S&P Insured Rating: AAA

Transcription

1 NEW ISSUE DTC BOOK-ENTRY ONLY S&P Insured Rating: AAA S&P Underlying Rating: A See RATINGS herein Subject to compliance by the District with certain covenants, in the opinion of Quint &Thimmig LLP, San Francisco, California, Special Counsel, under present law, interest with respect to the Certificates is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In the further opinion of Special Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS herein for a more complete discussion. DATED: Date of Delivery $6,116, CITY OF SANTA ROSA HIGH SCHOOL DISTRICT CERTIFICATES OF PARTICIPATION (2008 CAPITAL PROJECT) Evidencing Direct, Undivided Fractional Interests Of The Owners Thereof In Lease Payments To Be Made By The District As The Rental For Certain Property Pursuant To A Lease Agreement With The Public Property Financing Corporation of California DUE: June 1, as shown below The City of Santa Rosa High School District Certificates of Participation (2008 Capital Project) (the Certificates ), in the aggregate principal amount of $6,116, are being executed and delivered to finance the 2008 Capital Project (as described herein) of the City of Santa Rosa High School District (the District ), to purchase a reserve fund financial guaranty insurance policy for the Certificates and to pay delivery costs of the Certificates. See THE 2008 CAPITAL PROJECT herein. The Certificates evidencing direct, undivided fractional interests of the Owners thereof in Lease Payments (as defined herein) to be made by the District as the rental for certain real property (the Property ) pursuant to a Lease Agreement, dated as of June 1, 2008 (the Lease Agreement ), by and between the District, as lessee, and Public Property Financing Corporation of California (the Corporation ), as lessor. The Certificates are being executed and delivered as Current Interest Certificates and Capital Appreciation Certificates. Interest represented by the Current Interest Certificates is payable semiannually on June 1 and December 1 of each year, commencing on June 1, The Capital Appreciation Certificates will not pay current interest. The Capital Appreciation Certificates accrete interest, compounded semiannually on June 1 and December 1 of each year, commencing December 1, See THE CERTIFICATES herein. The Certificates are subject to redemption prior to maturity as described herein. See THE CERTIFICATES Redepmtion Provisions herein. The Certificates will be executed and delivered in book-entry form only, and will be initially registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (referred to herein as DTC ). Purchasers of the Certificates (the Beneficial Owners ) will not receive physical certificates representing their interest in the Certificates. The Current Interest Certificates will be delivered in denominations of $5,000 and any integral multiple thereof. The Capital Appreciation Certificates will be delivered in denominations of $5,000 of Maturity Value (as defined herein) or any integral multiple thereof. Payments of principal and interest with respect to the Current Interest Certificates and Maturity Value with respect to the Capital Appreciation Certificates will be paid by the Trustee (as herein defined) to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Certificates. (See THE CERTIFICATES Book-Entry Only System herein). THE DISTRICT HAS COVENANTED IN THE LEASE AGREEMENT TO TAKE SUCH ACTION AS MAY BE NECESSARY TO INCLUDE AND MAINTAIN ALL LEASE PAYMENTS AS AND WHEN DUE, SUBJECT TO ABATEMENT, AS FURTHER DESCRIBED HEREIN, IN ITS ANNUAL BUDGET AND TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS FOR ALL SUCH LEASE PAYMENTS. THE OBLIGATION OF THE DISTRICT TO MAKE LEASE PAYMENTS IS A SPECIAL OBLIGATION OF THE DISTRICT AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR SONOMA COUNTY OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE CORPORATION HAS NO OBLIGATION OR LIABILITY WHATSOEVER TO THE OWNERS OF THE CERTIFICATES. The scheduled payment of principal and interest with respect to the Certificates when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Certificates by ASSURED GUARANTY CORP. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT INTENDED TO BE A SUMMARY OF ALL FACTORS RELEVANT TO AN INVESTMENT IN THE CERTIFICATES. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. CAPITALIZED TERMS USED ON THIS COVER PAGE NOT OTHERWISE DEFINED WILL HAVE THE MEANING SET FORTH HEREIN. $3,020,000 Current Interest Certificates Maturity Date June 1 Initial Principal Amount Maturity Date June 1 Principal Amount Coupon Interest Rate Reoffering Price or Yield 2038 $ 1,210, % % $1,810, % Term Certificates due June 1, 2037; Yield 4.550% (Priced to Call June 1, 2017) Yield To Maturity $3,096, Capital Appreciation Certificates Maturity Value Maturity Date June 1 Initial Principal Amount Yield To Maturity Maturity Value 2012 $ 13, % $ 15, , , $ 146, % $ 355, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 The Current Interest Certificates are being purchased for re-offering by Citigroup Global Markets Inc. as underwriter of the Current Interest Certificates. The Capital Appreciation Certificates are being purchased for re-offering by Morgan Stanley & Co. Incorporated as underwriter of the Capital Appreciation Certificates. The Certificates are offered when, as and if issued by the District and received by the underwriters, subject to approval as to legality by of Quint & Thimmig LLP, San Francisco, California, Special Counsel. It is anticipated that the Certificates, in definitive form, will be available for delivery through the facilities of DTC in New York, New York on or about June 12, This Official Statement is dated May 29, 2008

2 NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE DISTRICT OR THE UNDERWRITER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, 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 DISTRICT OR THE UNDERWRITER. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE CERTIFICATES BY A PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE AN OFFER, SOLICITATION OR SALE. THIS OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE CERTIFICATES. STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT WHICH INVOLVE ESTIMATES, PROJECTIONS, 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. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE AND NEITHER DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE DISTRICT SINCE THE DATE HEREOF. THIS OFFICIAL STATEMENT IS SUBMITTED WITH RESPECT TO THE SALE OF THE CERTIFICATES REFERRED TO HEREIN AND MAY NOT BE REPRODUCED OR USED, IN WHOLE OR IN PART, FOR ANY OTHER PURPOSE, UNLESS AUTHORIZED IN WRITING BY THE DISTRICT. ALL SUMMARIES OF THE DOCUMENTS AND LAWS ARE MADE SUBJECT TO THE PROVISIONS THEREOF AND DO NOT PURPORT TO BE COMPLETE STATEMENTS OF ANY OR ALL SUCH PROVISIONS. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE DISTRICT AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN MARKET PRICES OF THE CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE 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 CERTIFICATES TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS, BANKS OR OTHERS AT PRICES LOWER OR YIELDS HIGHER THAN THE PUBLIC OFFERING PRICES OR YIELDS STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES OR YIELDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. ASSURED GUARANTY MAKES NO REPRESENTATION REGARDING THE CERTIFICATES OR THE ADVISABILITY OF INVESTING IN THE CERTIFICATES. IN ADDITION, ASSURED GUARANTY HAS NOT INDEPENDENTLY VERIFIED, MAKES NO REPRESENTATION REGARDING, AND DOES NOT ACCEPT ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT OR ANY INFORMATION OR DISCLOSURE CONTAINED HEREIN, OR OMITTED HEREFROM, OTHER THAN WITH RESPECT TO THE ACCURACY OF THE INFORMATION REGARDING ASSURED GUARANTY SUPPLIED BY ASSURED GUARANTY AND PRESENTED UNDER THE HEADING FINANCIAL GUARANTY AND APPENDIX F - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY. Current Interest Certificates CUSIP * Numbers Maturity Date: June 1 CUSIP Maturity Date: June 1 CUSIP BB BC3 Capital Appreciation Certificates CUSIP * Numbers Maturity Date: June 1 CUSIP Maturity Date: June 1 CUSIP AA AB AP AC AQ AD AR AE AS AF AT AG AU AH AV AJ AW AK AX AL AY AM AZ AN BA7 * Copyright 2008, American Bankers Association. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and is included for convenience of reference only. The District, the Corporation, and the Underwriter make no representation as to the accuracy or completeness of such information. -ii-

3 $6,116, CITY OF SANTA ROSA HIGH SCHOOL DISTRICT CERTIFICATES OF PARTICIPATION (2008 CAPITAL PROJECT) BOARD OF EDUCATION Jim Leddy, President Donna Jeye, Vice-President Bill Carle, Clerk Noreen Carvolth, Director Larry Haenel, Director Wally Lowry, Director Frank Pugh, Director ADMINISTRATION Dr. Sharon Liddell, Superintendent Douglas R. Bower, Associate Superintendent Business Services Kim L. Agrella, Executive Director Fiscal Services Gregory A. Espinoza, Assistant Superintendent Curriculum and Instruction K-6 Anastasia M. Zita, Assistant Superintendent Curriculum and Instruction 7-12 Robert Thompson, Assistant Superintendent Human Resources 211 Ridgway Avenue Santa Rosa, California (707) FINANCIAL ADVISOR Government Financial Strategies inc N Street, Suite 13 Sacramento, California (916) BOND COUNSEL Quint & Thimmig LLP 575 Market Street, Suite 3600 San Francisco, CA (415) TRUSTEE U.S. Bank National Association 1 California Street, Suite 2100 San Francisco, CA (415) iii-

4 $6,116, CITY OF SANTA ROSA HIGH SCHOOL DISTRICT CERTIFICATES OF PARTICIPATION (2008 CAPITAL PROJECT) TABLE OF CONTENTS Page # INTRODUCTORY STATEMENT...1 General...1 The District...2 The Corporation...2 The Certificates...2 Authority for Leasing and Source of Repayment for the Certificates...2 Financial Guaranty Insurance...3 Tax Matters...3 Continuing Disclosure...3 Professionals Involved...3 Other Information...4 THE CERTIFICATES...4 General Provisions...4 Redemption Provisions...5 DTC Book-Entry Only...6 Sources and Uses of Funds...7 Payment Plan for the Certificates...8 Lease Payments...8 Source of Payment for the Certificates...9 Reserve Fund...10 Insurance...10 FINANCIAL GUARANTY INSURANCE...11 The Insurance Policy...11 The Insurer...11 The Reserve Fund Insurance Policy...13 THE PROPERTY...13 The Property...13 THE 2008 CAPITAL PROJECT...14 The 2008 Capital Project...14 SPECIAL RISK FACTORS...14 Payments Not District Debt...14 Abatement...14 No Earthquake Insurance Coverage...15 No Acceleration Upon Default...15 Enforcement of Remedies...15 Loss of Tax Exemption...16 SANTA ROSA CITY SCHOOLS...16 General Information...16 Transfer of Territory...16 The Board of Trustees and Key Administrative Personnel...17 Parcel Tax...17 Average Daily Attendance...17 Charter Schools...18 Pupil-Teacher Ratios...18 Employee Relations...19 Pension Plans...19 Other Post-Employment Benefits iv-

5 DISTRICT FINANCIAL INFORMATION...20 Accounting Practices...20 Budget and Financial Reporting Process...21 Financial Statements and Current Budget...22 Financial Outlook...23 Revenues...23 Expenditures...24 Short Term Borrowings...24 Capitalized and Bonded Lease Obligations...25 Long Term Borrowings...25 Direct and Overlapping Bonded Debt...26 TAXATION AND APPROPRIATIONS...28 Ad Valorem Property Taxation...28 Assessed Valuation of Property Within the District...28 Largest Taxpayers in District...29 COUNTY ECONOMIC PROFILE...30 General Information...30 Population...31 County Unemployment...31 Major Employers...31 STATE FUNDING OF PUBLIC EDUCATION...32 Revenue for Public Education...32 Distribution of Revenue for School Districts...33 The State Budget...34 Proposed Budget...35 Future Budgets...36 CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES & EXPENDITURES...36 LEGAL MATTERS...39 No Litigation...39 Legal Opinion...39 Tax Matters...39 Legality for Investment...41 RATINGS...41 FINANCIAL ADVISOR...41 INDEPENDENT AUDITORS...41 UNDERWRITING AND INITIAL OFFERING PRICES...42 CONTINUING DISCLOSURE...42 ADDITIONAL INFORMATION...42 APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F ACCRETED VALUES TABLE SUMMARY OF PRINCIPAL LEGAL DOCUMENTS THE BASIC FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDED JUNE 30, 2007 FORM OF CONTINUING DISCLOSURE CERTIFICATE FORM OF OPINION OF SPECIAL COUNSEL SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY -v-

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7 OFFICIAL STATEMENT $6,116, CITY OF SANTA ROSA HIGH SCHOOL DISTRICT CERTIFICATES OF PARTICIPATION (2008 CAPITAL PROJECT) Evidencing Direct, Undivided Fractional Interests Of The Owners Thereof In Lease Payments To Be Made By The District As The Rental For Certain Property Pursuant To A Lease Agreement With The Public Property Financing Corporation of California INTRODUCTORY STATEMENT The purpose of this Official Statement, which includes the cover page, table of contents and attached appendices (the Official Statement ), is to provide certain information concerning the sale and delivery of the City of Santa Rosa High School District Certificates of Participation (2008 Capital Project) (the Certificates ). The Certificates are being executed and delivered to finance the District s 2008 Capital Projects (as hereinafter described), to fund a reserve fund for the Certificates and to pay delivery costs of the Certificates. This INTRODUCTORY STATEMENT is not a summary of this Official Statement. It is only a brief description of and guide to this Official Statement. This INTRODUCTORY STATEMENT is qualified by more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of the entire Official Statement by prospective investors in the Certificates. The offering of the Certificates to potential investors is made only by means of the entire Official Statement. General The Certificates are being executed and delivered in the aggregate principal amount of $6,116,012.70, consisting of $3,020,000 aggregate principal amount of current interest Certificates (the Current Interest Certificates ) and $3,096, aggregate initial principal amount of capital appreciation Certificates (the Capital Appreciation Certificates ). The Certificates evidence direct, undivided fractional interests of the registered owners (the Owners ) thereof in lease payments (the Lease Payments ) to be made by the City of Santa Rosa High School District (the District ) as rental for the facilities at 2480 Sebastopol Road, Santa Rosa, CA 95407, commonly known as the Lawrence Cook Middle School, and the site thereof (the Property ), to be leased from the Public Property Financing Corporation of California (the Corporation ) pursuant to a lease agreement dated as of June 1, 2008 (the Lease Agreement ). See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT herein. Proceeds from the sale and delivery of the Certificates will be deposited into the funds and accounts as established under a trust agreement dated as of June 1, 2008 (the Trust Agreement ) by and among the District, the Corporation and U.S. Bank National Association (the Trustee ). See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS TRUST AGREEMENT herein. Proceeds from the sale and delivery of the Certificates will be utilized by the District for the purpose implementing the District s 2008 Capital Project, to fund a reserve fund for the Certificates and to pay delivery costs of the Certificates. See THE 2008 CAPITAL PROJECT herein

8 The District The District and the City of Santa Rosa Elementary School District (the Elementary School District ) officially operate as Santa Rosa City Schools, which is a combined school district under provisions of the State of California Education Code Sections through Pursuant to these provisions, the Board of Education of the District and the Elementary School District took formal action on April 26, 1983 by adopting Resolution No. E-349 / H-578 to implement the combining of budgets of the two school districts. Santa Rosa City Schools is one of only a few school districts among the State's approximate 1,000 school districts which share a common board of education and administration. The District is situated within Sonoma County (the County ), the largest and northernmost of the nine San Francisco Bay Area counties, and is located approximately 50 miles north of San Francisco and 85 miles west northwest of Sacramento, the State Capitol. The District is traversed north-south by U.S. Highway 101, a major thoroughfare running along the California coast. The District is a political subdivision of the State of California. Currently, the District operates five comprehensive high schools, four small necessary schools, five middle schools, two charter schools and two continuation high schools. The Corporation The Corporation, based in Calabasas, California, is a nonprofit public benefit corporation organized under the laws of the State of California on April 18, The Corporation was organized for the primary purpose of providing assistance to school districts and other public agencies in California by acquiring, constructing, improving and financing various facilities, land and equipment, and by leasing facilities, land and equipment for the use of such public agencies. The Corporation has no liability to the Owners of the Certificates. The Certificates The Certificates are being executed and delivered as Current Interest Certificates and Capital Appreciation Certificates. Interest represented by the Current Interest Certificates is payable semiannually on June 1 and December 1 of each year, commencing on June 1, The Capital Appreciation Certificates will not pay current interest. The Current Interest Certificates may be executed and delivered in denominations of $5,000 principal amount or any integral multiple thereof. The Capital Appreciation Certificates are dated their date of delivery of the Certificates and accrete interest from such date, compounded semiannually on June 1 and December 1 of each year, commencing December 1, The Capital Appreciation Certificates may be executed and delivered in denominations of $5,000 Maturity Value or any integral multiple thereof. The Maturity Value of a Capital Appreciation Bond is its Accreted Value, as defined herein, at its maturity date. See THE CERTIFICATES herein. The Certificates will be executed and delivered in book-entry form only, and will be initially registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (referred to herein as DTC ). Purchasers of the Certificates (the Beneficial Owners ) will not receive physical certificates representing their interest in the Certificates. Payments of principal and interest with respect to the Current Interest Certificates and Maturity Value with respect to the Capital Appreciation Certificates will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Certificates. See THE CERTIFICATES DTC Book-Entry Only herein. In the event that the book-entry-only system described below is no longer used with respect to the Certificates, the Certificates will be registered in accordance with the Trust Agreement. Authority for Leasing and Source of Repayment for the Certificates The District is authorized under provisions of the Constitution and laws of the State to enter into lease or lease purchase agreements relating to real property and buildings, facilities and equipment. The District approved the forms of the Lease Agreement, the Trust Agreement and related legal documents by adopting a resolution on April 23, 2008 (the Resolution ), which authorizes and directs the execution of the documents relating to the sale and delivery of the Certificates. Under the terms of a site and facility lease dated June 1, 2008 (the Site and Facility Lease ) between the District and the Corporation, the District will lease the Property to the Corporation. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS SITE AND FACILITY LEASE herein. Under the terms of the Lease Agreement, the District will lease back the Property from the Corporation and is required to pay Lease Payments from any source of legally available funds, for the use and possession of the Property, which amounts are - 2 -

9 sufficient in both time and aggregate amount to pay the principal and interest and/or the Maturity Value payable with respect to the Certificates. The District is also required to pay additional payments as necessary to pay all fees, costs and expenses of the Corporation in performance of the Lease Agreement and the Trust Agreement. The Corporation will assign and transfer substantially all of its rights under the Lease Agreement, including its rights (a) to receive and collect Lease Payments, (b) to receive and collect the proceeds of any insurance maintained under the Lease Agreement and (c) to exercise such rights and remedies conferred on the Corporation pursuant to the Lease Agreement, as may be necessary or convenient to enforce payment of the Lease Payments and any other amounts required, to the Trustee pursuant to an Assignment Agreement, dated as of June 1, 2008 (the Assignment Agreement ), by and between the Corporation and Trustee. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ASSIGNMENT AGREEMENT herein. Pursuant to the Trust Agreement, the Trustee will execute and deliver the Certificates and, in accordance with the provisions of the Trust Agreement, administer all rights assigned by the Corporation pursuant to the Assignment Agreement for the benefit of all Owners. Pursuant to the Trust Agreement, the Trustee will also serve as paying agent for the Certificates. The District, pursuant to the Lease Agreement, will take such action as may be necessary to include all Lease Payments in its annual budget and to make the necessary annual appropriation therefor. The amount of Lease Payments will be abated during any period in which, by reason of damage or destruction, there is substantial interference with the District's use and possession of any portion of the Property, except to the extent of the moneys on deposit in the reserve fund (the Reserve Fund ) and/or the insurance and condemnation fund (the Insurance and Condemnation Fund ) established under the Trust Agreement are used, or to the extent moneys are received from rental interruption insurance, if any, with respect to the Property. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT Lease Payments; Abatement and SPECIAL RISK FACTORS herein, for a further discussion of the abatement provisions. Financial Guaranty Insurance The scheduled payment of principal and interest with respect to the Certificates when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Certificates by Assured Guaranty Corp. Tax Matters In the opinion of Quint & Thimmig LLP, San Francisco, California, Special Counsel, subject, however to certain qualifications described herein, under existing law, the portion of lease payments designated as and comprising interest and received by the owners of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Special Counsel, such interest is exempt from California personal income taxes. See LEGAL MATTERS-Tax Matters herein. Continuing Disclosure The District will covenant for the benefit of certificate Owners to make available certain financial information and operating data relating to the District and to provide notices of the occurrence of certain enumerated events, if material, in compliance with S.E.C. Rule 15c2-12(b)(5). The specific nature of the information to be made available and of the notices of material events is set forth in APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. See also "CONTINUING DISCLOSURE" herein. Professionals Involved Government Financial Strategies inc., Sacramento, California, has acted as a financial advisor to the District with respect to the sale and delivery of the Certificates. See FINANCIAL ADVISOR herein. All proceedings in connection with the sale and delivery of the Certificates are subject to the approving legal opinion of Quint & Thimmig LLP, San Francisco, California, Special Counsel to the District (the Special Counsel ) with respect to the Certificates. Quint & Thimmig LLP will receive compensation contingent upon the execution and delivery of the Certificates

