The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This is the amount of repayment of principal in the current period. Interest on long-term debt is not due and payable in the current period and, therefore, is not reported in the governmental funds. Change in net assets of governmental activities See Accompanying Notes to Financial Statements. 17 2,694,725 (16,801,308) 415,695 11,143,000 4,052 $ (2,543,836) This page left blank intentionally. 18 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements June 30, 2009 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Reporting Entity The Tustin Community Redevelopment Agency (Agency), a component unit of the City of Tustin (City), was established October 20, 1976, pursuant to the State of California Health and Safety Code Section 33000, entitled "Community Redevelopment Law". Its purpose is to prepare and carry out plans for improvement, rehabilitation, and redevelopment of blighted areas within the territorial limits of the City of Tustin. The City provides management assistance to the Agency, and the members of the City Council also act as the governing body of the Agency. In accordance with Governmental Accounting Standards Board (GASB) Code Section 2100, "Defining the Reporting Entity", the Agency's financial activities are included (blended) with the financial activities of the City of Tustin for reporting purposes. Tax Increment Financing The Agency's primary source of revenue, other than loans and advances from the City, comes from property taxes. Property taxes allocated to the Agency are computed in the following manner: (a) The assessed valuation of all property within the project area is determined on the date of adoption of the Redevelopment Plan. (b) Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are allocated to the Agency. All taxes on the "frozen" assessed valuation of the property are allocated to the City and other districts. The Agency has no power to levy and collect taxes, and any legislative property tax reduction might correspondingly reduce the amount of tax revenues that would otherwise be available to pay the principal of, and interest on, long-term debt. Broadened property tax exemptions could have a similar effect. Conversely, any increase in the tax rate or assessed valuation, or any reduction or elimination of present exemptions would necessarily increase the amount of tax revenues that would be available to pay principal and interest on long-term debt. (b) Government -wide and Fund Financial Statements The government -wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the activities of the Agency. For the most part, the effect of interfund activity has been removed from these statements. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include 1) charges to customers who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and 2) grants and 19 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund financial statements for the Agency's governmental funds are presented after the government -wide financial statements. These statements display information about major funds individually and nonmajor funds in the aggregate for governmental funds. All funds of the Agency are reported as major funds. (c) Measurement Focus, Basis of Accounting and Financial Statement Presentation 1. Measurement Focus Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. In the government -wide Statement of Net Assets and the Statement of Activities, activities are presented using the economic resources measurement focus. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the government are reported. In the fund financial statements, all governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balances (net current assets) are considered a measure of "available spendable resources". Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of available spendable resources during a period. Noncurrent portions of long-term receivables are reported on the governmental fund balance sheets in spite of their measurement focus. However, special reporting treatments are used to indicate that they should not be considered "available spendable resources", since they do not represent net current assets. Recognition of governmental fund type revenue represented by noncurrent receivables are deferred until they become current receivables. Noncurrent portions of other long-term receivables are offset by fund balance reserve accounts. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are 20 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 recorded as expenditures in the year that resources were expended, rather than as a fund asset. The proceeds of long-term debt are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. 2. Basis of Accounting In the government -wide Statement of Net Assets and Statement of Activities, the governmental activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic assets used, regardless of timing of related cash flows. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. Property tax revenue is recognized in the fiscal year for which taxes have been levied. Government -mandated and voluntary nonexchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the modified - accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. For this purpose, the Agency considers levied property tax increment revenues, investment income and rental income to be available if they are collected within 60 days of the end of the current fiscal period. Revenue recognition is subject to the measurable and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Investments Investments are stated at fair value (the value at which a financial instrument would be exchanged in a current transaction between willing parties other than a forced or liquidation sale), except for certain investments which have a remaining life of less than one year when purchased, which are stated at amortized cost. 21 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 Capital Assets Capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Contributed capital assets are valued at their estimated fair market value at the date of contribution. Generally, capital asset purchases in excess of $5,000 are capitalized if they have an expected useful life of one year or more. The Agency does not own any infrastructure assets. Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method in the Government -wide Financial Statements. The range of lives used for depreciation purposes of each capital asset class are: Building 50 years Furniture, fixtures and equipment 10 years Land Held for Resale Land held for resale is carried at the lower of cost or estimated realizable value determined at the date of an executed disposition and development agreement. Fund balances are reserved in amounts equal to the carrying value of land held for resale because such assets are not available to finance the Agency's current operations. 3. Description of Funds The Agency reports the following funds: Debt Service Funds are used to account for the current interest and principal payments on the long-term debt of the Agency. Capital Projects Funds are used to account for resources used in developing the project areas as well as the administrative costs incurred in sustaining Agency activities. The Agency's major governmental funds are as follows: The South Central Project Area Debt Service Fund is used to account for the tax increment revenues and expenditures of the South Central Project Area. The Town Center Project Area Debt Service Fund is used to account for tax increment revenues and expenditures of the Town Center Project Area. The Marine Base Project Area Debt Service Fund is used to account for tax increment revenues and expenditures of the Marine Base Project Area. 22 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 The South Central Project Area Capital Projects Fund is used to account for the fiscal activity of the South Central Project Area. The South Central Low Income Housing Capital Projects Fund is used to account for the redevelopment requirement to set-aside 20% of available tax increment, and to use those funds only for the benefit of providing low and moderate income housing to residents of the South Central Project Area. The Town Center Project Area Capital Projects Fund is used to account for the fiscal activities of the Town Center Project Area. The Town Center Low Income Housing Capital Projects Fund is used to account for the redevelopment requirement to set aside 20% of available tax increment, and to use those funds only for the benefit of providing low and moderate income housing to residents of the Town Center Project Area. The Marine Base Project Area Capital Projects Fund is used to account for the fiscal activities of the Marine Base Project Area. The Marine Base Low Income Housing_ Capital Projects Fund is used to account for the redevelopment requirement to set-aside 20% of available tax increment, and to use those funds only for the benefit of providing low and moderate income housing to residents of the Marine Base Project Area. (2) STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (a) Budgetary Data The budgets of the Agency are primarily "long-term" budgets which emphasize capital outlay plans extending over one year. Because of the long-term nature of redevelopment projects, "annual" budget comparisons are not considered meaningful and, accordingly, no budgetary information is included in the accompanying financial statements. 23 (3) TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 DETAILED NOTES ON ALL FUNDS (a) Cash And Investments Investments held by fiscal agents are owned separately by the Agency. Except for the cash held in escrow consideration accounts, the Agency's cash and investments not held by fiscal agents are pooled with the City of Tustin. The Agency does not own specifically identifiable securities in the City of Tustin Pool. See the City of Tustin's annual report for the year ended June 30, 2009 for additional disclosures on deposits and investments. Cash and investments as of June 30, 2009 are classified in the accompanying financial statements as follows: Statement of net assets: Cash and investments - unrestricted $ 50,850,592 Cash and investments with fiscal agent 1,677,130 Total cash and investments $ 52,527,722 Cash and investments as of June 30, 2009 consist of the following: Cash pooled with City of Tustin $ 50,850,592 Investments 1,677,130 Total cash and investments $ 52,527,722 24 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 Investments Authorized by the Agency's Investment Policy The table below identifies the investment types that are authorized by the Agency's investment policy. The table also identifies certain provisions of the Agency's investment policy that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Agency's, rather than the general provision of the Agency's investment policy. Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the Agency's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. Maximum Maximum Authorized Maximum Percentage Investment in Authorized Investment Type Maturi Allowed One Issuer Local Agency Bonds 5 years None None U. S. Treasury Obligations 5 years None None U. S. Agency Securities 5 years 50% None Banker's Acceptances 180 days 25% 30% Commercial Paper 90 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Corporate Notes 5 years 10% None Mutual Funds investing in eligible securities N/A 20% 10% Money Market Funds N/A 20% 10% County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the Agency's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. 25 Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity of Portfolio in One Issuer U.S. Agency Securities None None None Banker's Acceptances 180 days None None Commercial Paper 270 days None None U.S. Treasury None None None Money Market Funds N/A None None Investment Contracts 30 years None None 25 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Agency manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Authorized Investment Type Investment in City Pool Held by fiscal agent: Money Market Funds Disclosures Relating to Credit Risk Amount $ 50,850,592 1,677,130 Remaining Maturity (in Months) less than 6 months less than 12 months Generally, credit risk is the risk that an issue of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the Agency's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Minimum Actual Rating Legal at Year End Investment Type Amount Rating Not Rated Investment in City Pool Held by fiscal agent: Money Market Funds Concentration of Credit Risk $ 50,850,592 N/A $ 50,850,592 1,677,130 N/A 1,677,130 $ 52,527,722 $ 52,527,722 The investment policy of the Agency contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. At June 30, 2009, the Agency had no investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total Agency's investments. 26 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment of collateral securities that are in the possession of another party. The California Government Code and the Agency's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state of local governmental units by pledging securities in an undivided collateral pool half by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial initiations to secure Agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. (b) Loans Receivable/Notes Receivable Multi -Family Development Loan: The Agency provided a Bridge Loan to Senior Apartment Developer to assist in the development of 53 affordable rental units. The total outstanding balance as of June 30, 2009, was $347,510. Home Improvement Loans: The Agency has provided deferred home improvement loans to low and moderate income households (rental and ownership). These deferred loans are due upon sale, refinance, or when the rental units are no longer available as affordable units. Term is 30 years. The total outstanding balance as of June 30, 2009, was $59,573. An allowance of $59,573 has been recorded to reflect the amount of the loans not expected to be collectible. Homebuyer Program Loans: The Agency has provided down payment assistance to qualified first time homebuyers. The loans provided in the Ambrose Lane Development are due beginning in 2016, or when the homeowner sells or refinances. The loans provided in the Tustin Grove Development are due when the homeowner sells or refinances. If the homeowner does not sell or refinance before July 2015, the loan is forgiven. The total outstanding balance as of June 30, 2009, was $709,087. An allowance of $655,237 has been recorded to reflect the amount of loans not expected to be collectible. Notes Receivable: The City of Tustin is holding second deeds of trust on low and moderate income homes located in the Tustin Legacy development. The Agency will purchase these notes from the City as funds are readily available. Total outstanding balance as of June 30, 2009 was $4,575,980. An allowance of $4,575,980 has been recorded in the fund statements. 27 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 (c) Interfund Transfers Transfers from Debt Service Funds were made to Capital Projects Funds to provide funding for current and future capital projects in South Central, Town Center, and Marine Base Project Areas. (d) Capital Assets The following is a summary of the capital asset activity for the year ended June 30, 2009: Capital assets, not being depreciated: Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Building - Civic Center Furniture, fixtures and equipment Total capital assets, being depreciated Less accumulated depreciation Total capital assets, being depreciated, net Governmental activities Balance at Balance at July 1, 2008 Additions Deletions June 30, 2009 $ 24,840,923 $ 732,622 $ 17,313,446 * $ 8,260,099 24,840,923 732,622 17,313,446 8,260,099 11,024,198 - - 11,024,198 443,998 - - 443,998 11,468,196 - - 11,468,196 Transfers In - (3,971,742) 7,716,938 (220,484) South Central Town Center Marine Base Project Area Project Area Project Area Capital Projects Capital Projects Capital Projects Transfers Out Fund Fund Fund Totals South Central Project Area Debt Service Fund $ 20,176,849 $ - $ - $ 20,176,849 