10 Other Information This Official Statement may be considered current only as of its dated date affixed to the cover page hereof, and the information contained herein is subject to change. Brief descriptions of the Certificates, the security for the Certificates and the District are included in this Official Statement, together with summaries of certain provisions relating to the Trust Agreement, the Lease Agreement, the Assignment Agreement and the Site and Facility Lease (collectively, the Legal Documents ). Such descriptions do not purport to be comprehensive or definitive, and all references made herein to the Legal Documents approved by the District are qualified in their entirety by reference to such document, and all references herein to the Certificates are qualified in their entirety by reference to the form thereof included in the Legal Documents. Information concerning this Official Statement, the Certificates, the District, the Legal Documents or any other information relating to the sale and delivery of the Certificates is available for public inspection and may be obtained by contacting the District or by contacting the District s financial advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California , telephone (916) , facsimile telephone (916) THE CERTIFICATES General Provisions The Certificates are being executed and delivered in the form of Current Interest Certificates and in the form of Capital Appreciation Certificates. The Certificates will be dated the date of delivery. The Current Interest Certificates will be executed and delivered in fully registered form, without coupons, in denominations of $5,000 principal amount or any integral multiple thereof. The Current Interest Certificates will mature on the dates, in the years and in the principal amounts, and interest with respect thereto will be computed at the rates set forth on the cover page hereof. Interest with respect to each Current Interest Certificates will accrue from its dated date and is first payable on June 1, 2009 and semiannually thereafter on the first day of June and December (each an Interest Payment Date ) in each year to the Owner hereof. Interest with respect to Current Interest Certificates will be computed using a year of 360 days comprised of twelve 30- day months and will be payable on each Interest Payment Date from the Interest Payment Date next preceding the date of execution thereof, unless: (i) it is executed as of an Interest Payment Date, in which event interest with respect thereto will be payable from such Interest Payment Date; or (ii) it is executed after the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day, and before the following Interest Payment Date, in which event interest with respect thereto will be payable from such Interest Payment Date; or (iii) it is executed on or before May 15, 2009, in which event interest with respect thereto will be payable from the Closing Date. The Capital Appreciation Certificates are dated the date of delivery. The Capital Appreciation Certificates will be executed and delivered in the denomination of $5,000 Maturity Value or any integral multiple thereof. No Capital Appreciation Certificate will have principal maturing on more than one date. The Capital Appreciation Certificates are payable only at maturity, and will not pay interest on a current basis. The Capital Appreciation Certificates accrete in value from the the date of delivery at the accretion rates per annum set forth herein, compounded semiannually on June 1 and December 1of each year commencing December 1, Interest with respect to each Capital Appreciation Bond is represented by the amount each Capital Appreciation Bond accretes in value from its initial principal amount on their date of delivery to the date for which Accreted Value is calculated. The Accreted Value of a Capital Appreciation Certificates is calculated by discounting on a 30-day month, 360 day year basis its Maturity Value on the basis of a constant interest rate (the "Accretion Rate") compounded semiannually on June 1 and December 1, of each year to the date for which an Accreted Value is calculated, and if the date for which Accreted Value is calculated is between June 1 and December 1, by pro-rating the Accreted Values to the closest prior or subsequent June 1 and December 1. See the maturity schedule on the cover page hereof and "APPENDIX A - ACCRETED VALUES TABLE". The Certificates will be registered initially in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry only form, and no physical certificates will be made available to the Owners to represent their ownership interests in the Certificates. So long as Cede & Co. is the registered owner of the Certificates, principal and interest, with respect to the Current Interest Certificates and Accreted Value and Maturity Value with respect to the Capital Appreciation Certificates will be payable to Cede & Co., as nominee for DTC, which is obligated to remit such payments to the DTC Participants, as defined by DTC, for subsequent disbursement to the Beneficial Owners of the Certificates. See THE CERTIFICATES DTC Book-Entry Only herein

11 Redemption Provisions Optional Redemption: The Certificates maturing on or before June 1, 2017, are not subject to redemption prior to their respective maturity dates. The Certificates maturing on and after June 1, 2018, are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after June 1, 2017, at par, upon notice as described below. Mandatory Sinking Fund Redemption: The Current Interest Certificate maturing on June 1, 2037 (the Term Certificate ), is subject to mandatory sinking fund redemption prior to its maturity at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, if any, without premium, solely from mandatory sinking fund payments as provided in the Lease Agreement, on each June 1 specified in the table below. Mandatory Sinking Fund Redemption Schedule Year Ending June 1 Sinking Fund Amount 2036 $705, (maturity) $1,105,000 In the event that the Trustee redeems Certificates maturing on June 1, 2037, in part but not in whole, relating to extraordinary redemption and optional redemption, the amount of Certificates to be redeemed in each subsequent year will be reduced to correspond to the principal components of the Lease Payments remaining unpaid following such redemption as determined in the Lease Agreement. Redemption From Net Proceeds of Insurance, Title Insurance, Condemnation or Eminent Domain Award. The Certificates are subject to mandatory redemption in whole or in part on any date from the net proceeds of an insurance, title insurance, condemnation, or eminent domain award to the extent credited towards the prepayment of the Lease Payments by the District pursuant the Lease Agreement, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date fixed for redemption, without premium. Selection of Certificates for Redemption. If less than all Outstanding Certificates are to be redeemed, the Trustee shall select Certificates for redemption from the outstanding Certificates not previously called for redemption in such order of maturity as shall be designated by the District (and, in lieu of such designation, pro rata among maturities) and by lot within a maturity. The Trustee shall select Certificates for redemption within each maturity by lot in any manner which the Trustee shall, in its sole discretion, deem appropriate. For the purposes of such selection, Certificates shall be deemed to be composed of $5,000 portions and any such portion may be separately redeemed. The Trustee shall promptly notify the District and the Corporation in writing of the Certificates so selected for redemption. Selection by the Trustee of Certificates for redemption shall be final and conclusive. Notice of Redemption. Unless waived in writing by any Owner of a Certificate to be redeemed, notice of any such redemption shall be given by the Trustee on behalf and at the expense of the District, by mailing a copy of a redemption notice by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption to such Owner of the Certificate or Certificates to be redeemed at the address shown on the Registration Books or at such other address as is furnished in writing by such Owner to the Trustee; provided, however, that neither the failure to receive such notice nor any defect in any notice shall affect the sufficiency of the proceedings for the redemption of the Certificates. All notices of redemption shall be dated and shall state: (i) the redemption date; (ii) the redemption price; (iii) if less than all outstanding Certificates of a maturity are to be redeemed, the Certificate numbers (and, in the case of partial redemption, the respective principal amounts) of the Certificates to be redeemed; (iv) that on the redemption date the redemption price will become due and payable upon each such Certificate or portion thereof called for redemption and that interest with respect to the Current Interest Certificates shall cease to accrue or the Capital Appreciation Certificates shall cease to accrete in value, as applicable, from and after said date; (v) the place where such Certificates are to be surrendered for payment of the redemption price; (vi) the CUSIP numbers of all Certificates being redeemed; (vii) the original date of execution and delivery of the Certificates; (viii) the rate of interest payable or accretion rate, as applicable, with respect to each maturity of Certificates being - 5 -

12 redeemed; (ix) the maturity date of each Certificate being redeemed; and (x) any other descriptive information needed to identify accurately the Certificates being redeemed. Effect of Redemption. Notice of redemption having been given as aforesaid and the deposit of the redemption price having been made by the District, the Certificates or portions of Certificates so to be redeemed shall, on the redemption date, become due and payable at the redemption price therein specified, and from and after such date interest with respect to such Certificates or portions of Certificates shall cease to be payable. Upon surrender of such Certificates for redemption in accordance with said notice, such Certificates shall be paid by the Trustee at the redemption price. Upon the payment of the redemption price of Certificates being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Certificates being redeemed with the proceeds of such check or other transfer, to the extent possible. Installments of interest due on or prior to the redemption date shall be payable as herein provided for payment of interest. All Certificates which have been redeemed shall be canceled by the Trustee, shall not be redelivered and shall be destroyed. DTC Book-Entry Only The following information concerning DTC and DTC s book-entry-only system has been provided by DTC for use in securities disclosure documents. Bracketed material may apply only to certain issues. The District takes no responsibility for the accuracy or completeness thereof. There can be no assurance that DTC will abide by its procedures or that such procedures will not be changed from time to time. The following description includes the procedures and record-keeping with respect to beneficial ownership interests in the Certificates (referred to below as Securities ), payment of principal and interest, other payments with respect to the Certificates to Direct Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Certificates, notices to beneficial owners and other related transactions by and between DTC, the Participants, and the Beneficial Owners. However, DTC, the Participants, and the Beneficial Owners should not rely on the following information with respect to such matters, but should instead confirm the same with DTC or the Direct Participants, as the case may be. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for 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, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 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 - 6 -

13 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. 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. 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 transmission to them of notices of significant events with respect to the Securities, such as prepayments, 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 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 the notices be provided directly to them. Prepayment 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 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 District or Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC [nor its nominee], the Trustee, or the District, 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 District or 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. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered. Sources and Uses of Funds The proceeds from the sale of the Certificates will be used to purchase, in lieu of a cash-funded Reserve Fund, a Reserve Fund Insurance Policy (as defined under FINANCIAL GUARANTY INSURANCE The Reserve Fund Insurance Policy ) and a financial guaranty insurance policy for the Certificates, then paid to the Trustee who will: transfer a portion of the proceeds into a fund established with the Trustee to pay the delivery costs of the Certificates (the Delivery Costs Fund ); and transfer remaining proceeds into a fund held by the County Treasurer to pay for the costs of acquiring, constructing, and completing the 2008 Capital Project (the Project Fund )

14 Moneys in the funds held by the Trustee will be invested in Permitted Investments. Funds held by the County Treasurer will be invested in any one or more investments generally permitted to school districts under the laws of the State of California and will be applied solely for the delivery costs, and acquiring, constructing, and completing the 2008 Capital Project. The sources and uses of funds in connection with the sale and delivery of the Certificates are set forth in the following schedule. Sources And Uses Of Funds Schedule Certificates of Participation SOURCES OF FUNDS Par Amount of the Certificates $6,116, Original Issue Premium 49, TOTAL SOURCES OF FUNDS $6,165, USES OF FUNDS Project Fund $5,708, Delivery Costs Fund 1 306, Underwriting Discount 151, TOTAL USES OF FUNDS $6,165, This figure includes the fees and expenses of special counsel, financial advisor, rating agency, a Reserve Fund Insurance Policy, financial guaranty insurance policy and other costs. Payment Plan for the Certificates The Lease Payments are payable from any source of legally available funds from within the unrestricted moneys of the General Fund of the District (see SPECIAL RISK FACTORS Payments Not District Debt herein). Although not pledged for repayment, the District intends on utilizing redevelopment revenues it receives from the City of Santa Rosa, the City of Rohnert Park and the County redevelopment agencies as a source of payment for the annual budget obligation used to make Lease Payments. These three redevelopment agencies have six redevelopment project areas whose assessed value growth generates revenues for the District. One of these project areas, the Gateway Project Area operated by the City of Santa Rosa Redevelopment Agency, is currently under litigation. The Superior Court issued its final decision on April 2, 2008 in favor of the redevelopment agency; the plaintiff has filed an appeal. In order to be fiscally conservative, the Gateway Project Area revenues have been excluded from the calculation of available projected redevelopment revenue available for debt service payment; see THE CERTIFICATES - Lease Payments herein. Were the litigation to conclude in the redevelopment agency s favor, the District is projected to receive redevelopment revenue approximately 50% greater over the 30-year life of the Certificates than the revenues shown on the Lease Payment Schedule in THE CERTIFICATES - Lease Payments. To the extent that redevelopment revenues are insufficient to make principal and interest payments on the Certificates, the District intends to cover any shortfall from its General Fund. Lease Payments Lease Payments are required to be made by the District under the Lease Agreement on or before May 15 and November 15 of each year the Certificates are outstanding, commencing on May 15, 2009, for the use and possession of the Property. The Lease - 8 -

15 Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. On each payment date, the Trustee will withdraw from the Lease Payment Fund the aggregate amount necessary to make annual principal and semiannual interest payments with respect to the Certificates, as shown in the following table of the Lease Payments Schedule. Lease Payments Schedule Certificates of Participation Revenues Current Interest Certificates Capital Appreciation Certificates Total Lease Payments Projected Revenues from Semi-Annual Annual Denominational Maturity Semi-Annual Annual Date Redevelopment Principal Interest Payments Payments Amount Value Payments Payments 6/1/09 $144, $0.00 $143, $143, $143, $0.00 $0.00 $143, $143, /1/09 $73, $73, $73, /1/10 $149, $0.00 $73, $73, $147, $0.00 $0.00 $73, $147, /1/10 $73, $73, $73, /1/11 $154, $0.00 $73, $73, $147, $0.00 $0.00 $73, $147, /1/11 $73, $73, $73, /1/12 $163, $0.00 $73, $73, $147, $13, $15, $88, $162, /1/12 $73, $73, $73, /1/13 $184, $0.00 $73, $73, $147, $29, $35, $108, $182, /1/13 $73, $73, $73, /1/14 $208, $0.00 $73, $73, $147, $48, $60, $133, $207, /1/14 $73, $73, $73, /1/15 $232, $0.00 $73, $73, $147, $65, $85, $158, $232, /1/15 $73, $73, $73, /1/16 $259, $0.00 $73, $73, $147, $80, $110, $183, $257, /1/16 $73, $73, $73, /1/17 $288, $0.00 $73, $73, $147, $98, $140, $213, $287, /1/17 $73, $73, $73, /1/18 $284, $0.00 $73, $73, $147, $87, $135, $208, $282, /1/18 $73, $73, $73, /1/19 $311, $0.00 $73, $73, $147, $97, $160, $233, $307, /1/19 $73, $73, $73, /1/20 $340, $0.00 $73, $73, $147, $108, $190, $263, $337, /1/20 $73, $73, $73, /1/21 $370, $0.00 $73, $73, $147, $118, $220, $293, $367, /1/21 $73, $73, $73, /1/22 $402, $0.00 $73, $73, $147, $125, $250, $323, $397, /1/22 $73, $73, $73, /1/23 $435, $0.00 $73, $73, $147, $134, $285, $358, $432, /1/23 $73, $73, $73, /1/24 $470, $0.00 $73, $73, $147, $140, $320, $393, $467, /1/24 $73, $73, $73, /1/25 $506, $0.00 $73, $73, $147, $146, $355, $428, $502, /1/25 $73, $73, $73, /1/26 $545, $0.00 $73, $73, $147, $152, $395, $468, $542, /1/26 $73, $73, $73, /1/27 $585, $0.00 $73, $73, $147, $158, $435, $508, $582, /1/27 $73, $73, $73, /1/28 $628, $0.00 $73, $73, $147, $164, $480, $553, $627, /1/28 $73, $73, $73, /1/29 $673, $0.00 $73, $73, $147, $168, $525, $598, $672, /1/29 $73, $73, $73, /1/30 $719, $0.00 $73, $73, $147, $171, $570, $643, $717, /1/30 $73, $73, $73, /1/31 $769, $0.00 $73, $73, $147, $174, $620, $693, $767, /1/31 $73, $73, $73, /1/32 $835, $0.00 $73, $73, $147, $180, $685, $758, $832, /1/32 $73, $73, $73, /1/33 $905, $0.00 $73, $73, $147, $185, $755, $828, $902, /1/33 $73, $73, $73, /1/34 $978, $0.00 $73, $73, $147, $192, $830, $903, $977, /1/34 $73, $73, $73, /1/35 $1,055, $0.00 $73, $73, $147, $196, $905, $978, $1,052, /1/35 $73, $73, $73, /1/36 $1,136, $705, * $73, $778, $852, $57, $280, $1,058, $1,132, /1/36 $56, $56, $56, /1/37 $1,219, $1,105, * $56, $1,161, $1,217, $0.00 $0.00 $1,161, $1,217, /1/37 $28, $28, $28, /1/38 $1,270, $1,210, $28, $1,238, $1,267, $0.00 $0.00 $1,238, $1,267, $16,226, $3,020, $4,308, $7,328, $7,328, $3,096, $8,840, $16,168, $16,168, * Denotes mandatory sinking fund payments for the Term Certificates due June 1, Source of Payment for the Certificates Each Certificate represents a direct, undivided fractional interest in the Lease Payments to be made by the District to the Corporation under the Lease Agreement. The Corporation, pursuant to the Assignment Agreement, will assign its rights and - 9 -

16 remedies under the Lease Agreement to the Trustee for the benefit of the Owners, including its right to receive Lease Payments thereunder. Principal and interest due with respect to the Certificates will be made from the Lease Payments payable by the District for the use and possession of the Property, insurance net proceeds pertaining to the Property to the extent that such net proceeds are not used for repair or replacement, rental interruption insurance proceeds, if any, amounts deposited in the Lease Payment Fund established under the Trust Agreement, interest or other income derived from the investment of the funds and accounts held by the Trustee for the District pursuant to the Trust Agreement, or in certain instances from the Reserve Fund established under the Trust Agreement. The District has covenanted under the Lease Agreement to make Lease Payments for the use and possession of the Property and, as long as the Property is available for its use, to take such action each year as may be necessary to include all payments in its annual budget and annually to appropriate an amount necessary to make such Lease Payments. The amounts payable to the Trustee by the District are to be used to make the payments of principal and interest due with respect to the Certificates. Under California law, even though the Lease Agreement becomes effective as of the date of the Certificates, the obligation of the District to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Lease Payment Fund, Reserve Fund and/or the Insurance and Condemnation Fund) may be abated in whole in or part if the District does not have full use and possession of the Property. The obligation of the District to make Lease Payments does not constitute an obligation of the District to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments constitutes an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction or a pledge of the faith and credit of the District, the Corporation, or the State or any of its political subdivisions. Reserve Fund The Trust Agreement provides that a Reserve Fund be funded in an amount equal to the least of maximum annual Lease Payments, 125% of average annual Lease Payments, and 10% of the principal amount of the Certificates (the Reserve Requirement ) from proceeds of the sale of the Certificates or cash deposited by the District or, in lieu thereof, by providing a Reserve Fund Insurance Policy in the amount required thereunder in favor of the Trustee. In the event of insufficient funds in the Lease Payment Fund from which to make principal and/or interest payments to the Owners of the Certificates as due on an Interest Payment Date, the Trustee will draw first on the reserve fund financial guaranty insurance policy or Reserve Fund, to the extent available therefrom, to obtain sufficient funds to pay principal and/or interest as due to the Owners of the Certificates. Insurance Pursuant to the Lease Agreement the District will obtain a leasehold title insurance policy insuring the District s leasehold estate in the Property in an amount not less than the aggregate original principal amount of the Certificates, subject only to Permitted Encumbrances (as defined in the Lease Agreement). In addition, the Lease Agreement requires that the District must maintain rental interruption insurance to insure against loss of rental income from the Property in an amount equal to at least the maximum Lease Payments coming due and payable during any two consecutive fiscal years during the remaining term of the Lease Agreement. The District is also obligated to obtain a standard comprehensive general public liability and property damage insurance policy or policies. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT Insurance. The net proceeds of insurance or eminent domain award will be deposited in the Insurance and Condemnation Fund established pursuant to the Trust Agreement and held by the Trustee. The Lease Agreement requires the District to apply the net proceeds of any insurance award either to replace or repair the Property or to redeem Certificates if certain certifications with respect to the adequacy of the net proceeds to make repairs, and the timing thereof, cannot be made. The amount of Lease Payments will be subject to abatement and Lease Payments due under the Lease Agreement may be reduced during any period in which material damage or destruction to all or part of the Property substantially interferes with the District s use and possession thereof. See RISK FACTORS Abatement herein. If the District determines that an eminent domain proceeding has not materially affected the District s interest in the Property or the ability of the District to meet any of its financial obligations under the Lease Agreement, then the net proceeds of the condemnation award are to be used to repair and replace or rehabilitate the Property, and/or deposited into the Lease Payment Fund to make Lease Payments, as determined by the District

17 If the District has determined that such eminent domain proceedings have materially affected the interest of the District in the Property or the ability of the District to meet any of its financial obligations under the Lease Agreement, or all of the Property shall have been taken in such eminent domain proceedings, then the Trustee shall transfer the net proceeds of the condemnation award to the Lease Payment Fund for redemption of the Lease Payments pursuant to the Lease Agreement and applied to the corresponding redemption of Certificates on a redemption date. FINANCIAL GUARANTY INSURANCE The following information is not complete and reference is made to APPENDIX F for a specimen of the financial guaranty insurance policy (the Policy ) of Assured Guaranty Corp. ( Assured Guaranty or the Insurer ). The Insurance Policy Assured Guaranty has made a commitment to issue the Policy relating to the Certificates, effective as of the date of issuance of such Certificates. Under the terms of the Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of principal and interest with respect to the Certificates that becomes Due for Payment but shall be unpaid by reason of Nonpayment (the Insured Payments ). Insured Payments shall not include any additional amounts owing by the District solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. The Policy is non-cancelable for any reason, including without limitation the non-payment of premium. Due for Payment means, when referring to the principal of the Certificates, the stated maturity date thereof, or the date on which such Certificates shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and, when referring to interest on such Certificates, means the stated dates for payment of interest. Nonpayment means the failure of the District to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on the Certificates. It is further understood that the term Nonpayment in respect of a Certificate also includes any amount previously distributed to the Holder (as such term is defined in the Policy) of such Certificate in respect of any Insured Payment by or on behalf of the District, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Nonpayment does not include nonpayment of principal or interest caused by the failure of the Trustee or the Paying Agent to pay such amount when due and payable. Assured Guaranty will pay each portion of an Insured Payment that is Due for Payment and unpaid by reason of Nonpayment, on the later to occur of (i) the date such principal or interest becomes Due for Payment, or (ii) the business day next following the day on which Assured Guaranty shall have received a completed notice of Nonpayment therefor in accordance with the terms of the Policy. Assured Guaranty shall be fully subrogated to the rights of the Holders of the Certificates to receive payments in respect of the Insured Payments to the extent of any payment by Assured Guaranty under the Policy. The Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law. The Insurer Assured Guaranty is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. Assured Guaranty commenced operations in Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock

18 Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty. Assured Guaranty is subject to insurance laws and regulations in Maryland and in New York (and in other jurisdictions in which it is licensed) that, among other things, (i) limit Assured Guaranty s business to financial guaranty insurance and related lines, (ii) prescribe minimum solvency requirements, including capital and surplus requirements, (iii) limit classes and concentrations of investments, (iv) regulate the amount of both the aggregate and individual risks that may be insured, (v) limit the payment of dividends by Assured Guaranty, (vi) require the maintenance of contingency reserves, and (vii) govern changes in control and transactions among affiliates. Certain state laws to which Assured Guaranty is subject also require the approval of policy rates and forms. Assured Guaranty s financial strength is rated AAA by Standard & Poor s, a division of The McGraw-Hill Companies, Inc. ( S&P ), AAA by Fitch, Inc. ( Fitch ) and Aaa by Moody s Investors Service, Inc. ( Moody s ). Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn. Capitalization of Assured Guaranty Corp. As of March 31, 2008, Assured Guaranty had total admitted assets of $1,518,398,730 (unaudited), total liabilities of $1,138,285,708 (unaudited), total surplus of $380,113,022 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,001,533,924 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of December 31, 2007, Assured Guaranty had total admitted assets of $1,361,538,502 (audited), total liabilities of $961,967,238 (audited), total surplus of $399,571,264 (audited) and total statutory capital (surplus plus contingency reserves) of $982,045,695 (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The Maryland Insurance Administration recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Maryland Insurance Code, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the Maryland Insurance Administration to financial statements prepared in accordance with accounting principles generally accepted in the United States ( GAAP ) in making such determinations. Incorporation of Certain Documents by Reference. The portions of the following documents relating to Assured Guaranty are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof: The Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2007 (which was filed by AGL with the Securities and Exchange Commission (the SEC ) on February 29, 2008); The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (which was filed by AGL with the SEC on May 9, 2008); and The Current Reports on Form 8-K filed by AGL with the SEC, as they relate to Assured Guaranty. All consolidated financial statements of Assured Guaranty and all other information relating to Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Certificates shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements. Any statement contained in a document incorporated herein by reference or contained herein under the heading FINANCIAL GUARANTY The Insurer shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York or by calling Assured Guaranty at (212) In addition, the information regarding Assured Guaranty that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC s web site at

19 and at AGL s web site at from the SEC s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C , and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York Assured Guaranty makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading FINANCIAL GUARANTY INSURANCE. The Reserve Fund Insurance Policy Assured Guaranty has made a commitment to issue a financial guaranty insurance policy for the reserve fund with respect to the Certificates (the Reserve Fund Insurance Policy ), effective as of the date of delivery of such Certificates. Under the terms of the Reserve Fund Insurance Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of the scheduled principal and interest with respect to Certificates that becomes due for payment but shall be unpaid by reason of nonpayment by the District (the Insured Payments ). Assured Guaranty will pay each portion of an Insured Payment that is due for payment and unpaid by reason of nonpayment by the District to the Trustee or Paying Agent, as beneficiary of the Reserve Fund Insurance Policy on behalf of the holders of the Certificates on the later to occur of (i) the date such scheduled principal or interest becomes due for payment or (ii) the business day next following the day on which Assured Guaranty receives a demand for payment therefor in accordance with the terms of the Reserve Fund Insurance Policy. No payment shall be made under the Reserve Fund Insurance Policy in excess of $611,601.27, (the Reserve Fund Insurance Policy Limit ). Pursuant to the terms of the Reserve Fund Insurance Policy, the amount available at any particular time to be paid to the Trustee or Paying Agent shall automatically be reduced to the extent of any payment made by Assured Guaranty under the Reserve Fund Insurance Policy, provided, that, to the extent of the reimbursement of such payment to Assured Guaranty, the amount available under the Reserve Fund Insurance Policy shall be reinstated in full or in part, in an amount not to exceed the Reserve Fund Insurance Policy Limit. The Reserve Fund Insurance Policy does not insure against nonpayment caused by the insolvency or negligence of the Trustee or Paying Agent. The Reserve Fund Insurance Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law. THE PROPERTY The Property The Property to be leased to the Corporation from the District by way of the Site and Facility Lease and leased back to the District from the Corporation by way of the Lease Agreement consist of the facilities at 2480 Sebastopol Road, Santa Rosa, CA 95407, commonly known as the Lawrence Cook Middle School, and the site thereof, encompassing classroom buildings, an administration/cafeteria building, a library and a gymnasium. Lawrence Cook Middle School serves over 600 students in grades seven and eight. The insured replacement value of the Property, exclusive of the value of the land, is $19,394,

20 THE 2008 CAPITAL PROJECT The 2008 Capital Project A portion of the proceeds from the sale of Certificates will be used by the District to implement the 2008 Capital Project. The 2008 Capital Project consists of the acquisition, construction, installation and equipping of improvements to various District facilities including, but not limited to, the renovation and improvement of the Elsie Allen High School stadium. SPECIAL RISK FACTORS The following factors, which represent special risk factors that have been identified at this time, should be considered along with all other information in this Official Statement by potential investors in evaluating the credit quality of the Certificates. There can be no assurance that other special risk factors do not exist or will not become evident at any future time regarding the credit quality of the Certificates. Furthermore, no representations are made as to the future financial condition of the District. Payment of the Lease Payments is a General Fund obligation of the District and the ability of the District to make Lease Payments may be adversely affected by its financial condition as of any particular time. Payments Not District Debt The full faith and credit of the District, the State of California, and other political subdivisions thereof have not been pledged to the payment of the Lease Payments or any other payments due under the Lease Agreement. The District is not obligated to levy any form of taxation to pay Lease Payments. Neither Lease Payments nor the Certificates constitute a debt of the District, the State of California, or any other political subdivision thereof. The District is obligated under the Lease Agreement to pay Lease Payments from any source of legally available funds (subject to the exceptions under which the Lease Payments may be abated; see SPECIAL RISK FACTORS Abatement below) from within the unrestricted moneys of the General Fund of the District. The General Fund finances the legally authorized activities of the District not provided for by other funds of the District that are restricted to the specific purposes for which those moneys were received. The District has covenanted in the Lease Agreement that, for as long as the Property is available for its use, it will make the necessary annual appropriations within its budget for all Lease Payments. A significant source of unrestricted revenue for the District consists of revenues it receives from the State. This State revenue is utilized by the District in its normal course of operation, including the discharging of obligations, such as will be the case for the payment of Lease Payments. As a result of the District s dependence upon the State for a significant source of its funding, District revenues in any and all future years during which the Certificates will be outstanding may be adversely affected by the financial condition of the State. For a discussion of the State s financial condition and the funding of education in California see STATE FUNDING OF PUBLIC EDUCATION herein. Abatement Use and Possession of the Property. Lease Payments are paid by the District for and in consideration of the right of beneficial use and occupancy of the Property. If, for any reason, there is substantial interference with the use and possession of all or part of the Property, the District s obligation to make Lease Payments from its funds will be abated. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT Lease Payments; Abatement. Abatement of Lease Payments is not an event of default under the Trust Agreement or the Lease Agreement, and will not permit the Trustee to take any action or avail itself of any remedy against the District. The District will not have an obligation to make Lease Payments with respect to the Property other than from the proceeds of the Certificates or the proceeds of any rental interruption insurance until such substantial interference with the use and possession of the Property, or a portion thereof, has been remedied. Damage or Destruction; Eminent Domain. If damage or destruction to the Property results in abatement or adjustment of Lease Payments and the resulting Lease Payments, together with moneys in the Lease Payment Fund (and in the event of damage or destruction, together with rental interruption insurance proceeds, if any), are insufficient to make all payments of principal and interest due with respect to the Certificates during the period that the Property is being replaced, repaired or reconstructed, then

21 such payments of principal and interest may not be made in full and no remedy is available to the Trustee or the Owners under the Lease Agreement or Trust Agreement for nonpayment under such circumstances. Absence of Earthquake and Flood Insurance. The obligation to make Lease Payments may be adversely affected if the Property or any improvements thereon are damaged or destroyed by natural hazard such as earthquake or flood. The District, however, is not obligated under the Lease Agreement to procure and maintain, or cause to be maintained, earthquake or flood insurance on the Property. The District, however, is obligated under the Lease Agreement to maintain other types of insurance. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS THE LEASE AGREEMENT. In the event of damage or destruction to the Property caused by perils for which the District is not required to provide insurance under the Lease Agreement, the District will not be obligated to repair, replace or reconstruct the Property, though the District may choose to do so. No Earthquake Insurance Coverage The District is not obligated under the Lease Agreement to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Property for the duration of the Lease Agreement term. Should an earthquake cause damage to the Property such that there results substantial interference with the use and occupancy of the Property, Lease Payments would be abated but the policy of rental interruption insurance would not cover the abatement. See APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT herein and SPECIAL RISK FACTORS above for a discussion of the abatement provisions. The District would, however, promptly apply for Federal disaster aid or State of California disaster aid in the event that the Property is damaged or destroyed as a result of an earthquake. Any money received as a result of such disaster aid will be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Property or, at the option of the District, to redeem all Outstanding Certificates if such use of such disaster aid is permitted. See THE CERTIFICATES Redemption Provisions herein. No Acceleration Upon Default In the Event of a Default, as defined in the Lease Agreement (see APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT herein), there is no available remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement. The District will only be liable for Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment each year for that year s Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against school districts in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Enforcement of Remedies The enforcement of any remedies provided in the Lease Agreement (see APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE AGREEMENT herein) and the Trust Agreement (see APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS TRUST AGREEMENT herein) could prove both expensive and time consuming. In addition to the limitation on remedies contained in the Lease Agreement and the Trust Agreement, the rights and remedies provided in the Lease Agreement and the Trust Agreement may be limited by and are subject to provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors rights. The legal opinion to be delivered concurrently with the delivery of the Certificates will be qualified, as to the enforceability of the Trust Agreement, the Lease Agreement and other related documents, by bankruptcy, reorganization, moratorium, insolvency or other similar laws affecting the enforcement of creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitation on legal remedies against public agencies in the State of California. The District is a unit of State government and therefore is not subject to the involuntary procedures of the United States Bankruptcy Code (the Bankruptcy Code ). However, pursuant to Chapter 9 of the Bankruptcy Code, the District may seek voluntary protection from its creditors for purposes of adjusting its debts. In the event the District were to become a debtor under the Bankruptcy Code, the District would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding and an Owner would be treated as a creditor in a municipal bankruptcy. Among the adverse effects of such a bankruptcy would be: (a) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the District or the

22 commencement of any judicial or other action for the purpose of recovering or collecting a claim against the District; (b) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (c) the incurrence of unsecured or court-approved secured debt which may have a priority of payment superior to that of secured debt which may have a priority of payment superior to that of Owners; and (d) the possibility of the adoption of a plan for the adjustment of the District's debt (a Plan ) without the consent of all of the Owners, which Plan may restructure, delay, compromise or reduce the amount of the claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. In addition, the Bankruptcy Code would invalidate any provision of the Certificates which makes the bankruptcy or insolvency of the District an Event of Default. With the exception of the provisions contained in the Plan, a Bankruptcy Court could not impose restrictions on the District's power or its property without the consent of the District. Loss of Tax Exemption The District has covenanted to comply with restrictions under the Internal Revenue Code of 1986, as amended, (the "Code") (relating to use of Certificate proceeds, Reserve Fund funding requirements, investment yield limitations, rebate requirements, federal guarantee prohibitions and registration requirements) so that interest paid with respect to the Certificates is excludable from gross income for federal income tax purposes. However, in the event the District fails to comply with any of these covenants, interest paid with respect to the Certificates would be includable in gross income for federal income tax purposes, possibly retroactive to the date of Certificate delivery. SANTA ROSA CITY SCHOOLS General Information The District and the Elementary School District officially operate as Santa Rosa City Schools, which is a combined school district under provisions of the State of California Education Code Sections through Pursuant to these provisions, the Board of Education of the District and the Elementary School District took formal action on April 26, 1983 by adopting Resolution No. E-349 / H-578 to implement the combining of budgets of the two school districts. Santa Rosa City Schools is one of only a few school districts among the State's approximate 1,000 school districts which share a common board of education and administration. By law, Santa Rosa City Schools do not operate as a single district for the following purposes: (1) each district continues to be treated separately for purposes of computing state apportionments and allowances and allocations of local property tax revenue, (2) each district continues to hold title to its property separately, and (3) any indebtedness for such property remains in the indebtedness of each separate district. In addition, while school districts are permitted by Section to transfer funds between the districts to the extent permitted by the Constitution, the amount so transferred from the combined special reserve of both districts is required to be indicated in the required annual publication of the general fund income and expenses of each district. The District is situated within the County, the largest and northernmost of the nine San Francisco Bay Area counties, and is located approximately 50 miles north of San Francisco and 85 miles west northwest of Sacramento, the State Capitol. The District is traversed north-south by U.S. Highway 101, a major thoroughfare running along the California coast. The District is a political subdivision of the State of California. Currently, the District operates five comprehensive high schools, four small necessary schools, five middle schools, two charter schools (though there are a total of six charter schools operating within the District) and two continuation high schools. Santa Rosa City Schools is the County's largest school district, accounting for roughly one out of every four students enrolled in the public school system within the County. Santa Rosa City Schools maintains a certificated staff of approximately 899 full-time equivalent employees and a classified staff of approximately 363 full-time equivalent employees to serve the students. Additionally, there are hundreds of staff serving in such capacities as substitute teachers and coaches, as well as many dedicated citizens that volunteer their time, talent and effort for the benefit of the students. Transfer of Territory In August 2005, the Sonoma County Committee on School District Reorganization ( SCC ) disapproved a petition to transfer 73 acres of uninhabited land known as the Vast Oak Development from the District and the Bellevue Union Elementary School

23 District to the Cotati-Rohnert Park Unified School District. In March 2007, the California State Board of Education reversed SCC s decision to deny the proposed transfer based on appeals submitted by both the owner of the Vast Oak Development as well as the Cotati-Rohnert Park Unified School District. There are no grounds for further appeal of this decision. As a result, the Vast Oak Development will be transferred from the District to the Cotati-Rohnert Park Unified School District. Approximately 238 homes may be constructed on the 73 acres to be transferred, yielding 93 to 186 students when development, expected to begin in 2009, is completed. The assessed value of the Vast Oak Development is less than.03% of the District s total assessed value. The Board of Trustees and Key Administrative Personnel The Board governs all activities related to public K-12 education within both the District and the Elementary School District. The Board receives funding from local, State and federal government sources and must comply with the concomitant requirements of these funding source entities. The Board consists of seven members. Each Board member is elected by the public for a four-year term of office and elections for the Board are held every two years. The Board has the decision making authority, the power to designate management, the responsibility to significantly influence operations and is accountable for all fiscal matters relating to the Santa Rosa City Schools. The current members of the Board are set forth below. Board of Trustees Santa Rosa City Schools Name Title Term Expires Jim Leddy President November 2008 Donna Jeye Vice-President November 2008 Bill Carle Clerk November 2010 Noreen Carvolth Director November 2008 Larry Haenel Director November 2008 Wally Lowry Director November 2010 Frank Pugh Director November 2010 The Superintendent of Santa Rosa City Schools is appointed by the Board and reports to the Board. The Superintendent is responsible for managing the Santa Rosa City Schools day-to-day operations and supervising the work of other key administrators. Key members of the Santa Rosa City Schools staff are set forth on page iii of this Official Statement. Parcel Tax The District does not levy any parcel tax. Average Daily Attendance Student enrollment of a public school district in California determines to a large extent what the school district will receive in terms of funding for program, facilities and staff needs. Average daily attendance ( ADA ) is a measurement of the number of pupils attending classes in the district. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. See STATE FUNDING OF PUBLIC EDUCATION herein. The District has experienced declining enrollment over the past several years. Enrollment can fluctuate due to factors such as population growth, competition from private, parochial, and public charter schools, inter-district transfers in or out, and other causes. Losses in enrollment will cause a school district to lose operating revenues, without necessarily permitting the district to make adjustments in fixed operating costs. Set forth in the following exhibit is the Period 2 ADA for Santa Rosa City Schools for previous fiscal years, excluding adult education

24 Period 2 Average Daily Attendance Santa Rosa City Schools Elementary School District 4,273 4,235 4,167 4,135 4,104 High School District 11,871 11,598 11,268 11,023 10,710 Total Elementary and High School Districts 16,144 15,833 15,435 15,158 14,814 Note: Figures for fiscal year are estimated. Charter Schools There are currently six charter schools operating within the Santa Rosa City Schools: the Kid Street Learning Center Charter School currently serves approximately 38 students in grades kindergarten through sixth, the Santa Rosa Education Cooperative Charter School serves approximately 173 students in grades kindergarten through eighth, the Abraxis Charter School serves approximately 58 students in grades eleven and twelve, the Santa Rosa Accelerated Charter School serves approximately 127 students in grades five and six, the Santa Rosa Charter School for the Arts (beginning in fiscal year ) serves approximately 183 students in kindergarten through eighth and the Arts & Ethics Academy Charter School (beginning in fiscal year ) serves approximately 31 students in grades ninth through twelve. The Kid Street Learning Center Charter School, the Santa Rosa Education Cooperative Charter School, the Abraxis Charter School and the Arts & Ethics Academy Charter School are fiscally independent of the District. Each of these fiscally independent schools are responsible for managing, budgeting and accounting for their own activities. The Santa Rosa Accelerated Charter School and the Santa Rosa Charter School for the Arts are fiscally dependent schools, operating under the control of the Santa Rosa City Schools with their financial activities presented in the Santa Rosa City Schools financial statements under the Charter School Fund (see APPENDIX C herein for more information). Charter Schools are independently funded from the State. School districts are required to provide for charter schools having students from within the district facilities comparable to those provided to regular school district students. Pupil-Teacher Ratios Set forth below are the pupil-to-teacher ratios for the Santa Rosa City Schools for fiscal year Pupil-To-Teacher Ratios Santa Rosa City Schools Level City of Santa Rosa Elementary School District Ratio City of Santa Rosa High School District Ratio Source: Education Data Partnership. Elementary Middle n/a 21.9 High School n/a 22.9 Continuation n/a 18.0 Opportunity n/a 21.7 Total

25 Employee Relations California law provides that employees of public school districts of the State are to be divided into appropriate bargaining units which then are to be represented by an exclusive bargaining agent. Santa Rosa City Schools has three recognized primary bargaining agents for its employees. The Santa Rosa Teachers Association (the SRTA ) is the exclusive bargaining agent for the majority of certificated non-management teaching personnel. Chapter 75 and Chapter 367 of the California School Employees' Association (the CSEA ) represent non-management classified personnel. Set forth in the following table are Santa Rosa City Schools bargaining units, number of full-time equivalent ( FTEs ), and contract status. Bargaining Units, Number Of Employees, And Contract Status Santa Rosa City Schools Certificated # of FTEs Status Santa Rosa Teachers Association 899 Tentative salary agreement through June 30, Classified # of FTEs Status CSEA, Chapters 75 and Tentative salary agreement through June 30, Pension Plans Qualified employees of Santa Rosa City Schools are eligible to participate under defined benefit retirement plans maintained by agencies of the State. Certificated employees are eligible to participate in the cost-sharing multiple-employer State Teachers Retirement System ( STRS ). Classified employees are eligible to participate in the agent multiple-employer Public Employees Retirement Fund of the Public Employees Retirement System ( PERS ), which acts as a common investment and administrative agent for participating public entities within the State. STRS operates under the State of California Education Code sections commonly known as the State Teachers Retirement Law. Membership is mandatory for all certificated employees of California public schools meeting the eligibility requirements. STRS provides retirement, disability and death benefits based on an employee s years of service, age and final compensation. Employees vest after five years of service and may receive retirement benefits at age fifty-five. All full-time classified employees of Santa Rosa City Schools participate in PERS, which provides retirement, disability and death benefits based on an employee s years of service, age and final compensation. Employees vest after five years of service and may receive retirement benefits at age fifty. These benefit provisions and all other requirements are established by State statute and district resolution. Active STRS members are required to contribute 8.0% of their salary to the plan, with Santa Rosa City Schools required to contribute an actuarially determined rate. The required employer contribution for fiscal year was 8.25% of annual payroll or $5,756,177. Active PERS members are required to contribute 7.0% of their salary to the plan, with Santa Rosa City Schools required to contribute an actuarially determined rate. The required employer contribution for fiscal year was 9.12% of annual payroll or $1,463,326. The District has also offered early retirement benefits in the past through the State and District plans. In March, the District estimated that payment for all outstanding plans and current retiree benefits total $4,488,889. Estimated costs of these programs are included in the budget. For a more complete description of Santa Rosa City Schools pension plan, annual contribution requirements and early retirement benefits, see APPENDIX C attached hereto