Town Center Project Area Debt Service Fund - 10,046,985 - 10,046,985 Marine Base Project Area Debt Service Fund - - 7,010,397 7,010,397 $ 20,176,849 $ 10,046,985 $ 7,010,397 $ 37,234,231 Transfers from Debt Service Funds were made to Capital Projects Funds to provide funding for current and future capital projects in South Central, Town Center, and Marine Base Project Areas. (d) Capital Assets The following is a summary of the capital asset activity for the year ended June 30, 2009: Capital assets, not being depreciated: Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Building - Civic Center Furniture, fixtures and equipment Total capital assets, being depreciated Less accumulated depreciation Total capital assets, being depreciated, net Governmental activities Balance at Balance at July 1, 2008 Additions Deletions June 30, 2009 $ 24,840,923 $ 732,622 $ 17,313,446 * $ 8,260,099 24,840,923 732,622 17,313,446 8,260,099 11,024,198 - - 11,024,198 443,998 - - 443,998 11,468,196 - - 11,468,196 (3,751,258) (220,484) - (3,971,742) 7,716,938 (220,484) - 7,496,454 capital assets, net $ 32,557,861 $ 512,138 $ 17,313,446 $ 15,756,553 * This amount was contributed to the City of Tustin upon the completion of the various projects. (e) Long -Term Liabilities 28 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 The following is a summary of the long-term liability activity for the year ended June 30, 2009: Balance Balance Due Within July 1, 2008 Additions Deletions June 30, 2009 One Year Tax allocation bonds $ 11,975,000 $ - $ 1,105,000 $ 10,870,000 $ 1,150,000 Notes payable 25,000,000 - 10,038,000 14,962,000 6,763,000 $ 36,975,000 $ - $ 11,143,000 $ 25,832,000 $ 7,913,000 Tax Allocation Bonds: Serial bonds are payable in annual installments ranging from $775,000 to $1,315,000 commencing on December 1, 1998. Interest is payable semiannually on June 1 and December 1, with rates ranging from 3.5% to 5.0% per annum. The bonds maturing on or after December 1, 2009, are subject to redemption prior to maturity as a whole or in part, at the option of the Agency, on any date on or after December 1, 2008 at prices ranging from 100% to 101% of principal. 10,870.000 The annual requirements to amortize the tax allocation refunding bonds are as follows: Year Ending June 30, Principal Interest Total 2010 $ 1,150,000 $ 497,180 $ 1,647,180 2011 1,205,000 443,289 1,648,289 2012 1,255,000 385,466 1,640,466 2013 1,315,000 323,771 1,638,771 2014 1,380,000 258,073 1,638,073 2015-2017 4,565,000 339,906 4,904,906 Total $ 10,870,000 $ 2,247,685 $ 13,117,685 Notes Payable: On April 1, 2007, the Tustin Community Redevelopment Agency entered into two related Note Purchase Agreements in the amounts of $19,900,000 Series B (Tax-exempt) and $5,100,000 Series A (Taxable) with Citigroup Global Markets, Inc. for the acquisition of a thirty-seven acre parcel of land adjacent to the Marine Base Project Area that will 29 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 provide freeway access to and from the Marine Base Project Area. Principal is payable in annual payments due in November of each year. Interest payments are payable monthly during the Initial Note Period with a fixed interest rate of 4.32% through November 2008. After the Initial Note Period, variable rate interest payments are payable monthly based upon the current Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA) on the 2007 Series A Note and the London Interbank Offered Rate (LIBOR) for the 2007 Series B Note. Interest payments after the Initial Note Period have been calculated based upon the maximum interest rate of 12% per the Note Agreement. The Notes are secured by a lien on the aggregate tax increment revenue generated in the Marine Base Project Area. In addition, any proceeds from sale of land are pledged to the repayment of the notes. The annual debt service requirements are as follows: Year Ending June 30, Principal Interest Total 2010 $ 6,763,000 $ 1,752,268 $ 8,515,268 2011 8,199,000 765,240 8,964,240 Total $ 14,962,000 $ 2,517,508 $ 17,479,508 Pledged Revenues: The tax allocation refunding bonds are secured and to be serviced from tax increment revenues excluding dedicated housing tax increment, through the fiscal year 2017. Total debt service requirements through 2017 are $13,117,685 consisting of principal payments of $10,870,000 and interest payments of $2,247,685. Pledged tax increment revenue recognized during the year was $14.6 million against the total debt service payment of $13.7 million. The notes payable are secured and to be serviced from the Marine Base Project Area tax increment revenues excluding dedicated housing tax increment, through the fiscal year 2011. Total debt service requirements through 2011 are $17,479,508 consisting of principal payments of $14,962,000 and interest payments of $2,517,508. Pledged tax increment revenue recognized during the year was $6.8 million against the total debt service payment of $10.8 million. Although the incremental property taxes were projected to produce sufficient revenues to meet the debt service requirements over the life of the bonds, certain conditions could have a material, adverse impact on revenues allocated to the Agency. These include future decreases in the assessed valuation of the project areas, decreases in the applicable tax rates or collection rates, 30 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 general decline in the economic condition of the project areas, or a change in the law reducing the tax increment received by the Agency. (f) Due to City of Tustin The City made loans to the South Central Project Area, Town Center Project Area, and Marine Base Project Area. The total amount of the loan outstanding is $14,470,441 and is expected to be paid with future tax increment revenue. (g) Commitments and Contingencies The California Health and Safety Code requires redevelopment agencies to set aside 20 percent of their tax increment from project areas established before 1976 for low and moderate income housing. Between fiscal years 1985-86 and 1991-92, the Tustin Community Redevelopment Agency deferred a total of $2,776,042 from its low and moderate -income housing obligation. On February 1, 1993, the Agency adopted a plan to eliminate the deficit in subsequent years. (h) City and Agency Reimbursement Agreement On June 5, 2007, the City and Tustin Community Redevelopment Agency executed a Reimbursement Agreement for reimbursement to the City to assist the Agency in meeting obligations to provide affordable housing under the MCAS Redevelopment Plan and the MCAS Tustin Specific Plan. In order to assist the Agency in meeting its affordable housing obligations, the City has entered into an agreement to sell property at a discount sufficient to permit developers to economically develop the required number of affordable housing units and has encumbered the sale of the properties and units with covenants, promissory notes and deeds of trust to ensure maintaining the affordability of those units in accordance with the California Community Redevelopment Law. As of June 30, 2009, approximately five hundred sixty-five new units have been constructed in the Marine Base Project Area, including one hundred eighteen affordable units, which reflect an average subsidy of $351,000 per unit to secure the long-term affordability covenants. The affordable units are located at Tustin Fields I and II and are comprised of thirty-three very low, twenty-three low and sixty-two moderate income units which are secured by promissory notes and deeds of trusts by the City that reflect an average of approximately $502,600 for very low- income units, $485,900 for low-income units and $279,100 for moderate -income units. The City's promissory notes and deeds of trust reflect the difference between the fair market value of the dwelling unit at the time of purchase and the affordable housing purchase price of the units. The total promissory notes value associated with the production of the affordable housing units is $23,585,726 on Tustin Field I and $22,822,010 on Tustin Field 1I, for a total of $46,407,736. Reimbursements are to be paid from tax increment revenues, including but not limited to the Agency's Low and Moderate -Income Housing Set -Aside deposits from the Marine Base Project Area, Town Center and South Central Project Areas as determined on an annual basis as part of the budget process. Interest is payable annually by the Agency to the City at the rate of 5% of the 31 TUSTIN COMMUNITY REDEVELOPMENT AGENCY Notes to Financial Statements (Continued) June 30, 2009 amount outstanding under the reimbursement agreement. The Agency reimbursed the City in the amount of $961,605 during the fiscal year and obtained ownership of promissory notes in this amount. The promissory notes are considered notes receivable in the financial statements. An allowance of $961,605 has been recorded to reflect the amount of the notes not expected to be collectible. Interest paid by the Agency to the City under the reimbursement agreement during the fiscal year was $2,139,668. (4) SUBSEQUENT EVENT On July 24, 2009, the State Legislature passed Assembly Bill (AB) 26 4x, which requires redevelopment agencies statewide to deposit a total of $2.05 billion of property tax increment in county "Supplemental" Educational Revenue Augmentation Funds (SERAF) to be distributed to meet the State's Proposition 98 obligations to schools. The SERAF revenue shift of $2.05 billion will be made over two years, $1.7 billion in fiscal year 2009-2010 and $350 million in fiscal year 2010-2011. The SERAF would then be paid to school districts and the county offices of education which have students residing in redevelopment project areas, or residing in affordable housing projects financially assisted by a redevelopment agency, thereby relieving the State of payments to those schools. The Agency's share of this revenue shift is approximately $6,191,557 in fiscal year 2009-2010 and $1,274,732 in fiscal year 2010-2011. Payments are to be made by May 10 of each respective fiscal year. In response to AB 26 4x, the Agency intends to make the required payments from tax increment revenues from the South Central (27.39%) Town Center (26.46%) and Marine Base Project Areas (46.15%) in May 2010 and 2011. The California Redevelopment Association (CRA) is the lead petitioner on a lawsuit to invalidate AB 26 4x, similar to last year's successful lawsuit challenging the constitutionality of AB 1389. CRA filed its lawsuit on October 20, 2009. The lawsuit asserts that the transfer of property tax increment to the SERAF is not permitted under Article XVI, Section 16 of the California Constitution. The complaint also asserts impairment of contract and gift of public funds arguments. While the State made adjustments in AB 26 4x to address the constitutional issues raised by the Superior Court over last year's lawsuit challenging AB 1389, the Agency, along with the CRA and other California redevelopment agencies, believe that the SERAF remains unconstitutional. 