26 Other Post-Employment Benefits In June 2004, the Governmental Accounting Standards Board ( GASB ) pronounced Statement No. 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions. The pronouncement will require public agency employers providing other post-employment benefits ( OPEB ) to retirees to recognize and account for the costs for providing these benefits on an accrual basis and provide footnote disclosure on the progress toward funding the benefits. The implementation date for this pronouncement will be staggered in three phases based upon the entity s annual revenues as follows: if annual revenue is $100 million or more, implementation begins in fiscal year if annual revenue is $10 - $100 million, implementation begins in fiscal year if annual revenue is less than $10 million, implementation begins in fiscal year GASB Statement No. 45 ( GASB 45 ) is effective for the District for the fiscal year ending June 30, GASB 45 provides that agencies should establish a reserve fund and annually transfer sufficient funds to this reserve in order to pay for OPEB, for the period of time agreed in union contracts. Employees who are eligible to receive OPEB while in retirement must meet specific criteria, i.e., age and years with the District. Santa Rosa City Schools provides one-time financial incentive benefits and post employment health care benefits, in accordance with Santa Rosa City Schools employment contracts, to all employees who retire from Santa Rosa City Schools on or after attaining age 55 with at least 15 years of service. As of June 30, 2007, 212 employees met those eligibility requirements. The District pays the insurance premiums to maintain the single level of coverage enjoyed by retirees immediately preceding retirement until the age of 65. Expenditures for OPEB are recognized on a pay-as-you-basis. During the year ended June 30, 2007, expenditures of $835,187 were recognized for OPEB. In June 2006, Rael & Letson, a consulting and actuarial firm, prepared an actuarial study in accordance with GASB 45 to assess Santa Rosa City Schools OPEB liability. According to the study, Santa Rosa City Schools has $29,311,000 in unfunded actuarial accrued liability ( UAAL ); the resulting annual required contribution ( ARC ) for fiscal year was $3,387,900 assuming a 30-year amortization schedule for the UAAL. The Board has approved a management plan to begin funding the UAAL, pending the final decision of whether to invest funds in a Retiree Benefits Fund or an Irrevocable Trust Fund to be made later this year. As of March 2008, the District has set aside over $2 million dollars for this funding. DISTRICT FINANCIAL INFORMATION Accounting Practices The accounting practices of Santa Rosa City Schools conform to Generally Accepted Accounting Principles in accordance with policies and procedures of the California School Accounting Manual, which must be used by all California school districts pursuant to Section of the State of California Education Code. Santa Rosa City Schools accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the General Fund, which accounts for all financial resources not requiring a special type of fund. Santa Rosa City Schools fiscal year begins on July 1 and ends on June 30. The General Fund, special revenue and debt service funds are maintained and reported on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when received in cash or when measurable and available to finance operations during the year. Expenditures are recorded on an accrual basis except for interest on longterm debt, which is recognized when it becomes payable. Revenue from local taxes is recognized in the financial statements when collected by the Treasurer-Tax Collector of the County. See SECURITY AND SOURCE OF PAYMENT herein. Revenue from the State representing apportionments is recognized when apportioned to the District by the County. Revenues from other specific State and or federally funded projects are recognized when qualified expenditures have been incurred. The State of California Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. The independent auditor for the District is Stephen Roatch Accountancy Corporation, Certified Public Accountants, Folsom, California. Selected information concerning the financial statements of Santa Rosa City Schools as of and for the year ending June 30, 2007, are set forth in APPENDIX C attached hereto. The auditor has not performed any subsequent events review or other procedures relative to the audited financial statements since the date of its letter

27 Budget and Financial Reporting Process Santa Rosa City Schools General Fund finances the legally authorized activities of Santa Rosa City Schools for which restricted funds are not provided. General Fund revenues are derived from such sources as federal and State school apportionments, taxes, use of money and property, and aid from other governmental agencies. Santa Rosa City Schools is required by provisions of the State of California Education Code to maintain a balanced budget each year, where the sum of expenditures plus the ending fund balance cannot exceed revenues plus the carry-over fund balance from the previous year. The State of California Department of Education imposes a uniform budgeting format for school districts. The fiscal year for all school districts is July 1 to June 30. The same calendar applies to the budgets of county offices of education, except that their budgets and reports go to the Superintendent of Public Instruction for review. The State budget, too, is extremely important since school districts depend on it for almost all their revenue. There is a very close timing in the summer between final approval of the State budget, school finance legislation, and the adoption of local district budgets. In some years, the State budget is not approved by the deadline, which forces school districts to begin the new fiscal year with only estimates of the amount of money they will actually receive. The school district budgeting process involves continuous planning and evaluation. Within the deadlines, school districts work out their own schedules for considering whether or not to hire or replace staff, negotiating contracts with all employees, reviewing programs, and assessing the need to repair existing or acquire new facilities. Decisions depend on the critical estimates of enrollment, fixed costs, commitments in contracts with employees as well as best guesses about how much money will be available for elementary and secondary education. The timing of some decisions is forced by legal deadlines. For example, preliminary layoff notices to teachers must be delivered in March, with final notices in May. This necessitates projecting enrollments and determining staffing needs long before a school district will know either its final financial positions for the current year or its income for the next one. The governing board must submit a budget to the County Superintendent by July 1, and a publicized opportunity for public participation in the budget process is required by law. There are two options for budget adoption. School districts may adopt their budgets by July 1 and then revise and readopt them by September 1 after a public hearing. Alternatively, school districts may decide, by the previous October 31, to hold public hearings before adopting their budgets by July 1. School districts choosing this option revise their revenues and expenditures after the State budget act is adopted, without a second public hearing. All school districts must perform a criteria and standards review before budget adoption. In addition, those school districts on the alternative schedule for adoption must repeat the review before their revision only if the July 1 budget was disapproved. Legislation requires criteria and standards for stringent review of school districts' finances, focusing primarily on predictions of actual daily attendance, operating deficit, and reserves. The legislation also dictates when and how outside committees, or an appointed trustee in emergency situations, must work with school districts. This oversight is part of an effort to reduce the number of districts in financial trouble and to increase the responsible use of tax dollars. The county superintendents monitor all school districts' budgets, ongoing financial obligations and multi-year contracts. They have specific powers for recommending actions to revise budgets. They are not, however, authorized to abrogate existing collective bargaining agreements. School districts must review their financial position for the periods ending October 31 and January 31 in order to certify their abilities to meet commitments through the rest of the school year. Each school district is required by the State of California Education Code to file these two interim reports each year by not later than December 15 and March 15. The county offices of education must then, within 30 days, evaluate the interim reports and forward their comments to the State of California Department of Education and the State Controller's Office. Included in the report is a certification by the president of the governing board of each school district that classifies the school district according to its ability to meet its financial obligations. The certifications are grouped into three categories: A positive certification, which designates that the school district will be able to meet its financial obligations for the remainder of the fiscal year and the following two years; a qualified certification, which means that the school district may not be able to meet its financial obligations for the remainder of the fiscal year and following two years if certain events occur; and a negative certification, which signifies that the school district will not be able to meet its financial obligations for the remainder of the fiscal year or of the following year. The county superintendent must annually present a report to the governing board of the school district and the State Superintendent of Public Instruction regarding the fiscal solvency of any school district with a disapproved budget, qualified

28 interim certification, or negative interim certification, or that is determined at any time to be in a position of fiscal uncertainty, pursuant to Education Code Section Any school district with a qualified or negative certification must allow the county office of education at least ten working days to review and comment on any proposed agreement made between its bargaining units and the school district before it is ratified by the board (or the state administrator). The county superintendent will notify the school district, the county board of education, the governing board and the district superintendent (or the state administrator), and each parent and teacher organization of the school district within those ten days if, in his or her opinion, the agreement would endanger the fiscal well-being of the school district. Also, pursuant to Education Code Section 42133, a school district that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or the next succeeding fiscal year, non-voter approved debt unless the county superintendent of schools determines that the repayment of that debt by the school district is probable. Santa Rosa City Schools received positive certifications for its first and second interim reports in fiscal years , , and Santa Rosa City Schools received positive certification on its first interim report in fiscal year , and submitted its second interim report with positive certification. Financial Statements and Current Budget Figures presented in summarized form herein have been gathered from Santa Rosa City Schools financial statements. Portions of the audited financial statements of Santa Rosa City Schools for the fiscal year ending June 30, 2007, have been included in the appendix to this Official Statement. See APPENDIX C herein. Audited financial statements and other financial reports for all prior fiscal years are on file with Santa Rosa City Schools and available for public inspection during normal business hours. Copies of financial statements relating to any year are available to prospective investors and or their representatives upon request by contacting Santa Rosa City Schools at the address and telephone number set forth on page iii of this Official Statement, or by contacting Santa Rosa City Schools financial advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California, , Tel. (916) The following illustration sets forth certain General Fund information for Santa Rosa City Schools. [The remainder of this page intentionally left blank.]

29 General Fund Activity For The Fiscal Years Indicated Santa Rosa City Schools Audited Audited Audited Audited Second Interim BEGINNING BALANCE $6,064,630 $7,599,652 $11,754,618 $14,800,489 $21,315,714 ADJUSTMENTS $1,135,179 $0 $0 $0 $0 CORRECTED BEGINNING BALANCE $7,199,809 $7,599,652 $11,754,618 $14,800,489 $21,315,714 REVENUES Revenue Limit Sources $88,461,489 $91,979,966 $94,635,631 $98,736,014 $98,596,866 Federal Revenue 7,466,818 8,303,707 8,930,734 7,702,571 9,574,665 Other State Revenues 12,600,260 13,126,738 15,695,924 21,717,943 20,037,176 Other Local Revenues 10,407,394 10,647,493 11,003,667 12,555,288 13,674,020 TOTAL REVENUES $118,935,961 $124,057,904 $130,265,956 $140,711,816 $141,882,727 EXPENDITURES Certificated Salaries $65,425,391 $65,621,589 $68,223,495 $71,196,921 $73,299,811 Classified Salaries 14,029,678 13,584,072 14,447,718 15,184,534 16,260,453 Employee Benefits 14,979,768 15,993,584 16,744,794 15,699,095 16,815,520 Books and Supplies 2,844,723 3,987,797 4,829,621 5,430,530 14,401,441 Srvcs. / Other Op. Expn. 19,062,960 19,496,408 20,062,064 20,815,076 24,861,662 Capital Outlay 124, , , ,625 3,023,026 Other Expenditures 1,708,574 1,662,944 2,126,702 1,994,041 1,238,535 Direct Support / Indirect Costs (242,669) Debt Service 44, TOTAL EXPENDITURES $118,220,322 $120,574,594 $126,900,611 $131,090,822 $149,657,779 NET INCREASE (DECREASE) $715,639 $3,483,310 $3,365,345 $9,620,994 ($7,775,052) OTHER FINANCING SOURCES/USES ($315,796) $671,656 ($319,474) ($3,105,769) ($1,804,182) ENDING BALANCE $7,599,652 $11,754,618 $14,800,489 $21,315,714 $11,736,480 Financial Outlook The Santa Rosa City Schools filed positive certification on its second interim report. In anticipation of possible reduction in State funding and declining enrollment, the Santa Rosa City Schools is developing recommendations for budget reductions for both the and fiscal years. Revenues Santa Rosa City Schools categorizes its General Fund revenues into four primary sources: revenue limit sources, federal revenues, other state revenues and other local revenues. Revenue Limit Sources. Since fiscal year , California school districts have operated under general purpose revenue limits established by the State Legislature. In general, the state revenue limit for a school district is calculated by multiplying a base revenue limit per student by the school district s student enrollment measured in units of average daily attendance (ADA). The revenue limit calculations are adjusted annually in accordance with a number of factors designated primarily to provide cost of

30 living increases and to equalize revenues among all California school districts of the same type. The Elementary School District s base revenue limit per unit of ADA was $5, in fiscal year and is projected to be $5, in fiscal year The District s base revenue limit per unit of ADA was $6, in fiscal year and is projected to be $6, in fiscal year Revenue limit sources account for 70.2% of total Santa Rosa City Schools revenues in fiscal year , and are projected to be 69.5% of revenues in fiscal year The Santa Rosa City Schools are projected to receive $65,754,772 in taxes (including prior year monies and less Education Revenue Augmentation Fund adjustment, or ERAF) and $32,995,872 in State Aid (including any prior year monies) in fiscal year for its revenue limit funding, less a net transfer (including transfers to charter schools) of $153,778. Federal Sources. The federal government provides funding for several Santa Rosa City Schools programs. These federal revenues, most of which are restricted, were 5.5% of General Fund revenues in fiscal year , and are projected to be 6.7% of General Fund revenues in fiscal year Other State Sources. In addition to apportionment revenues, the State provides funding for several Santa Rosa City Schools programs. These Other State revenues, most of which are restricted, were 15.4% of General Fund revenues in fiscal year , and are projected to be 14.1% of General Fund revenues in fiscal year Included in Other State Sources are proceeds received from the State from the California State Lottery. Other Local Sources. Revenues from Other Local Sources were 8.9% of General Fund revenues in fiscal year , and are projected to be 9.6% of General Fund revenues in fiscal year Expenditures Employee salaries and benefits accounted for 77.9% of General Fund expenditures in fiscal year , and are projected to be 71.1% of General Fund expenditures in fiscal year The Board has reached tentative agreements with employee bargaining units, with final settlement expected on April 9, Short Term Borrowings Santa Rosa City Schools has in the past issued short-term tax and revenue anticipation notes. Proceeds from the issuance of notes by Santa Rosa City Schools during previous fiscal years have been used to reduce inter-fund dependency and to provide Santa Rosa City Schools with greater overall efficiency in the management of its funds. Santa Rosa City Schools has never defaulted on any of its short-term borrowings. The following table contains the Santa Rosa City Schools five-year history of tax and revenue anticipation notes issuance. Tax and Revenue Anticipation Notes Santa Rosa City Schools Date Issued Final Maturity Amount Issued July 3, 2002 July 3, 2003 $10,885, July 3, 2003 July 6, 2004 $10,390, July 6, 2004 July 6, 2005 $10,885, July 6, 2005 July 6, 2006 $9,895, July 6, 2006 July 6, 2007 $5,000, July 6, 2007 July 1, 2008 $7,980, Santa Rosa City Schools anticipates issuing approximately $5 - $7 million in tax and revenue anticipation notes for the fiscal year

31 Capitalized and Bonded Lease Obligations Santa Rosa City Schools has in the past used capital lease arrangements, which are general fund obligations, under agreements which provide for title of items and equipment being leased to pass to the lessee district upon expiration of the lease period. Under each such agreement, the Board has promised to annually appropriate the amounts necessary to make all future lease payments from available revenues. The District does not have any principal outstanding on capitalized lease obligations as of June 30, Long Term Borrowings The 1991 Election authorized the issuance of bonds on behalf of the District in an aggregate principal amount not to exceed $129,000,000. The bonds authorized at the 1991 Election were issued in seven series: the Series 1992 Bonds, the Series 1993 Bonds, the Series 1994 Bonds, the Series 1996 Bonds, the Series 1997 Bonds, the Series 2000 Bonds, and the Series 2001 Bonds. In 2003, the District issued the Series 2003 Refunding Bonds to refund the Series 1992 Bonds. In 2004, the District issued the Series 2004 Refunding Bonds to refund the Series 1994 Bonds. In 2007, the Series 2007 Refunding Bonds were issued for the redemption of certain maturities of the Series 1996 Bonds, the Series 1997 Bonds, the Series 2000 Bonds, and the Series 2001 Bonds. At an election held on March 2, 2002 (the 2002 Election ), the District received authorization to issue $77,230,000 aggregate principal amount of general obligation bonds for school purposes. The bonds authorized at the 2002 Election were issued in three series: the Series 2002 Bonds, the Series 2003 Bonds and the Series 2005 Bonds. The District has no authorization remaining on either the 1991 Election or 2002 Election. The table below summarizes the District s outstanding general obligation bonds. Outstanding General Obligation Bonds City of Santa Rosa High School District Authorization Issue Final Maturity Amount Issued Outstanding as of May 1, 2008 Debt Service in Fiscal Year Election of 1991 Series May 1, 2026 $15,985, $1,515, $1,168, Election of 2002 Series 2002 August 1, 2026 $25,745, $22,560, $1,842, Election of 1991 Refunding Series 2003 May 1, 2016 $10,710, $7,140, $1,006, Election of 1991 Refunding Series 2004 May 1, 2019 $32,850, $25,515, $2,966, Election of 2002 Series 2004 August 1, 2028 $33,000, $30,950, $2,319, Election of 2002 Series 2005 August 1, 2030 $18,485, $17,715, $1,207, Election of Refunding Bonds May 1, 2022 $55,145, $52,775, $4,403, Note 1: Advance refunded in part with the 2007 Refunding Bonds. At an election held on November 4, 1997 (the 1997 Election ), the Elementary School District received authorization to issue $12,000,000 aggregate principal amount of general obligation bonds for school purposes. The bonds authorized at the 1997 Election were issued in two series: the Series 1998 Bonds and the Series 2000 Bonds. At an election held on March 2, 2002, the Elementary School District received authorization to issue $19,125,000 aggregate principal amount of general obligation bonds for school purposes. The bonds authorized at the 2002 Election were issued in three series; the first series was issued in 2002, second series was issued in 2004, and the third series was issued in The Elementary School District has no authorization remaining on either the 1997 Election or 2002 Elections. In 2007, the Elementary School District issued the Series 2007 Refunding Bonds for the redemption of certain maturities of the Series 1998 and the Series 2000 Bonds. The table below summarizes the Elementary School District s outstanding general obligation bonds

32 Outstanding General Obligation Bonds City of Santa Rosa Elementary School District Authorization Issue Final Maturity Amount Issued Outstanding as of May 1, 2008 Debt Service in Fiscal Year Election of 2002 Series 2002 August 1, 2026 $6,375, $5,615, $447, Election of 2002 Series 2004 August 1, 2028 $6,375, $5,985, $450, Election of 2002 Series 2005 August 1, 2030 $6,375, $6,120, $427, Election of Refunding Bonds May 1, 2023 $9,785, $9,625, $497, The Santa Rosa City Schools have never defaulted on any of its long-term bonded indebtedness. All long term bonded indebtedness of the District as of June 30, 2007, are set forth in APPENDIX C attached hereto. Direct and Overlapping Bonded Debt The District s statement of direct and overlapping bonded debt, which is set forth below, was prepared by California Municipal Statistics, Inc. It has been included for general information purposes only. The District has not reviewed the statement for completeness or accuracy and makes no representations in connection with the statement. Set forth below is a schedule of direct and overlapping debt prepared by California Municipal Statistics Inc. The table is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which has outstanding debt as of May 1, 2008, and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. The table generally includes long-term obligations sold in the public credit markets by the public agencies listed. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. [The remainder of this page intentionally left blank.]