32 1201 Dove Street, Suite 680 Newport Beach, CA 92660 949.221.002S MACIAS GINI & 01CONNELL LLP Certified Public Accountants & Management Consultants The Board of Directors of the Tustin Community Redevelopment Agency Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance (Including the Provisions Contained in the Guidelines for Compliance Audits of Redevelopment Agencies) and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards We have audited the financial statements of the governmental activities and each major fund of the Tustin Community Redevelopment Agency (Agency), a component unit of the City" of Tustin, California as of and for the year ended June 30, 2009, which collectively comprise the Agency's basic financial statements, as listed in the table of contents, and have issued our report thereon dated November 24, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Tustin Community Redevelopment Agency's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Agency's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the Agency's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Agency's financial statements that is more than inconsequential will not be prevented or detected by the Agency's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Agency's internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we noted other control deficiencies that we have reported to management of the City of Tustin in a separate letter dated November 24, 2009 relating to both the City and the Agency. 33 WWW. - cpa.com An Independent Member of the 800 Seidman Alliance Compliance and Other Matters As part of obtaining reasonable assurance about whether the basic financial statements of the Tustin Community Redevelopment Agency are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions include those provisions of laws and regulations identified in the Guidelines for Compliance Audits of California Redevelopment Agencies � issued by the State Controller's Office, Division of Accounting and Reporting. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing_ Standards. This report is intended for the information of the Board of Directors, management and others within the Tustin Community Redevelopment Agency and the State Controller's Office, Division of Accounting and Reporting and is not intended to be and should not be used by anyone other than these specified parties. at-;� � D ` LC,10 Certified Public Accountants Newport Beach, California November 24, 2009 34 APPENDIX D FISCAL CONSULTANT'S REPORT Appendix D THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX E FORM OF BOND COUNSEL'S OPINION [Letterhead of Quint & Thimmig LLP] [Closing Date] Tustin Community Redevelopment Agency 300 Centennial Way Tustin, California 92780 OPINION: $ * Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 Members of the Agency: We have acted as bond counsel in connection with the issuance by the Tustin Community Redevelopment Agency (the "Agency') of its $ * Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 (the "Bonds"), pursuant to the provisions of Part 1 of Division 24 of the California Health and Safety Code, commencing with section 33640 of said Code (the "Law"), Resolution No. 10-_, adopted by the Agency on October 19, 2010, and an Indenture of Trust, dated as of November 1, 2010 (the "Indenture"), by and between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee. In connection with this opinion, we have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Agency contained in the Indenture and in the certified proceedings and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing we are of the opinion, under existing law, that: 1. The Agency is duly created and validly existing as a public body, corporate and politic, with the power to enter into the Indenture, perform the agreements on its part contained therein and issue the Bonds. 2. The Indenture has been duly approved by the Agency and constitutes a valid and binding obligation of the Agency enforceable in accordance with its terms. 3. Pursuant to the Law, the Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds, on a parity with the lien thereon with respect to any future Parity Debt, as such term is defined in the Indenture. 4. The Bonds have been duly authorized, executed and delivered by the Agency and are valid and binding special obligations of the Agency, payable solely from the sources provided therefor in the Indenture. 5. Subject to the Agency's compliance with certain covenants, interest on the Bonds (i) is excludable from gross income of the owners thereof for federal income tax purposes, (ii) is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations * Preliminary, subject to change. Appendix P Page 1 under the Internal Revenue Code of 1986, as amended, and (iii) is not taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. Failure by the Agency to comply with one or more of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. 6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds. The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity. In rendering this opinion, we have relied upon certifications of the Agency and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Respectfully submitted, Appendix E Page 2 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE This CONTINUING DISCLOSURE CERTIFICATE (the "Disclosure Certificate") is executed and delivered by the TUSTIN COMMUNITY REDEVELOPMENT AGENCY(the "Agency") in connection with the issuance of $ * aggregate principal amount of Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area) (the "Bonds"). The Bonds are being issued pursuant to that certain Indenture of Trust, dated as of November 1, 2010, by and between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Indenture"). The Agency covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Agency for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2 -12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "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 Applied Best Practices, LLC, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency a written acceptance of such designation. In the absence of such a designation, the Agency shall act as the Dissemination Agent. "EMMA" or "Electronic Municipal Market Access" means the centralized on-line repository for documents filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "MSRB" means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "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. Section 3. Provision of Annual Reports. (a) Delivery of Annual Report to MSRB. The Agency shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the Agency's fiscal year (which currently ends on June 30), commencing with the report for the 2009-10 Fiscal Year, which is due not later than April 1, 2011, provide to the Participating Underwriter and to file with EMMA, in a readable PDF or other electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this * Preliminary, subject to change. Appendix F Page 1 Disclosure Certificate. 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 Certificate; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. (b) Change of Fiscal Year. If the Agency's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(d). (c) Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to EMMA, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the Agency. (d) Report of Non -Compliance. If the Agency is unable to provide an Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to EMMA in substantially the form attached as Exhibit A. (e) Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the Agency, file a report with the Agency certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the Agency for the preceding fiscal year, prepared in accordance with the laws of the State and including all statements and information prescribed for inclusion therein by the Controller of the State. If the Agency's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not included in the audited final statement of the Agency, the Annual Report shall also include operating data with respect to the Agency for preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the official statement for the Bonds, as follows: (i) Breakdown of Assessed Valuation by . Category of Use—Redevelopment Project (substantially in the form set forth in Table 2); (ii) Historical Taxable Values and Tax Increment Revenues—Redevelopment Project (substantially in the form set forth in Table 3); (iii) Largest Property Taxpayers, by Assessed Value—Redevelopment Project (substantially in the form set forth in Table 4); and {iv) Discussion of any property tax appeals in the Redevelopment Project which, either alone or in the aggregate, could have a material adverse affect on Tax Revenues; (c) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which are available to the public on the MSRB's Internet web site or filed with the Securities and Exchange Commission. The Agency shall clearly identify each such other document so included by reference. If the document included by reference is a final official statement, it must be available from EMMA. (d) In addition to any of the information expressly required to be provided under paragraph (b) of this Section 4, the Agency shall provide such further information, if any, as may be necessary to make Appendix F Page 2 the specifically required statements, in the light of the circumstances under which they are made, not misleading. Section 5. Reporting of Significant Events. (a) Listed Events. Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. (b) Determination of Materiality of Listed Events. Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall as soon as possible determine if such event would be material under applicable federal securities laws. (c) Notice to Dissemination Agent. If the Agency has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Agency shall promptly notify the Dissemination Agent (if other than the Agency) in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (d). (d) Notice of Listed Events. The Agency shall file, or cause the Dissemination Agent to file, a notice of the occurrence of a Listed Event, if material, with EMMA, in a readable PDF or other electronic format as prescribed by EMMA, with a copy to the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) (defeasances) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Bondholders of affected Bonds. Section 6. Identifying Information for Filings with EMMA. All documents provided to EMMA under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The