33 Statement of Direct and Overlapping Bonded Debt (As of May 1, 2008) City of Santa Rosa High School District Assessed Valuation: $26,114,857,018 Redevelopment Incremental Valuation: 1,138,676,880 Adjusted Assessed Valuation: $24,976,180,138 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/08 Sonoma County Joint Community College District % $ 88,937,040 Santa Rosa High School District ,170,000 Bellevue Union School District ,524,584 Bennett Valley Unified School District ,011 Mark West Union School District ,648,206 Piner-Olivet School District ,429,683 Rincon Valley Union School District ,725,431 Santa Rosa School District ,345,000 Wright School District ,100,043 City of Santa Rosa Wastewater Improvement District ,354,886 City of Santa Rosa Parking Districts ,350,000 City of Rohnert Park 1915 Act Bonds ,000 City of Santa Rosa 1915 Act Bonds ,795,000 Sonoma County 1915 Act Bonds ,983,000 TOTAL GROSS DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $365,457,884 Less: City of Santa Rosa Wastewater Improvement District 11,354,886 TOTAL NET DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $354,102,998 OVERLAPPING GENERAL FUND DEBT: Sonoma County General Fund Obligations % $12,746,718 Sonoma County Pension Obligations ,988,954 Sonoma County Office of Education Certificates of Participation ,327,827 Sonoma County Joint Community College District General Fund Obligations ,000,482 Santa Rosa High School District Certificates of Participation (1) Bellevue Union School District Certificates of Participation ,914,795 Rincon Valley Union School District Certificates of Participation ,970,000 Roseland School District Certificates of Participation ,430,000 City of Rohnert Park Certificates of Participation ,119 City of Santa Rosa Certificates of Participation and Pension Obligations ,574,204 Town of Windsor Authority General Fund Obligations ,366 TOTAL OVERLAPPING GENERAL FUND DEBT $223,292,465 GROSS COMBINED TOTAL DEBT $588,750,349 (2) NET COMBINED TOTAL DEBT $577,395,463 (1) Excludes certificates of participation to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($158,170,000) % Total Gross Direct and Overlapping Tax and Assessment Debt % Total Net Direct and Overlapping Tax and Assessment Debt % Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($158,170,000) % Gross Combined Total Debt % Net Combined Total Debt % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/07: $0 Source: California Municipal Statistics, Inc

34 TAXATION AND APPROPRIATIONS Ad Valorem Property Taxation Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts levy property taxes for payment of voter-approved bonds and receive property taxes for general operating purposes as well. The District receives approximately 46% of its total General Fund operating revenues from local property taxes. Local property taxation is the responsibility of various county officers. For each school district located in a county, the County Assessor computes the value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the County Auditor-Controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the County Board of Supervisors for approval. The County Treasurer-Tax Collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the Treasurer-Tax Collector, as ex officio treasurer of each school district located in the County, holds and invests school district funds, including taxes collected for payment of school bonds, and is charged with payment of principal and interest on such bonds when due. Taxes on property in a school district whose boundaries extend into more than one county are administered separately by the county in which the property is located. The State Board of Equalization also assesses certain special classes of property, as described later in this section. The District utilizes the services of the County for the assessment and collection of taxes for District purposes, except for public utility property which is assessed by the State Board of Equalization. Within the County, the Treasurer-Tax Collector's Office has been consolidated into the Auditor-Controller's Office, and therefore the Treasurer has all the responsibilities of the Auditor- Controller and the Treasurer-Tax Collector. The State Constitution and sections of various State statutes provide exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, nonprofit hospitals, and charitable institutions. The State Constitution exempts from ad valorem property taxation $7,000 of full value of owner-occupied dwellings, and requires the Legislature to reimburse each local government for revenue lost as a result of the exemption. Assessed Valuation of Property Within the District All property (real, personal and intangible) is taxable unless an exemption is granted by the California Constitution or United States law. Under the State Constitution, exempt classes of property include household and personal effects, intangible personal property (such as bank accounts, stocks and bonds), business inventories, and property used for religious, hospital, scientific and charitable purposes. The State Legislature may create additional exemptions for personal property, but not for real property. Although most taxable property is assessed by the assessor of the county in which the property is located, some special classes of property are assessed by the State Board of Equalization, as described below under the heading, State-Assessed Property. In fiscal year , total local assessed valuation within the District (including aircraft values and exemptions and excluding State-assessed property) is $26,111,333,851. Taxes are levied for each fiscal year on taxable real and personal property assessed as of the preceding January 1, at which time the lien attaches. The assessed value is required to be adjusted during the course of the year when property changes ownership or new construction is completed. State law also affords an appeal procedure to taxpayers who disagree with the assessed value of their property. When necessitated by changes in assessed value during the course of a year, a supplemental assessment is prepared so that taxes can be levied on the new assessed value before the next regular assessment roll is completed. State-Assessed Property. Under the Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricitygenerating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed

35 property located in the District to non-utility companies will increase the assessed value of property in the District, since the property s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect: generally reducing the assessed value in the District, as the value is shared among the other jurisdictions in the County. The District is unable to predict future transfers of Stateassessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District. Locally taxed property is classified either as secured or unsecured, and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is unsecured, and is assessed on the unsecured roll. Property assessed by the State Board of Equalization is commonly identified for taxation purposes as utility property. Shown in the following table is the assessed valuation of the various classes of property in the District in recent years, excluding aircraft values. For fiscal year , the total assessed value including aircraft values is $26,114,857,018. Historical Total Secured And Unsecured Assessed Valuation City of Santa Rosa High School District Fiscal Net Local Total Secured Net Total Unsecured Total Percentage Year Secured A.V. Assessed Value Unsecured A.V. Assessed Value Assessed Value Change $10,315,663,541 $10,555,741,068 $560,435,838 $560,435,838 $11,116,176, % $10,842,591,094 $11,085,436,585 $616,960,162 $616,967,162 $11,702,403, % $11,644,886,268 $11,892,546,755 $638,241,610 $638,242,330 $12,530,789, % $12,776,334,070 $13,028,045,070 $712,740,794 $712,741,474 $13,740,786, % $14,415,757,179 $14,675,551,267 $762,588,583 $762,593,573 $15,438,144, % $15,714,016,556 $15,967,845,482 $802,679,594 $802,684,304 $16,770,529, % $17,208,873,808 $17,466,680,363 $889,393,124 $889,393,684 $18,356,074, % $18,608,837,362 $18,867,251,858 $810,381,638 $810,385,788 $19,677,637, % $20,487,149,898 $20,743,015,444 $774,536,240 $774,536,720 $21,517,552, % $22,900,822,296 $23,156,231,949 $829,240,633 $829,244,593 $23,985,476, % $24,863,753,580 $25,117,276,038 $880,840,134 $880,840,134 $25,998,116, % Source: Sonoma County Auditor-Controller s Office. Teeter Plan. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 and following of the California Revenue and Taxation Code. Under the Teeter Plan, the County distributes to each participating local tax-levying agency, including school districts, the amount levied on the secured and supplemental tax rolls, instead of the amount actually collected. In return, the County receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency in the absence of the Teeter Plan. The County applies the Teeter Plan to taxes levied for repayment of school district bonds. The County s policy is that any new taxing entity that includes its levy on the County tax roll is qualified to be included in the Teeter Plan. The Teeter Plan is to remain in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The Board of Supervisors may also, after holding a public hearing on the matter, discontinue the procedures with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds three percent of the total of all taxes and assessments levied on the secured rolls in that agency. Largest Taxpayers in District The 20 largest taxpayers in the District own property that comprises 3.90% of the total assessed valuation of secured property in the District. These taxpayers, ranked by aggregate assessed value of taxable property, as shown on the secured tax roll, and the amount of each owner s assessed valuation for all taxing jurisdictions within the District, are shown below

36 Largest Taxpayers City of Santa Rosa High School District % of Property Owner Primary Land Use Assessed Valuation Total (1) 1 Agilent Technologies Manufacturing/Industrial $86,743, Clement C. & Ann Marie Carinalli Residential and Commercial 84,316, SC Sonoma Development LLC Undeveloped/Casino Site 76,958, EMI Santa Rosa LP Shopping Center 68,625, Kendall-Jackson Wine Estates Ltd. Winery/Vineyards 61,162, Coddingtown LLC Shopping Center 58,202, STRS Ohio CA Real Estate Investments Apartments 50,737, Arterial Vascular Engineering Inc. Manufacturing/Industrial 45,508, Vineyard Creek LP Apartments 40,429, Matteri Martin LLC Residential Land 40,000, CA-Fountaingrove Center LP Shopping Center 39,837, Donahue Schriber Realty Group Shopping Center 39,802, Fit Ren Paulin Creek LP Apartments 38,148, Optical Coating Laboratory Inc. Manufacturing/Industrial 37,243, PHF II Sonoma LLC Hotel/Motel 37,000, Fairfield Apple Creek LLC Apartments 36,599, Montgomery Village LP Shopping Center 36,115, Acacia on Santa Rosa Creek LP Apartments 34,328, Sonoma-Cutrer Vineyards Inc. Winery/Vineyards 34,061, Dennis R. Hunter Residential Properties 33,907, $979,729, % (1) Local Secured Assessed Valuation: $25,113,752,871 Source: California Municipal Statistics, Inc. COUNTY ECONOMIC PROFILE General Information The County, the District, the Corporation, and the Underwriter make no representation as to the accuracy of such information as set forth or incorporated by reference herein, although they believe that the information provided by the above-listed source is reliable. The County is one of 58 counties in California and is in the Santa Rosa-Petaluma metropolitan area, located less than 30 miles north of San Francisco. The California Department of Finance estimates the population of the County to be 481,765 in According to the Bureau of Economic Analysis, in 2004, the County had per capita personal income of $38,901, which places it 11 th in the State. This figure was 110% of the state average and 118% of the national average. Based on the 2003 Census estimate, the median household income was $54,614. Based on data compiled by DataQuick, the median house value of a singlefamily home in the County was approximately $413,500 in 2008, down approximately 19.7% from $515,000 in

37 Population Since 2002, the population of the County has grown at a compound annual growth rate of approximately 0.54% since the year The following displays population data for the previous six years as of January 1 st for the County and select cities within the County. Historical Population Estimates Sonoma County and Selected Cities Cloverdale 7,342 7,494 7,983 8,224 8,435 8,517 Cotati 6,824 6,861 7,062 7,323 7,367 7,535 Healdsburg 11,653 11,635 11,665 11,689 11,680 11,706 Petaluma 55,793 55,894 56,219 56,519 56,608 56,996 Rohnert Park 42,245 42,481 42,376 42,362 42,937 42,959 Santa Rosa 152, , , , , ,985 Sebastopol 7,817 7,795 7,786 7,779 7,737 7,760 Sonoma 9,485 9,585 9,743 9,816 9,873 9,945 Windsor 24,138 24,443 24,927 25,424 25,957 26,432 Balance of County 151, , , , , ,930 Total 469, , , , , ,765 Source: California Department of Finance, Demographics Research Unit County Unemployment The following table contains a historical summary of Sonoma County s unemployment data, seasonally unadjusted. Historical Unemployment Data Sonoma County Total Labor Force 257, , , , ,900 # Employed 244, , , , ,400 # Unemployed 13,100 13,900 12,800 11,300 9,400 Unemployment Rate 5.1% 5.5% 5.0% 4.4% 3.7% Source: California Employment Development Department. Major Employers The following table provides a listing of major employers in the County

38 Major Employers Sonoma County Employer Name Location Industry Amy's Kitchen Inc Santa Rosa Kitchen Cabinets & Equipment-Household Amy's Kitchen Inc Santa Rosa Frozen Food Processors (Mfrs) Army National Guard Santa Rosa State Government-National Security Carl Zeiss Vision Inc Petaluma Optical Goods-Retail Compensation Insurance Fund Santa Rosa Insurance Ecco Domani USA Inc Healdsburg Wineries (Mfrs) Fairmont Sonoma Mission Inn Sonoma Hotels & Motels J Santana Real Estate Apprsls Santa Rosa Real Estate Appraisers JDS Uniphase Santa Rosa Optical Instruments & Lenses (Mfrs) Kaiser Foundation Hospital Santa Rosa Hospitals Korbel Champagne Cellars Guerneville Wineries (Mfrs) Medtronic Vascular Santa Rosa Physicians & Surgeons Equip & Supls-Whol Police Dept-Detectives Santa Rosa Police Departments Santa Rosa Junior College Santa Rosa Schools-Universities & Colleges Academic Santa Rosa Memorial Hospital Santa Rosa Rehabilitation Services Santa Rosa Memorial Hospital Santa Rosa Hospitals Santa Rosa Recreation & Parks Santa Rosa Parks Sonoma County Dept-Emergency Santa Rosa Government Offices-County Sonoma Developmental Ctr Eldridge Hospitals Sonoma State University Rohnert Park Schools Sonoma Valley Hospital Sonoma Hospitals State Farm Insurance Rohnert Park Insurance Sutter Medical Ctr-Santa Rosa Santa Rosa Hospitals Tellabs Inc Petaluma Telecommunications Services US Coast Guard Petaluma Federal Government-National Security Source: California Employment Development Department, America s Labor Market Information System Employer Database, st Edition. STATE FUNDING OF PUBLIC EDUCATION Revenue for Public Education Sources of Revenue. The State s K-12 education system is supported primarily from State revenues, mostly sales and income taxes. The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING SCHOOL DISTRICT REVENUES & EXPENDITURES). As a result, changes in State revenues may affect appropriations made by the State to school districts. State revenue sources for school districts are supplemented with local property taxes, federal aid, local miscellaneous funds, and the California lottery. In recent years, approximately 58% of all funds for California K-12 public education came from the State budget, which is required to be proposed by the Governor by January 10 and adopted by June 15 of each year (although the State often is late adopting the budget). Approximately 21% of funding for K-12 education comes from local property taxes. The California Constitution limits property taxes to one percent of the value of property; property taxes may only exceed this limit to repay voter approved debt. Statewide, approximately 13% of school districts revenues come from the federal government, and about 6% come from local miscellaneous sources. The latter category includes items such as food sales, money for debt repayment, interest on reserves and, in some cases, more significant sources such as developer fees and parcel taxes. Developer fees are fees that school districts can levy on new residential or commercial development within their boundaries to finance the construction or renovation of school facilities. Many school districts also seek grants or contributions, sometimes channeled through private foundations established to

39 solicit donations from local families and businesses. School districts that still have unused school buildings or sites can lease or sell them for miscellaneous income as well. A significant number of school districts have secured the required two-thirds approval from local voters to levy special taxes on parcels or residences and/or have won voter approval, with either a two-thirds vote or a 55% majority, to sell general obligation bonds or to establish special taxing districts for the construction of schools. Use of such taxes is restricted by law. The final revenue source for school districts is the California State Lottery. Approved by voters in late 1984, the lottery generates about 1% of total school revenues. Every three months the Lottery Commission calculates 34% of lottery proceeds for all public education institutions, the minimum according to the lottery law. Every K-14 school district receives the same amount of lottery funds per pupil from the State, which may be spent for any instructional purpose, excluding capital projects. No other source of general purpose revenue is currently permitted for schools. Proposition 13 eliminated the possibility of raising additional ad valorem property taxes for general school support, and the courts have declared that fees may not be charged for school-related activities other than for busing services. The State Revenue Limit. The State Revenue Limit was first instituted in to provide a mechanism to calculate the amount of general purpose revenue a school district, community college district or county board of education is entitled to receive from State and local sources. Each school district has its own target amount of funding from State funds and local property taxes per ADA. This target is known as revenue limit, and the funding from this calculation forms the bulk of all school districts' income. The State Legislature usually grants annual cost-of-living adjustments (COLAs) to revenue limits. The exact amount depends on whether the school district is an elementary, high school or a unified school district. Apportionments for revenue limits are calculated three times a year for each school district, community college district and county board of education. The first calculation is performed for the February 20th First Principal Apportionment, the second calculation for the June 25th Second Principal Apportionment, and the final calculation for the end of the year Annual Apportionment. Calculations are reviewed by the county and submitted to the State Department of Education with respect to school districts and to the Chancellor of the California Community Colleges with respect to community college districts, which, respectively, reviews the calculations for accuracy, calculates the amount of state aid owed to such school district or community college district, as the case may be, and notifies the State Controller of the amount, who then distributes the state aid. School districts that receive their revenue limit income entirely from property taxes are called basic aid school districts. They are permitted to keep all their property tax money (even if it exceeds their revenue limit). As guaranteed in the California Constitution, the State must apportion $120 per pupil. However, the categorical aid (see below) that school districts receive counts toward this requirement. Distribution of Revenue for School Districts General Purpose. The largest part of each school district's revenue funds general operating expenses associated with providing education, including salaries, benefits, supplies, textbooks and regular maintenance. As previously mentioned, the Revenue Limit governs the amount each school district receives. Each school district also receives some State and federal money for special programs, special costs, or categories of children with particular educational needs, called categorical aid. Categorical Aid. This special support goes into a school district's General Fund, but its expenditure is restricted to the purpose for which it is granted. About seventy-five percent (75%) of the total money generated for education is for general purposes, and about twenty-five percent (25%) is for categorical aid. The complex allocation system is adjusted somewhat by the State Legislature almost every year, with unpredictable effects on individual school districts. There are a number of major federal and State categorical aid programs. Some allocations come automatically to school districts, while others require an application. Some programs are based on the characteristics of the children or families in a particular school district, such as gifted and talented, non-english speaking, migrant, low income or handicapped students. Other programs are for specific activities or expenses, such as transportation, textbooks or childcare. Each year a large amount of aid is allocated directly to the State Teachers' Retirement System (STRS) fund. For the past several years, supplemental grants have been directed to equalizing school districts' income from revenue limits plus specific categoricals. Most of the federal funds flow through the California Department of Education, which retains a certain percentage for administration. In terms of dollars and the number of children served, the largest categorical aid program is Special Education for the Handicapped. According to court decisions and federal and California law, school districts are responsible for the appropriate education of each handicapped child from age 3 to 21 who lives within their boundaries. The allocations do not cover the cost of

40 educating them. School districts are required to contribute a certain amount of general purpose funds for Special Education, and many spend much more. This is known as encroachment. School Facilities. Growing enrollments and/or aging facilities require school districts to build or make major renovations to school buildings. The income from developer fees on residential or commercial property is insufficient to fund all facilities costs. Voter approved general obligation bond moneys may only be used for purchase or improvement of real property, while Mello- Roos taxes can be used for this as well as for ongoing maintenance or purchase of needed equipment. A majority of voters has regularly approved state bond measures for the construction or reconstruction of schools. The State Budget The information in this section has been compiled from publicly available information through the California Department of Finance and the Legislative Analysts Office. The District, the Corporation and the Underwriter do not assume any responsibility for the accuracy of such information as set forth or incorporated by reference herein, although they believe that the information provided by the above-listed sources is reliable. On August 24, 2007, the Governor signed into law the Budget Act (the Budget ) after using his line item veto authority to reduce State General Fund disbursements by $703 million. The State General Fund. State General Fund expenditures are budgeted to be $102.3 billion in fiscal year , an increase of 0.6% from estimated State General Fund expenditures of $101.7 billion. State General Fund revenues are budgeted to be $102.3 billion in fiscal year , an increase of 6.5% from estimated State General Fund revenues of $96.0 billion. Fiscal year-end reserves are budgeted to be $4.1 billion, roughly the same as the $4.1 billion reserve estimated for fiscal year-end, and includes $1.5 billion in the Budget Stabilization Account created pursuant to Proposition 58. The Budget assumes $980 million in one-time revenues associated with the sale of EdFund, the State s nonprofit student loan guaranty agency. Funding for Education. Proposition 98 includes a complex set of formulas that sets the minimum funding levels for K-12 and community college education based on a multitude of factors, including the prior year level of funding, State General Fund revenues, per capita personal income, and school attendance growth or decline (see CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES herein). Estimates of state revenues fluctuated notably throughout fiscal , which, in turn, affected estimates of the Proposition 98 minimum guarantee. In May 2006, the Governor agreed to repay $2.9 billion the State owed the education community for the fiscal year Proposition 98 funding suspension. The $2.9 billion is scheduled to be repaid over a period of six fiscal years, through , subject to revenue constraints. Revised estimates of State General Fund revenues have been lowered, causing $411 million in Proposition 98 settle-up funds to be removed from funding levels. (If finalized revenue figures for fiscal year come in higher than current estimates, the State will automatically owe a settle-up payment and need to provide it through subsequent budget action.) The Proposition 98 spending level for is based on estimated spending levels and assumes no settle-up payment. The Budget provides $57.1 billion in Proposition 98 funding, an increase of 3.8% from estimated spending levels of $55.0 billion. The State General Fund provides $41.3 billion of the $57.1 billion in Proposition 98 funding, with the remaining balance funded by local property taxes. The cost of living adjustment ( COLA ) for K-12 education and community colleges included in the Budget is 4.53%. For K-12 education, Proposition 98 funding is budgeted to be $50.8 billion, an increase of $1.8 billion (3.7%) from estimated fiscal year expenditures. K-12 per pupil funding is budgeted to be $8,563 in fiscal year , an increase of $345 (4.2%) from fiscal year These figures do not include one-time and special fund monies used for on-going purposes. Year-to-year growth in the Proposition 98 minimum guarantee is insufficient to cover all fiscal year K-12 education and community college baseline costs. As a result, the Budget applies $567 million of one-time and special fund monies to support baseline K-12 education costs. The State, therefore, will enter with a large ongoing shortfall for K-12 education. Highlights of Proposition 98 K-12 funding changes incorporated in the Budget include:

41 $2.1 billion in additional funding to provide for the 4.53% COLA $11.1 million net reduction in funding due to an anticipated 0.48% decline in average daily attendance Replacement of $429 million in ongoing Proposition 98 funding for K-12 Home-to-School Transportation and K-12 School Deferred Maintenance with funding from the Public Transportation Account and the Proposition 98 Reversion Account $93.4 million increase for special education $269 million shift in child care funding to Proposition 98 $29 million increase in the school meals reimbursement rate from 15 cents to 21 cents per meal Proposition 98 one-time K-12 funding highlights include: $567 million for ongoing K-12 transportation, maintenance, and district/school intervention costs $100 million for the K-12 Emergency Repair Program $15 million for various one-time K-12 initiatives Total funding from all sources available for K-12 education is budgeted to be $66.8 billion in fiscal year , an increase by $3.5 billion from estimated levels. Fiscal year total per pupil expenditure for K-12 education is budgeted to be $11,541, an increase of $378 from fiscal year funding levels. Proposition 98 funding for community colleges is budgeted to be $6.2 billion, an increase of $289 million (4.9%) from estimated fiscal year expenditures. Proposition 98 community college funding per pupil is budgeted to be $5,260, an increase of $96 (1.9%) from fiscal year Community college funding from all State sources totals more than $8.5 billion, a 3.8% increase from the estimated level. Proposition 98 adjustments for community colleges include: $263.3 million in additional funds to provide for the 4.53% COLA $114 million increase to fund an anticipated 2% growth in enrollment The full text of the Budget may be found at the State Department of Finance website, and the Legislative Analyst s Office overview of the Budget may be found at Proposed Budget The information in this section has been compiled from publicly available information through the California Department of Finance and the Legislative Analysts Office. The District, the Corporation and the Underwriter do not assume any responsibility for the accuracy of such information as set forth or incorporated by reference herein, although they believe that the information provided by the above-listed sources is reliable. Overview. On May 14, 2008, the Governor released his revisions (the May Revision ) to the fiscal year budget that was proposed in January. With a declining national economic outlook, decreasing revenues and rising costs, the State faces an estimated potential deficit of $24.3 billion in , which includes the Governor s proposal to fund a $2 million reserve. The Governor is proposing a combination of $12.6 billion in expenditure reductions and $11.7 billion in revenue solutions in order to reestablish budgetary balance, including: Issuing State lottery securitized bonds ($15 billion) Issuing deficit-financing bonds in ($3.3 billion) Reducing K-14 Proposition 98 education spending in ($507 million) Reducing spending in health and human services programs ($627 million) The State General Fund. State General Fund expenditures are budgeted to be $101.8 billion in fiscal year , a decrease of 1.65% from the State General Fund expenditures estimate of $103.5 billion. State General Fund revenues and transfers are budgeted to be $103 billion in fiscal year , an increase of 1.78% from estimated State General Fund revenues and transfers of $101.2 billion year-end reserves are budgeted to be $2.0 billion, or 2.0% of General Fund revenues, an increase of approximately $1.1 billion from estimated year-end reserves. Funding for Education. Total K-12 education funding is budgeted to be $71 billion in the fiscal year Total K-12 per pupil funding from all sources is projected to be $12,000 in fiscal year , an increase of $3 or 0.03% from fiscal year projections of $11,

42 Proposition 98 includes a complex set of formulas that sets the minimum funding levels for K-12 and community college education based on a multitude of factors, including the prior year level of funding, State General Fund revenues, per capita personal income, and school attendance growth or decline (see CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES herein). Currently, the State has been experiencing a consistent decline in student ADA. ADA is projected to decrease from 5,947,000 in fiscal year to 5,916,000 in fiscal year The May Revision estimated total Proposition 98 funding of $56.6 billion in fiscal year , with an increase of $200 million or a total of $56.8 billion for the fiscal year Under the Governor s State lottery revenues securitization proposal, public education is projected to receive $1.2 billion each year and State lottery revenues are projected increase enough to allow for payment in full to investors. If actual lottery revenues were lower than this projection, then revenues would be diverted from public education to pay investors. If actual lottery revenues were higher than this projection, then extra revenues would be diverted to a reserve fund called the Revenue Stabilization Fund. The full text of the May Revision may be found at the California Department of Finance website, and the Legislative Analyst s Office overview of the May Revision may be found at Future Budgets The District cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State's ability to fund schools as budgeted. Continued State budget shortfalls in future fiscal years could have an adverse financial impact on the District. For more information on the State Budget, please refer to the California Department of Finance s website at and to the Legislative Analyst s Office s website at CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES & EXPENDITURES Article XIIIA. In an election held on June 6, 1978, the voters of the State approved an initiative amendment to the State Constitution. The amendment added Article XIIIA to the State Constitution, commonly known as Proposition 13, which limits the taxing powers of California public agencies. Except as described in the following paragraph, Article XIIIA provides that the maximum ad valorem tax on real property cannot exceed one percent of the full cash value which is defined as the county assessor's valuation of real property as shown on the 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, subject to exceptions for certain circumstances of transfer or reconstruction. The full cash value is subject to annual adjustments to reflect increases not to exceed two percent per year, or decreases in the consumer price index or comparable local data, or to reflect reduction in property value caused by damage, destruction or other factors. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes, and except as described in the following sentence, prohibits the imposition of any additional ad valorem, sales or transaction tax on real property. As amended by Proposition 46, on June 3, 1986, Article XIIIA exempts from the one percent tax limitation ad valorem taxes required to pay debt service on indebtedness approved by the voters prior to July 1, 1978, or on bonded indebtedness approved by two-thirds of those voting thereon, after July 1, 1978, the proceeds of which are applied to the acquisition or improvement of real property. Proposition 39: On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55 percent (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1 percent limit in order to repay the bonds, and (2) changes existing statutory law regarding charter school facilities. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. The 55 percent vote requirement would apply only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the

43 school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55 percent of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), per $100,000 of taxable property value. The Governor can change these limitations with a majority vote of both houses of the Legislature and approval; unlike constitutional amendments, which may be changed only with another statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. Finally, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws for the purpose of increasing tax revenues. Article XIIIB. In a special election held on November 6, 1979, the voters of the State approved an initiative constitutional amendment. This amendment added Article XIIIB to the State Constitution. Article XIIIB limits the annual appropriations of the State and of any city, county, school district, special 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. The base year for establishing such appropriation limit is the fiscal year and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Appropriations subject to Article XIIIB include generally the proceeds of taxes levied by the State or by any other entity of local government, exclusive of certain State subventions, refunds or taxes, benefit payments from retirement, unemployment insurance and disability insurance funds but excludes taxes to pay voter approved bonds. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to an entity of government from (1) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (2) the investment of tax revenues. Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. State law provides that in the event a school district's appropriations will exceed its limit, the district may assume from the State a portion of the State's appropriations limit. Proposition 98/111: On November 8, 1988, voters of the State approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act. Proposition 98 changed State funding of public education below the university level and the operation of the State s appropriations limit, primarily by guaranteeing K-14 schools a minimum share of General Fund revenues. Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990, hereinafter defined as Proposition 98/111 ), K-14 schools are guaranteed the greater of (a) the percentage of General Fund revenues appropriated for school districts in Fiscal Year ( Test 1 ); (b) the amount of State and local proceeds of taxes appropriated to K-14 schools in the prior year, adjusted for changes in the cost of living (measured as in Article XIII B by reference to State per capita personal income) and enrollment ( Test 2 ); or (c) a third test, which would replace Test 2 in any year in which the percentage growth in State per capita personal income is greater than the percentage growth on per capita General Fund revenues plus one-half of one percent ( Test 3 ). Under Test 3, schools would receive the amount of State and local proceeds of taxes appropriated to K-14 schools in the prior year adjusted for changes in enrollment and per capita General Fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 would become a credit to schools which would be the basis of payments in future years when per capita General Fund revenue growth exceeds per capita personal income growth. Legislation adopted prior to the end of the Fiscal Year, implementing Proposition 98, determined the K-14 schools' funding guarantee under Test 1 to be 40.3% of the General Fund tax revenues, based on appropriations. However, that percentage has been adjusted to 34% to account for a subsequent redirection of local property taxes, since such redirection directly affects the share of General Fund revenues to schools

44 Proposition 98/111 permits the Legislature by two-thirds vote of both houses, with the Governor's concurrence, to suspend the K-14 schools' minimum funding formula for a one-year period. This guarantee was suspended in , initially with the agreement of the Education Coalition (an alliance of major education interest groups), and effectively reduced the amount schools received by $2 billion. The Legislature ratified the suspension in Senate Bill However, the Education Coalition agreed to the suspension under the terms that Proposition 98 funding would be reduced for only one year, the year of the State budget crisis, by a maximum of $2 billion; and if the situation were to improve, funding would be restored. But when the State s finances did improve, funding was not restored to the same level it at which it would have been, had the suspension not occurred. Subsequently, the State Superintendent of Public Instruction Jack O Connell filed a lawsuit jointly with the California Teachers Association against Governor Arnold Schwarzenegger over this loss in Proposition 98 funding. On May 10, 2006, the two sides reached an agreement whereby, in effect, the State would repay all losses incurred due to the suspension, with payments to be made annually through Since Proposition 98/111 is unclear in some details, there can be no assurance that the Legislature or a court might not interpret it to require a different percentage of General Fund revenues to be allocated to K-14 districts or to apply the relevant percentage to the State's budget in a different way. Proposition 98/111 may place increasing pressure on the State's budget in future years, potentially reducing resources available for other State programs, especially to the extent that the Article XIIIB spending limit would restrain the State's ability to fund these other programs by raising taxes. Proposition 98/111 also changes how tax revenues in excess of the State s appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 districts. Such transfer would be excluded from the appropriations limits for K-14 districts and the K-14 schools appropriations limits for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to schools is four percent of the minimum State spending for education mandated by Proposition 98/111, as described above. Article XIIIC and Article XIIID. On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes); prohibits special purpose government agencies such as school districts from levying general taxes except as allowed by Article XIIIA; and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote. Article XIIID also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. The State Constitution and the laws of the State impose a duty on the county treasurer/tax collector (of each county) to levy a property tax sufficient to pay debt service on general obligation bonds coming due in each year. Legislation adopted in 1997 provides that Article XIIIC will not be construed to mean that any Owner or Beneficial Owner of a municipal security assumes the risk of or consents to any initiative measure, which would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by school districts. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. Possible Future Actions. Article XIIIA, Article XIIIB and Propositions 39, 46, 98, 111 and 218 were each adopted as measures that qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting K-14 school districts' revenues or such districts' ability to expend revenues. There is no assurance that the California electorate or Legislature will not at some future time approve additional limitations which could reduce property or other tax revenues and adversely affect the revenues of school districts or require additional expenditures

45 LEGAL MATTERS No Litigation There is no action, suit or proceeding known to be pending or threatened that seeks to restrain or enjoin the execution or delivery of the Certificates, the Lease Agreement or the Trust Agreement or in any way contesting or affecting the validity of the foregoing or any proceeding of the District taken with respect to the foregoing. There are no lawsuits or claims pending against the District that would impair the ability of the District to make Lease Payments or otherwise meet its outstanding lease or debt obligations. Legal Opinion Quint & Thimmig LLP, San Francisco, California, Special Counsel, will render its opinion with respect to the validity and enforceability of the Lease Agreement, Trust Agreement, and Site and Facility Lease. Copies of such approving opinion will be available at the time of delivery of the Certificates. The form of the legal opinion to be delivered by Special Counsel is included as APPENDIX E FORM OF OPINION OF SPECIAL COUNSEL to this Official Statement. The opinion is based on existing laws, regulations, rulings and court decisions. Quint & Thimmig LLP, has not undertaken a review of this Official Statement on behalf of Certificate owners and makes no representation as to the accuracy or completeness hereof. Tax Matters Federal tax law contains a number of requirements and restrictions which apply to the Certificates, 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 District has covenanted to comply with all requirements that must be satisfied in order for the interest with respect to the Certificates to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest with respect to the Certificates to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Certificates. Subject to the District s compliance with the above-referenced covenants, under present law, in the opinion of Quint & Thimmig LLP, San Francisco, California, Special Counsel, interest with respect to the Certificates is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. Interest with respect to the Certificates is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. 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 all tax-exempt interest, including interest with respect to the Certificates. In rendering its opinion, Special Counsel will rely upon certifications of the District with respect to certain material facts within the District s knowledge. Special 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. Ownership of the Certificates 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 Certificates should consult their tax advisors as to applicability of any such collateral consequences. The issue price (the Issue Price ) for each maturity of the Certificates is the price at which a substantial amount of such maturity of the Certificates is first sold to the public. The Issue Price of a maturity of the Certificates may be different from the price set forth, or the price corresponding to the yield set forth, on the cover page hereof

46 The Issue Price of the Capital Appreciation Certificates is less than the amount payable at maturity. The difference between the Issue Price of the Capital Appreciation Certificates and the amount payable at maturity is original issue discount. For an investor who purchases a Capital Appreciation Certificate in the initial public offering at the Issue Price for such maturity and who holds such Capital Appreciation Certificate to its stated maturity, subject to the condition that the District complies with the covenants discussed above, (a) the full amount of original issue discount with respect to such Capital Appreciation Certificate 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 Capital Appreciation Certificate 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 Capital Appreciation Certificates should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such Capital Appreciation Certificates. Owners of Certificates who dispose of Certificates prior to the stated maturity (whether by sale, redemption or otherwise), purchase Certificates in the initial public offering, but at a price different from the Issue Price or purchase Certificates subsequent to the initial public offering should consult their own tax advisors. If a Certificate is purchased at any time for a price that is less than the Certificate s stated redemption price at maturity or, in the case of a Capital Appreciation Certificate, its Issue Price plus accreted original issue discount (the Revised Issue Price ),] the purchaser will be treated as having purchased a Certificate 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 Certificate 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 Capital Appreciation Certificate 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 Certificate. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Certificates. An investor may purchase a Current Interest Certificate 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 amortized by an investor on a constant yield basis over the remaining term of the Current Interest Certificate 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 Current Interest Certificate. Investors who purchase a Current Interest Certificate at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Current Interest Certificate s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Current Interest Certificate. 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 adversely affect the market value of the Certificates. 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 Certificates should consult their own tax advisors regarding any pending or proposed federal tax legislation. Special 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 Certificates. If an audit is commenced, under current procedures the Service may treat the District as a taxpayer and the Owners may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Certificates 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 Certificates, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Certificate 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 Certificate 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

47 In the further opinion of Special Counsel, interest payable with respect to the Certificates is exempt from California personal income taxes. Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates have federal or state tax consequences other than as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Lease Agreement and the Certificates other than as expressly described above. A copy of the proposed form of opinion of Special Counsel is attached hereto as APPENDIX E. Legality for Investment Under provisions of the California Financial Code, the Certificates are legal investments for commercial banks in California to the extent that the Certificates, in the informed opinion of the investing bank, are prudent for the investment of funds of depositors. Under provisions of the California Government Code, the Certificates are eligible security deposits of public moneys in California. RATINGS Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor s"), has assigned its financial guaranty insurance rating of AAA to the Certificates with the understanding that upon delivery of the Certificates, a financial guaranty insurance policy insuring the payment when due of the principal and interest with respect to the Certificates will be issued by Assured Guaranty. The Certificates have been assigned an underlying rating of A. Such ratings reflect only the views of such organization and an explanation of the significance of such ratings may be obtained from Standard & Poor s at the following address: Standard & Poor's, 55 Water Street, New York, New York There is no assurance that any such ratings will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. FINANCIAL ADVISOR Government Financial Strategies inc. has been employed by the District to perform financial advisory services in relation to the sale and delivery of the Certificates. Government Financial Strategies inc., in its capacity as financial advisor, has read and participated in drafting certain portions of this Official Statement. Government Financial Strategies inc. has not, however, independently verified nor confirmed all of the information contained within this Official Statement. Government Financial Strategies inc. will not participate in the underwriting of the Certificates. Fees charged by Government Financial Strategies inc. are not contingent upon the sale of the Certificates. INDEPENDENT AUDITORS The basic financial statements of the District as of and for the year ending June 30, 2007, have been audited by Stephen Roatch Accountancy Corporation, Certified Public Accountants, Folsom, California. Selected information concerning the financial statements of the Santa Rosa City Schools as of and for the year ending June 30, 2007, are set forth in APPENDIX C attached hereto. Complete copies of past and current financial statements may be obtained from the Santa Rosa City Schools. See DISTRICT FINANCIAL INFORMATION. The auditor has not performed any subsequent events review or other procedures relative to the audited financial statements since the date of its letter

48 UNDERWRITING AND INITIAL OFFERING PRICES The Current Interest Certificates were sold to Citigroup Global Markets Inc. (the CIC Underwriter ) pursuant to a certificate purchase agreement, for an amount equal to the principal amount of the Certificates of $3,020,000.00, plus an original issue premium to the District of $49,821.00, minus an underwriter s discount of $58,890.00, for a total purchase price of $3,010,931.00, at a True Interest Cost ( TIC ) to the District of %. The Capital Appreciation Certificates were sold to Morgan Stanley & Co. (the CAC Underwriter ) pursuant to a certificate purchase agreement, for an amount equal to the initial principal amount of the Certificates of $3,096,012.70, minus an underwriter s discount of $92,143.90, for a total purchase price of $3,003,869.61, at a TIC to the District of %. The total purchase price of the Certificates, $6,014,800.16, is equal to the principal amount of the Certificates of $6,116,012.70, plus an original issue premium of $49,821.00, less an underwriting discount of $151,033.09, at a TIC to the District of %. The CIC Underwriter and CAC Underwriter (together, the Underwriters ) have certified to the District and to Special Counsel that the initial reoffering prices of the Certificates to the general public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) are as set forth on the cover page hereof. The initial offering prices or yields stated on the cover page to this Official Statement may be changed from time to time by the Underwriters. The Underwriters may offer and sell the Certificates to certain dealers (including dealers depositing Certificates into investment trusts), dealer banks, banks acting as agents and others at prices lower or yields higher than said public offering prices or yields. CONTINUING DISCLOSURE The District has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide certain financial information and operating data relating to the District (the Annual Report ), by not later than April 15th after the end of the District s fiscal year, commencing with the report for the fiscal year, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report and any notices of material events will be filed by the District with each Nationally Recognized Municipal Securities Information Repository, and with the 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 summarized in APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Within the past five years, the District has complied in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. ADDITIONAL INFORMATION Additional information concerning the District, the Certificates or any other matters concerning the sale and delivery of the Certificates may be obtained from the District by contacting the District or by contacting the District s financial advisor, Government Financial Strategies inc., at the address and telephone number set forth on page iii of this Official Statement. All of the preceding summaries of the Legal Documents and other documents are made subject to the provisions of such documents respectively, and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith. Further, this Official Statement does not constitute a contract with the purchasers of the Certificates, and any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized

49 The execution and delivery of this Official Statement by the District has been duly authorized by its Board. City of Santa Rosa High School District By: _/s/_douglas R. Bower Associate Superintendent, Business Services

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51 APPENDIX A ACCRETED VALUES TABLE

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61 APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

62 APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Site and Facility Lease, the Lease Agreement, the Assignment Agreement and the Trust Agreement prepared for Certificates. The following also includes definitions of certain terms used therein and in this Official Statement. Such summary is not intended to be definitive. Reference is directed to said documents for the complete text thereof. Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. Copies of said documents are available from the District and from the Trustee. DEFINITIONS Accreted Interest means with respect to any Capital Appreciation Certificate, as of the date of calculation, the interest accrued thereon, compounded semiannually from the Closing Date, at the interest rate applicable to such Capital Appreciation Certificate, on each June 1 and December 1, commencing December 1, 2008, assuming in any year that such Accreted Interest increases in equal daily amounts on the basis of a year of three hundred sixty (360) days composed of twelve (12) months of thirty (30) days each. Accreted Value means, on any date of calculation, with respect to a Capital Appreciation Certificate, the Denominational Amount thereof plus the Accreted Interest represented thereby. Assignment Agreement means the Assignment Agreement, dated as of June 1, 2008, by and between the Corporation and the Trustee, together with any duly authorized and executed amendments thereto. Authorized Denominations means (i) with respect to any Current Interest Certificate, $5,000 or any integral multiple thereof, and, (ii) with respect to any Capital Appreciation Certificate, the Denominational Amount per $5,000 of Accreted Value, or any integral multiple thereof. Bond Counsel means (a) Quint & Thimmig LLP, or (b) any other attorney or firm of attorneys appointed by or acceptable to the District 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 Code. Business Day means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the state in which the Principal Corporate Trust Office is located or in the State are closed or are required to close or a day on which the New York Stock Exchange is closed. Capital Appreciation Certificate means a Certificate, the interest component of which is compounded semiannually on each June 1 and December 1, commencing December 1, 2008, and which does not pay interest on a current basis. Certificates means, collectively, the Current Interest Certificates and the Capital Appreciation Certificates. Closing Date means the date upon which there is a physical delivery of the Certificates in exchange for the amount representing the purchase price of the Certificates by the Original Purchaser. Code means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced in the Lease Agreement or the Trust Agreement) as it may be amended to apply to obligations issued on the Closing Date, together with applicable temporary and final regulations promulgated under the Code. Appendix B Page 1