Agency's obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5. Section 8. Dissemination Agent. (a) Appointment of Dissemination Agent. The initial Dissemination Agent shall be Applied Best Practices, LLC. The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the Agency, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Agency pursuant to this Disclosure Certificate. (b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the Agency for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the Agency 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 not be deemed to be acting in any fiduciary capacity for the Agency, Holders Appendix F Page 3 or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the Agency or an opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the Agency. Section 9. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Agency may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the Agency that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) Consent of Holders; Non -impairment Opinion. The amendment or waiver either (i) is approved by the Bondholders in the same manner as provided in the Indenture for amendments to the Indenture 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. If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the Agency shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Agency. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(d), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate 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 Certificate. If the Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Certificate, any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Certificate. The sole remedy under this Disclosure Certificate in the event of any failure of the Agency to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Agency agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding Appendix F Page 4 liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Agency, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] ACKNOWLEDGED: APPLIED BEST PRACTICES, LLC, as Dissemination Agent By Authorized Officer TUSTIN COMMUNITY REDEVELOPMENT AGENCY By Appendix F Page 5 Authorized Officer EXHIBIT A NOTICE TO EMMA OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Tustin Community Redevelopment Agency Name of Issue: Tustin Community Redevelopment Agency Tax Allocation Bonds (MCAS -Tustin Redevelopment Project Area), Series 2010 Date of Issuance: {Closing Date] NOTICE IS HEREBY GIVEN that the Tustin Community Redevelopment Agency (the "Agency") has not provided an Annual Report with respect to the above-named Bonds as required by that certain Indenture of Trust, dated as of November 1, 2010, by and between the Agency and The Bank of New York Mellon Trust Company, N.A., as trustee. The Agency anticipates that the Annual Report will be filed by Dated: cc: Trustee APPLIED BEST PRACTICES, LLC, as Dissemination Agent By Title Appendix F Page 6 APPENDIX G BOOK -ENTRY ONLY SYSTEM The information in this Appendix G, concerning The Depository Trust Company, New York, New York ("DTC"), and DTC's book -entry system, has been furnished by DTC for use in official statements and the Agency takes no responsibility for the completeness or accuracy thereof. The Agency cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of principal of or interest on the Bonds, (b) certificates representing ownership interest in or other confirmation of ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix G. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. Information Furnished by DTC Regarding its Book -Entry Only System 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds (as used in this Appendix G, the "Securities"). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Security certificate will be issued for each maturity of the Securities, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world's largest securities 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 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit 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 is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. 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. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("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 Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. Appendix G Page 1 4. To facilitate subsequent transfers, all Securities 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; 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. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit the notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities 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. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Securities 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 Agency or the paying agent or bond trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the paying agent or bond trustee, or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Agency or the paying agent or bond trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the Agency or the paying agent or bond trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 10. The Agency may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that the Agency believes to be reliable, but the Agency takes no responsibility for the accuracy thereof. Appendix G Page 2