63 Continuing Disclosure Certificate shall mean that certain Continuing Disclosure Certificate executed by the District and dated the date of issuance and delivery of the Certificates, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Corporation means the Public Property Financing Corporation of California, a nonprofit, public benefit corporation organized and existing under and by virtue of the laws of the State. Corporation Representative means the President, Vice President, Executive Director, Treasurer, Secretary, or the designee of any such official, or any other person authorized by resolution of the Corporation delivered to the Trustee to act on behalf of the Corporation under or with respect to the Site and Facility Lease, the Lease Agreement, the Assignment Agreement and the Trust Agreement. Current Interest Certificate means a Certificate, the interest component of which is payable on each Interest Payment Date through the maturity date specified for such Certificate. Defeasance Obligations means: (a) cash; (b) non-callable Federal Securities (including State and Local Government Securities); (c) non-callable direct obligations of the United States of America which have been stripped by the Department of the Treasury of the United States of America; (d) non-callable 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 : (i) direct obligations or fully guaranteed certificates of beneficial ownership of the U.S. Export-Import Bank; (ii) certificates of beneficial ownership of the Farmers Home Administration; (iii) obligations of the Federal Financing Bank; (iv) participation certificates of the General Services Administration; (v) guaranteed Title XI financings of the U.S. Maritime Administration; (vii) U.S. government guaranteed public housing notes and bonds; and (vii) project notes and local authority bonds of the U.S. Department of Housing and Urban Development; and (e) pre-refunded municipal bonds rated Aaa by Moody s and AAA by S&P; provided, however, pre-refunded municipal bonds rated by S&P only (i.e., no Moody s rating) are acceptable if such pre-refunded municipal bonds were pre-refunded with cash, direct U.S. or U.S. guaranteed obligations or AAA rated pre-refunded municipal bonds. Delivery Costs means all items of expense directly or indirectly payable by or reimbursable to the District or the Corporation relating to the execution and delivery of the Site and Facility Lease, the Lease Agreement, the Trust Agreement and the Assignment Agreement or the execution, sale and delivery of the Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, costs for statistical data, initial fees and charges of the Trustee (including the fees and expenses of its counsel), financing discounts, legal fees and charges, insurance fees and charges (including title insurance), financial and other professional consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the Certificates, the premium for the Municipal Bond Insurance Policy and charges and fees in connection with the foregoing. Delivery Costs Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Denominational Amount means, with respect to the Capital Appreciation Certificates, the principal amount thereof, without Accreted Interest. District means City of Santa Rosa High School District, a school district organized and existing under and by virtue of the constitution and laws of the State. District Representative means the President, the Vice President, the Superintendent, the Clerk of the Board, or the designee of any such official, or any other person authorized by resolution to act on behalf of the District under or with respect to the Trust Agreement and/or the Lease Agreement and/or the Site and Facility Lease and identified as such to the Trustee in writing. Event of Default means an event of default under the Lease Agreement. Appendix B Page 2

64 Facility means those certain existing facilities more particularly described in the Site and Facility Lease and in the Lease Agreement. Federal Securities means (a) Cash (insured at all times by the Federal Deposit Insurance Corporation), and (b) obligations of, or obligations guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States including: (i) United States treasury obligations, (ii) all direct or fully guaranteed obligations, (iii) Farmers Home Administration, (iv) General Services Administration, (v) Guaranteed Title XI financing, (vi) Government National Mortgage Association (GNMA), and (vi) State and Local Government Series. Fiscal Year means the twelve-month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve-month period selected by the District as its fiscal year. Improvement Costs means all costs of payment of, or reimbursement for, the Improvements. Improvements means the acquisition, construction, installation and equipping of improvements to various District facilities including, but not limited to, the renovation and improvement of the Elsie Allen High School stadium, to be financed by the District with the proceeds of the Certificates. Independent Counsel means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the District. Information Services means Financial Information, Inc. s Daily Called Bond Service, 30 Montgomery Street, 10th Floor, Jersey City, NJ 07302, Attention: Editor; Kenny Information Services Called Bond Service, 65 Broadway, 16th Floor, New York, NY 10006; Moody s Municipal and Government, Center Drive, Suite 150, Charlotte, NC 28217, Attention: Municipal News Reports; and S&P s Called Bond Record, 25 Broadway, 3rd Floor, New York, NY 10004; or to such other addresses and/or such other national information services providing information or disseminating notices of redemption of obligations similar to the Certificates. Insurance and Condemnation Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Interest Payment Date means the first (1st) day of each June and December, commencing June 1, 2009, so long as any Certificates are Outstanding. Lease Agreement means that certain agreement for the lease of the Property by the Corporation to the District, dated as of June 1, 2008, together with any duly authorized and executed amendments thereto. Lease Payment Date means the fifteenth (15th) day of May and November in each year during the Term of the Lease Agreement, commencing May 15, Lease Payment Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Lease Payments means a portion of the total payments required to be paid by the District pursuant to the Lease Agreement, including any prepayment thereof pursuant to the Lease Agreement, which payments consist of an interest component and a principal component, as set forth in the Lease Agreement. Maturity Value means the Accreted Value of any Capital Appreciation Certificate on its maturity date. Moody s means Moody s Investors Service, New York, New York, or its successors. Appendix B Page 3

65 Net Proceeds, when used with respect to insurance or condemnation proceeds, means any insurance proceeds or condemnation award paid with respect to the Property, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof. Original Purchaser means the first purchaser of the Certificates upon their delivery by the Trustee on the Closing Date. Outstanding, when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except - (a) Certificates theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Certificates for the payment or redemption of which funds or Defeasance Obligations in the necessary amount shall have theretofore been deposited with the Trustee or an escrow holder (whether upon or prior to the maturity or redemption date of such Certificates), provided that, if such Certificates are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (c) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Owner or Certificate Owner or Owner of a Certificate, or any similar term, when used with respect to a Certificate means the person in whose name such Certificate shall be registered on the Registration Books. Participating Underwriter shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. Permitted Encumbrances means, as of any particular time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the District may, pursuant to provisions of the Lease Agreement, permit to remain unpaid; (b) the Assignment Agreement; (c) the Site and Facility Lease; (d) the Lease Agreement; (e) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (f) easements, rights-of-way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the Closing Date and which the District certifies in writing will not materially impair the use of the Property; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the Lease Agreement and to which the Corporation, Municipal Bond Insurer and the District agree in writing consent in writing do not reduce the value of the Property. Permitted Investments means any of the following: (a) Federal Securities; (b) debentures of the Federal Housing Administration to the extent such obligations are guaranteed by the full faith and credit of the United States of America; (c) obligations of the following agencies which are not guaranteed by the United States of America: (i) participation certificates or debt obligations of the Federal Home Loan Mortgage Corporation; (ii) consolidated system-wide bonds and notes of the Farm Credit Banks (consisting of Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives); (iii) consolidated debt obligations or letter of credit-backed issues of the Federal Home Loan Banks; (iv) mortgage-backed securities (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal) or debt obligations of the Federal National Mortgage Association; or (v) letter of creditbacked issues or debt obligations of the Student Loan Marketing Association; provided, however, that not Appendix B Page 4

66 more than ten percent (10%) of the proceeds of the Bonds may, in the aggregate, be invested in any such obligations at one time; (d) Federal funds, negotiable certificates of deposit, time deposits and bankers acceptances (having maturities of not more than 180 days) of banks (including the Trustee and its affiliates) the shortterm obligations of which are rated in one of the two highest Rating Categories by at least one nationally recognized rating agency; (e) deposits (including those of the Trustee and its affiliates) which are fully insured by the Federal Deposit Insurance Corporation ( FDIC ); (f) debt obligations (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) rated in one of the two highest Rating Categories by at least one nationally recognized rating agency; (g) commercial paper (having original maturities of not more than 270 days) rated in one of the two highest Rating Categories by at least one nationally recognized rating agency; (h) money market funds rated in one of the two highest Rating Categories by at least one nationally recognized rating agency, including funds for which the Trustee, its parent, affiliates or subsidiaries provide investment advisory or other management services, in which case it is agreed that the Trustee, its parent, affiliates or subsidiaries shall have the right to be paid its customary management fees in addition to its fees as Trustee hereunder; (i) investment contracts or agreements issued or guaranteed by entities whose long-term debt or claims paying ability of which are rated in one of the two highest long-term rating categories of Moody s or S&P; (j) repurchase agreements or investment agreements issued by banks, broker/dealers or other financial institutions fully secured by obligations listed in paragraphs (a), (b) or (c) of this definition having a market value at least equal to 105% of face amount of the agreement and possession of which obligations is held or controlled by the Trustee, the Agency or by a third party satisfactory to the Agency under arrangements satisfactory to the Trustee or the Agency, as the case may be; (k) the Local Agency Investment Fund of the State, created pursuant to Section of the California Government Code, to the extent the Trustee is authorized to register such investment in its name; and (l) Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by section of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended, including but not limited to the California Asset Management Program (CAMP). Principal Corporate Trust Office means the corporate trust office of the Trustee located at One California Street, Suite 2100, San Francisco, CA 94111; provided however, that for purposes of redemption, payment, cancellation, surrender, exchange or transfer of Certificates such term means the corporate trust office of the Trustee in St. Paul, Minnesota or any other such location so designated by the Trustee. Proceeds, when used with reference to the Certificates, means the face amount of the Certificates, plus accrued interest and original issue premium, if any, less original issue discount, if any. Property means, collectively, the Site and the Facility. Rating Category means, with respect to any Permitted Investment, one of the generic categories of rating by Moody s applicable to such Permitted Investment, without regard to any refinement or graduation of such rating category by a plus or minus sign or a numeral. Appendix B Page 5

67 Registration Books means the records maintained by the Trustee pursuant to the Trust Agreement for registration of the ownership and transfer of ownership of the Certificates. Regular Record Date means the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day. Rental Period means each twelve-month period during the Term of the Lease Agreement commencing on June 2 in any year and ending on June 1 in the next succeeding year; provided, however, that the first Rental Period shall commence on the Closing Date and shall end on June 1, Reserve Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Reserve Requirement means an amount equal to the least of maximum annual Lease Payments, 125% of average annual Lease Payments, and 10% of the principal amount of the Certificates, which amount shall be $611, on the Closing Date. The amount of the Reserve Requirement shall not be reduced unless the Certificates are partially refunded, in which such amount shall be reduced to an amount equal to the maximum annual Lease Payments relating to the Certificates not so refunded, as specified in a certificate of a District Representative delivered to the Trustee. S&P means Standard & Poor s Credit Market Services, a division of The McGraw-Hill Companies, Inc., New York, New York, or its successors. Securities Depositories means The Depository Trust Company, 711 Stewart Avenue, Garden City, NY 11530, Fax (516) ; or to such other addresses and/or such other registered securities depositories holding substantial amounts of obligations of types similar to the Certificates. Site means that certain real property more particularly described in the Site and Facility Lease and in the Lease Agreement. Site and Facility Lease means the Site and Facility Lease, dated as of June 1, 2008, by and between the District, as lessor, and the Corporation, as lessee, together with any duly authorized and executed amendments thereto. State means the State of California. Term of the Lease Agreement means the time during which the Lease Agreement is in effect, as provided in the Lease Agreement. Trust Agreement means the Trust Agreement, dated as of June 1, 2008, by and among the District, the Corporation and the Trustee, together with any duly authorized amendments thereto. Trustee means U.S. Bank National Association, or any successor thereto, acting as Trustee pursuant to the Trust Agreement. SITE AND FACILITY LEASE The Site and Facility Lease is entered into between the District and the Corporation. The District agrees to lease the Site and the Facility to the Corporation for a term continuous with the term of the Lease Agreement. The District and the Corporation agree that the lease to the Corporation of the District s right, title and interest in the Site and the Facility pursuant to the Site and Facility Lease serves the public purposes of the District by enabling the Corporation to lease the Site and Facility back to the District. Appendix B Page 6

68 LEASE AGREEMENT Deposit of Money On the Closing Date, the Corporation shall cause to be deposited with the Trustee the proceeds of sale of the Certificates. Amounts estimated to be required to pay Delivery Costs shall be deposited in the Delivery Costs Fund, an amount equal to the Reserve Requirement shall be deposited in the Reserve Fund and the remaining balance of said amount shall be transferred to the County Treasurer-Tax Collector, to be held and invested for the benefit of the District and applied to pay the Improvement Costs upon requests submitted by the District. Payment of Delivery Costs Payment of Delivery Costs shall be made from the moneys deposited in the Delivery Costs Fund, which moneys shall be disbursed for such purpose in accordance and upon compliance with the Trust Agreement. Lease The Corporation leases the Property to the District, and the District leases the Property from the Corporation, upon the terms and conditions set forth in the Lease Agreement. The leasing of the Property by the District to the Corporation pursuant to the Site and Facility Lease shall not affect or result in a merger of the District s leasehold estate pursuant to the Lease Agreement and its fee estate as lessor under the Site and Facility Lease. Term of Agreement; Possession The Term of the Lease Agreement shall commence on the date hereof, and shall end on June 1, 2038, unless such term is extended as hereinafter provided. If, on June 1, 2038, the Trust Agreement shall not be discharged by its terms or if the Lease Payments payable hereunder shall have been abated at any time and for any reason, then the Term of the Lease Agreement shall be extended without the need to execute any amendment to the Lease Agreement until there has been deposited with the Trustee an amount sufficient to pay all obligations due under the Lease Agreement, but in no event shall the Term of the Lease Agreement extend beyond June 1, If, prior to June 1, 2038, the Trust Agreement shall be discharged by its terms, the Term of the Lease Agreement shall thereupon end. The Trustee shall notify the Corporation of the termination of the Lease Agreement pursuant to the Trust Agreement. The District agrees to accept and take possession of the Property on or prior to the date of recordation of the Lease Agreement. The first Lease Payment shall be due on January 15, Lease Payments Obligation to Pay. The District agrees to pay to the Corporation, its successors and assigns, as rental for the use and occupancy of the Property during each Rental Period, the Lease Payments (denominated into components of principal and interest) in the respective amounts specified in the Lease Agreement, to be due and payable on the respective Lease Payment Dates specified in the Lease Agreement. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole and other than amounts required for payment of Certificates not yet surrendered) shall be credited towards the Lease Payment then due and payable; and no Lease Payment need be made on any Lease Payment Date if the amounts then held in the Lease Payment Fund are at least equal to the Lease Payment then required to be paid. The Lease Payments for the Property payable in any Rental Period shall be for the use of the Property for such Rental Period. Effect of Prepayment. In the event that the District prepays all remaining Lease Payments and all additional payments due under the Lease Agreement in full, the District s obligations under the Lease Agreement shall thereupon cease and terminate including, but not limited to, the District s obligation to pay Lease Payments under the Lease Agreement; subject however, to the provisions of the Lease Appendix B Page 7

69 Agreement in the case of prepayment by application of a security deposit. In the event that the District optionally prepays the Lease Payments in part but not in whole, such prepayment shall be credited entirely towards the prepayment of the Lease Payments as follows: (i) the principal components of each remaining such Lease Payments shall be reduced in such order as shall be selected by the District in integral multiples of $5,000; and (ii) the interest component of each remaining Lease Payment shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable with respect to the Certificates redeemed pursuant to the Trust Agreement. Rate on Overdue Payments. In the event the District should fail to make any of the payments required in the Lease Agreement, the payment in default shall continue as an obligation of the District until the amount in default shall have been fully paid and the District agrees to pay the same with interest thereon, to the extent permitted by law, from the date of default to the date of payment at the rate per annum payable with respect to the Certificates. Such interest, if received, shall be deposited in the Lease Payment Fund or in the Reserve Fund to replenish the Reserve Fund if withdrawals were made therefrom as a result of the default. Fair Rental Value. The Lease Payments for each Rental Period shall constitute the total rental for the Property for each such Rental Period and shall be paid by the District in each Rental Period for and in consideration of the right of the use and occupancy and the continued quiet use and enjoyment of the Property during each Rental Period. The parties to the Lease Agreement have agreed and determined that the total Lease Payments represent the fair rental value of the Property. In making such determination, consideration has been given to the obligations of the parties under the Lease Agreement, the uses and purposes which may be served by the Property and the benefits therefrom which will accrue to the District and the general public. Source of Payments; Budget and Appropriation. Lease Payments shall be payable from any source of available funds of the District. The District covenants to take such action as may be necessary to include all Lease Payments due under the Lease Agreement in each of its budgets during the Term of the Lease Agreement and to make the necessary annual appropriations for all such Lease Payments and for additional payments due under the Lease Agreement. To that end, the Board of Trustees shall direct budgetary staff to include in each annual budget proposal to the Board of Trustees an appropriation sufficient to pay Lease Payments and Additional Payments. The District expresses its present intent to appropriate Lease Payments and additional payments due under the Lease Agreement during the Term of the Lease Agreement. The covenants on the part of the District contained in the Lease Agreement shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the District to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the District to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the District. Assignment. The District understands and agrees that all Lease Payments have been assigned by the Corporation to the Trustee in trust, pursuant to the Assignment Agreement, for the benefit of the Owners of the Certificates, and the District assents to such assignment. The Corporation directs the District, and the District agrees to pay to the Trustee at the Principal Corporate Trust Office, all payments payable by the District pursuant to the Lease Agreement. Title During the Term of the Lease Agreement, the Corporation shall hold leasehold title to the Property and shall hold fee title to those portions of the Property which are newly acquired or constructed and any and all additions which comprise fixtures, repairs, replacements or modifications to the Property, except for those fixtures, repairs, replacements or modifications which are added to the Property by the District at its own expense and which may be removed without damaging the Property and except for any items added to the Property by the District pursuant to the Lease Agreement. If the District prepays the Lease Payments in full or makes the security deposit permitted by the Lease Agreement, or pays all Lease Payments during the Term of the Lease Agreement as the same become due and payable, all right, title and interest of the Corporation in and to the Property shall be Appendix B Page 8

70 terminated. The Corporation agrees to take any and all steps and execute and record any and all documents reasonably required by the District to consummate any such transfer of title. Additional Payments In addition to the Lease Payments, the District shall pay when due all costs and expenses incurred by the District and the Corporation to comply with the provisions of the Trust Agreement and the Lease Agreement, or otherwise arising from the leasing of the Property, including without limitation all delivery costs (to the extent not paid from amounts on deposit in the Delivery Costs Fund), compensation and indemnification due to the Trustee and all costs and expenses of auditors, engineers, attorneys and accountants. Maintenance, Utilities, Taxes and Assessments Throughout the Term of the Lease Agreement, as part of the consideration for the rental of the Property, all improvement, repair and maintenance of the Property shall be the responsibility of the District and the District shall pay, or otherwise arrange, for the payment of all utility services supplied to the Property which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Property resulting from ordinary wear and tear or want of care on the part of the District or any assignee or sublessee thereof. In exchange for the Lease Payments, the Corporation agrees to provide only the Property. The District waives the benefits of subsections 1 and 2 of section 1932 of the California Civil Code, but such waiver shall not limit any of the rights of the District under the terms of the Lease Agreement. The District shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Corporation or the District affecting the Property or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the District shall be obligated to pay only such installments as are required to be paid during the Term of the Lease Agreement as and when the same become due. The District may, at the District s expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Corporation shall notify the District that, in the opinion of Independent Counsel, by nonpayment of any such items, the interest of the Corporation in the Property will be materially endangered or the Property or any part thereof will be subject to loss or forfeiture, in which event the District shall promptly pay such taxes, assessments or charges or provide the Corporation with full security against any loss which may result from nonpayment, in form satisfactory to the Corporation. The District shall provide the Corporation with written notice of any such contest and shall provide such updates on the contest as the Corporation may reasonably request. Modification of Property The District shall, at its own expense, have the right to remodel the Property or to make additions, modifications and improvements to the Property. All additions, modifications and improvements to the Property shall thereafter comprise part of the Property and be subject to the provisions of the Lease Agreement. Such additions, modifications and improvements shall not in any way damage the Property, substantially alter its nature, cause the interest component of Lease Payments to be subject to federal income taxes or cause the Property to be used for purposes other than those authorized under the provisions of State and federal law; and the Property, upon completion of any additions, modifications and improvements made thereto pursuant to the Lease Agreement, shall be of a value which is not substantially less than the value of the Property immediately prior to the making of such additions, modifications and improvements. The District will not permit any mechanic s or other lien to be established or remain against the Property for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the District pursuant to the Lease Agreement; provided that if any such lien is established and the District Appendix B Page 9

71 shall first notify the Corporation of the District s intention to do so, the District may in good faith contest any lien filed or established against the Property, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Corporation. The Corporation will cooperate fully in any such contest, upon the request and at the expense of the District. Insurance Public Liability and Property Damage Insurance. The District shall maintain or cause to be maintained, throughout the Term of the Lease Agreement, insurance policies, including a standard comprehensive general insurance policy or policies in protection of the Corporation, the District and the Trustee and their respective members, officers, agents and employees. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the District, and may be maintained through a joint exercise of powers authority created for such purpose or in the form of self-insurance by the District. Said policy or policies shall provide for indemnification of said parties against direct or consequential loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $5,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the District and may be maintained in the form of insurance maintained through a joint exercise of powers authority created for such purpose or in the form of self-insurance by the District. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid. Fire and Extended Coverage Insurance; No Earthquake Insurance. The District shall maintain, or cause to be maintained throughout the Term of the Lease Agreement, insurance against loss or damage to any part of the Property constituting structures, if any, by fire and lightning, with extended coverage and vandalism and malicious mischief insurance; provided, however, that the District shall not be required to maintain earthquake insurance with respect to the Property. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to one hundred percent (100%) of the replacement cost of such portion of the Property, if any. Such insurance may be subject to deductible clauses of not to exceed $100,000 for any one loss. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the District and may be maintained in whole or in part in the form of insurance maintained through a joint exercise of powers authority created for such purpose. The Net Proceeds of such insurance shall be applied as provided in the Lease Agreement. The District may not satisfy the requirements of the Lease Agreement for fire and extended coverage insurance with self-insurance. Rental Interruption Insurance. The District shall maintain, or cause to be maintained, throughout the Term of the Lease Agreement rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any part of the Property during the Term of the Lease Agreement as a result of any of the hazards covered in the insurance required by the Lease Agreement, if any, in an amount at least equal to the maximum Lease Payments coming due and payable during any two consecutive Fiscal Years during the remaining Term of the Lease Agreement. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund and shall be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable. Such insurance may be maintained as part of or in conjunction with any other insurance carried by the District and may be maintained in whole or in part in the form of insurance maintained through a joint exercise of powers authority created for such purpose. The District may not satisfy the requirements of the Lease Agreement for rental interruption insurance with self-insurance. Appendix B Page 10

72 Title Insurance. The District shall provide, from moneys in the Delivery Costs Fund or at its own expense, on the Closing Date, an CLTA title insurance policy in the amount of not less than the principal amount of the Certificates, insuring the District s leasehold estate in the Property, subject only to Permitted Encumbrances. Insurance Net Proceeds; Form of Policies. Each policy or other evidence of insurance required by the Lease Agreement shall provide that all proceeds thereunder shall be payable to the Trustee as and to the extent required under the Lease Agreement, shall name the Trustee as an additional insured and shall be applied as provided in the Lease Agreement. Insurance must be provided by an insurer rated A or better by S&P or A.M. Best Company. The District shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease Agreement. The Trustee shall not be responsible for the sufficiency of any insurance required in the Lease Agreement, including any forms of self-insurance and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. The District shall cause to be delivered annually on or before each September 1 to the Trustee a certification, signed by a District Representative, stating compliance with the provisions of the Lease Agreement. The Trustee shall be entitled to rely on such certification without independent investigation. The District shall have the adequacy of any insurance reserves maintained by the District or by a joint exercise of powers authority, if applicable, for purposes of the insurance required by the Lease Agreement reviewed at least annually, on or before each September 1, by an independent insurance consultant and shall maintain reserves in accordance with the recommendations of such consultant to the extent moneys are available for such purpose and not otherwise appropriated. Tax Covenants Private Activity Bond Limitation. The District shall assure that proceeds of the Certificates are not so used as to cause the Certificates or the Lease Agreement to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code. Federal Guarantee Prohibition. The District shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Certificates or the Lease Agreement to be federally guaranteed within the meaning of section 149(b) of the Code. Rebate Requirement. The District shall take any and all actions necessary to assure compliance with section 148(f) of the 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 Certificates and the Lease Agreement. No Arbitrage. The District shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Certificates 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 Certificates or the Lease Agreement to be arbitrage bonds within the meaning of section 148 of the Code. Maintenance of Tax-Exemption. The District shall take all actions necessary to assure the exclusion of interest with respect to the Certificates from the gross income of the Owners of the Certificates to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the Closing Date. No Condemnation The District covenants and agrees, to the extent it may lawfully do so, that so long as any of the Certificates remain outstanding and unpaid, the District will not exercise the power of condemnation with respect to the Property. The District further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the District should fall or refuse to abide by such covenant and condemns the Property, the appraised value of the Property shall not be less than the greater of (i) if the Certificates are then subject to redemption, the principal and interest components of the Certificates Outstanding through the date of their redemption, or (ii) if the Certificates are not then subject to redemption, the amount necessary to defease the Certificates to the first available redemption date in accordance with the Trust Agreement. Appendix B Page 11

73 Eminent Domain If all of the Property shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of the Lease Agreement shall cease as of the day possession shall be so taken. If less than all of the Property shall be taken permanently, or if all of the Property or any part thereof shall be taken temporarily under the power of eminent domain, (1) the Lease Agreement shall continue in full force and effect and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary, and (2) there shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the District and the Corporation and communicated to the Trustee such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Property, except to the extent of special funds, such as amounts in the Reserve Fund available for the payment of Lease Payments. Application of Net Proceeds From Insurance Award. The Net Proceeds of any insurance award resulting from any damage to or destruction of any portion of the Property constituting structures, if any, by fire or other casualty shall be paid by the District to the Trustee, as assignee of the Corporation under the Assignment Agreement, deposited in the Insurance and Condemnation Fund held by the Trustee and applied as set forth in the Trust Agreement. From Eminent Domain Award. The Net Proceeds of any eminent domain award shall be paid by the District to the Trustee, as assignee of the Corporation under the Assignment Agreement, deposited in the Insurance and Condemnation Fund and applied as set forth in the Trust Agreement. From Title Insurance. The Net Proceeds of any title insurance award shall be paid to the Trustee, as assignee of the Corporation under the Assignment Agreement, deposited in the Insurance and Condemnation Fund and applied as set forth in the Trust Agreement. Abatement of Lease Payments in the Event of Damage or Destruction Lease Payments shall be abated during any period in which, by reason of damage or destruction, there is substantial interference with the use and occupancy by the District of the Property or any portion thereof to the extent to be agreed upon by the District and the Corporation and communicated by a District Representative to the Trustee. The parties agree that the amounts of the Lease Payments under such circumstances shall not be less than the amounts of the unpaid Lease Payments as are then set forth in the Lease Agreement, unless such unpaid amounts are determined to be greater than the fair rental value of the portions of the Property not damaged or destroyed, based upon the opinion of an MAI appraiser with expertise in valuing such properties, or other appropriate method of valuation, in which event the Lease Payments shall be abated such that they represent said fair rental value. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction as communicated by a District Representative to the Trustee. In the event of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the District waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments to the extent that (a) the proceeds of rental interruption insurance or (b) amounts in the Reserve Fund, if cash funded, and/or the Insurance and Condemnation Fund and/or the Lease Payment Fund are available to pay Lease Payments which would otherwise be abated, it being declared that such proceeds and amounts constitute special funds for the payment of the Lease Payments. Access to the Property The District agrees that the Corporation and any Corporation Representative, and the Corporation s successors or assigns, shall have the right at all reasonable times to enter upon and to examine and inspect the Property. The District further agrees that the Corporation, any Corporation Appendix B Page 12

74 Representative, and the Corporation s successors or assigns shall have such rights of access to the Property as may be reasonably necessary to cause the proper maintenance of the Property in the event of failure by the District to perform its obligations under the Lease Agreement. Release and Indemnification Covenants The District shall and agrees to indemnify and save the Corporation and the Trustee and their officers, agents, directors, employees, successors and assigns harmless from and against all claims, losses and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on the Property by the District, (ii) any breach or default on the part of the District in the performance of any of its obligations under the Lease Agreement or the Trust Agreement, (iii) any act or omission of the District or of any of its agents, contractors, servants, employees or licensees with respect to the Property, (iv) any act or omission of any sublessee of the District with respect to the Property, or (v) the authorization of payment of the Delivery Costs. Such indemnification shall include the costs and expenses of defending any claim or liability arising under the Lease Agreement or the Trust Agreement and the transactions contemplated thereby. No indemnification is made in the Lease Agreement for willful misconduct, negligence or breach of duty under the Lease Agreement by the Corporation, its officers, agents, directors, employees, successors or assigns. Assignment by the Corporation The Corporation s rights under the Lease Agreement, including the right to receive and enforce payment of the Lease Payments to be made by the District under the Lease Agreement, have been assigned to the Trustee pursuant to the Assignment Agreement. Assignment and Subleasing by the District The Lease Agreement may not be assigned by the District. The District may sublease the Property or any portion thereof, but only with the written consent of the Corporation and subject to, and delivery to the Corporation of a certificate as to, all of the following conditions: (a) The Lease Agreement and the obligation of the District to make Lease Payments shall remain obligations of the District; (b) The District shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Corporation and the Trustee a true and complete copy of such sublease; (c) No such sublease by the District shall cause the Property to be used for a purpose other than as may be authorized under the provisions of the Constitution and laws of the State; and (d) The District shall furnish the Corporation and the Trustee with a written opinion of Bond Counsel, which shall be an Independent Counsel, stating that such sublease does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes. Amendment of Lease Agreement Substitution of Site or Facility. The District shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to substitute other land (a Substitute Site ) and/or a substitute facility or substitute Facility (a Substitute Facility ) for the Site (the Former Site ), or a portion thereof, and/or the Facility (the Former Facility ), or a portion thereof, provided that the District shall satisfy all of the following requirements (to the extent applicable) which are hereby declared to be conditions precedent to such substitution: (i) If a substitution of the Site, the District shall file with the Corporation and the Trustee an amendment to the Site and Facility Lease which adds thereto a description of such Substitute Site and deletes therefrom the description of the Former Site; Appendix B Page 13

75 (ii) If a substitution of the Site, the District shall file with the Corporation and the Trustee an amendment to the Lease Agreement which adds thereto a description of such Substitute Site and deletes therefrom the description of the Former Site; (iii) If a substitution of the Facility, the District shall file with the Corporation and the Trustee an amendment to the Site and Facility Lease which adds thereto a description of such Substitute Facility and deletes therefrom the description of the Former Facility; (iv) If a substitution of the Facility, the District shall file with the Corporation and the Trustee an amendment to the Lease Agreement which adds thereto a description of such Substitute Facility and deletes therefrom the description of the Former Facility; (v) The District shall certify in writing to the Corporation and the Trustee that such Substitute Site and/or Substitute Facility serve the purposes of the District, constitutes property that is unencumbered, subject to Permitted Encumbrances, and constitutes property which the District is permitted to lease under the laws of the State; (vi) The District delivers to the Trustee and the Corporation evidence that the value of the Property following such substitution is equal or greater than the Outstanding principal amount of the Certificates and confirms in writing to the Trustee that the indemnification provided pursuant to he Trust Agreement applies with respect to the Substitute Site and/or Substitute Facility; (vii) The Substitute Site and/or Substitute Facility shall not cause the District to violate any of its covenants, representations and warranties made herein and in the Trust Agreement; (viii) The District shall obtain an amendment to the title insurance policy required pursuant to the Lease Agreement which adds thereto a description of the Substitute Site and deletes therefrom the description of the Former Site; (ix) The District shall certify that the Substitute Site and/or the Substitute Facility is of the same or greater essentiality to the District as was the Former Site and/or the Former Facility; (x) The District shall provide notice of the substitution to any rating agency then rating the Certificates; and (xi) The District shall furnish the Corporation and the Trustee with a written opinion of Bond Counsel, which shall be an Independent Counsel, stating that such substitution does not cause the interest components of the Lease Payments to become subject to federal income taxes or State personal income taxes. Release of Site. The District shall have, and is hereby granted, the option at any time and from time to time during the Term of the Lease Agreement to release any portion of the Site, provided that the District shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such release: (i) The District shall file with the Corporation and the Trustee an amendment to the Site and Facility Lease which describes the Site, as revised by such release; (ii) The District delivers to the Trustee and the Corporation evidence that the value of the Site, as revised by such release, is equal or greater than the Outstanding principal amount of the Certificates and confirms in writing to the Trustee that the indemnification provided pursuant to the Trust Agreement applies with respect to the Site, as revised by such release; (iii) Such release shall not cause the District to violate any of its covenants, representations and warranties made herein and in the Trust Agreement; Appendix B Page 14

76 (iv) The District shall obtain an amendment to the title insurance policy required pursuant to the Lease Agreement which describes the Site, as revised by such release; and (v) The District shall provide notice of the release to any rating agency then rating the Certificates. Generally. The Corporation and the District may at any time amend or modify any of the provisions of the Lease Agreement, but only (a) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Certificates, or (b) without the consent of any of the Owners, but only if such amendment or modification is for any one or more of the following purposes: (i) to add to the covenants and agreements of the District contained in the Lease Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the District; (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, or in any other respect whatsoever as the Corporation and the District may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments will not materially adversely affect the interests of the Owners; or (iii) to amend any provision thereof relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest with respect to the Certificates under the Code, in the opinion of Bond Counsel. Events of Default and Remedies Events of Default. The following shall be events of default under the Lease Agreement and the terms Events of Default and Default shall mean, whenever they are used in the Lease Agreement, any one or more of the following events: (a) Failure by the District to pay any Lease Payment or other payment required to be paid at the time specified. (b) Failure by the District to observe and perform any covenant, condition or agreement on its part to be observed or performed under the Lease Agreement or under the Trust Agreement, for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Corporation, the Trustee or the Owners of not less than five percent (5%) in aggregate principal amount of Certificates then outstanding; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Corporation, the Trustee and such Owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the District within the applicable period and diligently pursued until the default is corrected. (c) The filing by the District of a voluntary petition in bankruptcy, or failure by the District promptly to lift any execution, garnishment or attachment, or adjudication of the District as a bankrupt, or assignment by the District for the benefit of creditors, or the entry by the District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the District in any proceedings instituted under the provisions of the Federal Bankruptcy Act, as amended, or under any similar acts which may hereafter be enacted. Remedies on Default. The Trustee shall have the right to re-enter and re-let the Property and to terminate the Lease Agreement. Whenever any Event of Default shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease Appendix B Page 15

77 Agreement; provided, however, that notwithstanding anything in the Lease Agreement or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. Each and every covenant in the Lease Agreement to be kept and performed by the District is expressly made a condition and upon the breach thereof, the Corporation may exercise any and all rights of entry and re-entry upon the Property, and also, at its option, with or without such entry, may terminate the Lease Agreement; provided, that no such termination shall be effected either by operation of law or acts of the parties to the Lease Agreement, except only in the manner expressly provided in the Lease Agreement. In the event of such default and notwithstanding any re-entry by the Corporation, the District shall, as expressly provided in the Lease Agreement, continue to remain liable for the payment of the Lease Payments and/or damages for breach of the Lease Agreement and the performance of all conditions therein contained and, in any event such rent and/or damages shall be payable to the Corporation at the time and in the manner as provided in the Lease Agreement, to wit: (a) In the event the Corporation does not elect to terminate the Lease Agreement in the manner hereinafter provided for in paragraph (b) below, the District agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions contained in the Lease Agreement and shall reimburse the Corporation for any deficiency arising out of the re-leasing of the Property, or, in the event the Corporation is unable to re-lease the Property, then for the full amount of all Lease Payments to the end of the Term of the Lease Agreement, but said Lease Payments and/or deficiency shall be payable only at the same time and in the same manner as hereinabove provided for the payment of Lease Payments, notwithstanding such entry or re-entry by the Corporation or any suit in unlawful detainer, or otherwise, brought by the Corporation for the purpose of effecting such re-entry or obtaining possession of the Property or the exercise of any other remedy by the Corporation. The District irrevocably appoints the Corporation as the agent and attorney-in-fact of the District to enter upon and re-lease the Property in the event of default by the District in the performance of any covenants contained in the Lease Agreement to be performed by the District and to remove all personal property whatsoever situated upon the Property, to place such property in storage or other suitable place within Riverside County, for the account of and at the expense of the District, and the District exempts and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Property and the removal and storage of such property by the Corporation or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. The District waives any and all claims for damages caused or which may be caused by the Corporation in re-entering and taking possession of the Property as provided in the Lease Agreement and all claims for damages that may result from the destruction of or injury to the Property and all claims for damages to or loss of any property belonging to the District that may be in or upon the Property. The District agrees that the terms of the Lease Agreement constitute full and sufficient notice of the right of the Corporation to re-lease the Property in the event of such re-entry without effecting a surrender of the Lease Agreement, and further agrees that no acts of the Corporation in effecting such re-leasing shall constitute a surrender or termination of the Lease Agreement irrespective of the term for which such releasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the District the right to terminate the Lease Agreement shall vest in the Corporation to be effected in the sole and exclusive manner hereinafter provided for in paragraph (b) below. (b) In an Event of Default, the Corporation at its option may terminate the Lease Agreement and re-lease all or any portion of the Property. In the event of the termination of the Lease Agreement by the Corporation at its option and in the manner provided in the Lease Agreement on account of default by the District (and notwithstanding any re-entry upon the Property by the Corporation in any manner whatsoever or the re-leasing of the Property), the District nevertheless agrees to pay to the Corporation all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease Agreement in the case of payment of Lease Payments. Any surplus received by the Corporation from such re-leasing shall be credited towards the Lease Payments next coming due and payable. Neither notice to pay rent or to deliver up possession of the premises given pursuant to law nor any proceeding in unlawful detainer taken by the Corporation shall of itself operate to terminate the Lease Agreement, and no termination of the Lease Agreement on account of default by the District shall be or become effective by operation of law, or otherwise, unless and until the Corporation shall have given written notice to the District of the election on the part of the Corporation to Appendix B Page 16

78 terminate the Lease Agreement. The District covenants and agrees that no surrender of the Property and/or of the remainder of the Term of the Lease Agreement or any termination of the Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice. No Remedy Exclusive. No remedy is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Lease Agreement now or hereafter existing at law or in equity. No delay or omission 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 thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Corporation to exercise any remedy reserved to it in the Lease Agreement, it shall not be necessary to give any notice, other than such notice as may be required in the Lease Agreement or by law. Security Deposit Notwithstanding any other provision of the Lease Agreement, the District may, on any date, secure the payment of all or a portion of the Lease Payments remaining due by an irrevocable deposit with the Trustee or an escrow holder under an escrow deposit and trust agreement, of: (a) in the case of a security deposit relating to all Lease Payments, either (i) cash in an amount which, together with amounts on deposit in the Lease Payment Fund, the Insurance and Condemnation Fund and the Reserve Fund, is sufficient to pay all unpaid Lease Payments, including the principal and interest components thereof, in accordance with the Lease Payment schedule set forth in the Lease Agreement, or (ii) Defeasance Obligations in such amount as will, in the written opinion of an independent certified public accountant or other firm of recognized experts in such matters, together with interest to accrue thereon and, if required, all or a portion of moneys or Defeasance Obligations or cash then on deposit and interest earnings thereon in the Lease Payment Fund, the Insurance and Condemnation Fund and the Reserve Fund, be fully sufficient to pay all unpaid Lease Payments on their respective Lease Payment Dates; or (b) in the case of a security deposit relating to a portion of the Lease Payments, a certificate executed by a District Representative designating the portion of the Lease Payments to which the deposit pertains, and either (i) cash in an amount which is sufficient to pay the portion of the Lease Payments designated in such District Representative s certificate, including the principal and interest components thereof, or (ii) Defeasance Obligations in such amount as will, together with interest to be received thereon, if any, in the written opinion of an independent certified public accountant or other firm of recognized experts in such matters, be fully sufficient to pay the portion of the Lease Payments designated in the aforesaid District Representative s certificate. In the event of a deposit pursuant as to all Lease Payments and the payment of all fees, expenses and indemnifications owed to the Trustee, all obligations of the District under the Lease Agreement shall cease and terminate, excepting only the obligation of the District to make, or cause to be made, all payments from the deposit made by the District and the obligations of the District pursuant to the Lease Agreement and title to the Property shall vest in the District on the date of said deposit automatically and without further action by the District or the Corporation. Said deposit and interest earnings thereon shall be deemed to be and shall constitute a special fund for the payments and said obligation shall thereafter be deemed to be and shall constitute the installment purchase obligation of the District for the Property. Upon said deposit, the Corporation will execute or cause to be executed any and all documents as may be necessary to confirm title to the Property in accordance with the provisions of the Lease Agreement. In addition, the Corporation appoints the District as its agent to prepare, execute and file or record, in appropriate offices, such documents as may be necessary to place record title to the Property in the District. Prepayment Optional Prepayment. The Corporation grants an option to the District to prepay the principal component of the Lease Payments in full, by paying the aggregate unpaid principal components of the Lease Payments, or in part, in a prepayment amount equal to the principal amount of Lease Payments to be prepaid, together with accrued interest to the date fixed for prepayment, without premium. Appendix B Page 17

79 Said option may be exercised with respect to Lease Payments due on and after August 15, 2010, in whole or in part on any date, commencing August 15, Said option shall be exercised by the District by giving written notice to the Corporation and the Trustee of the exercise of such option at least forty-five (45) days prior to said prepayment date. In the event of prepayment in part, the partial prepayment shall be applied against Lease Payments in such order of payment date as shall be selected by the District. Lease Payments due after any such partial prepayment shall be in the amounts set forth in a revised Lease Payment schedule which shall be provided by, or caused to be provided by, the District to the Trustee and which shall represent an adjustment to the schedule set forth in the Lease Agreement taking into account said partial prepayment. The Trustee agrees to notify the Corporation in the event of any prepayment of Lease Payments, as provided in the Trust Agreement. Mandatory Prepayment From Net Proceeds of Insurance, Title Insurance or Eminent Domain. The District shall be obligated to prepay the Lease Payments, in whole on any date or in part on any Lease Payment Date, from and to the extent of any Net Proceeds of an insurance, title insurance or condemnation award with respect to the Property theretofore deposited in the Lease Payment Fund for such purpose. The District and the Corporation agree that such Net Proceeds shall be applied first to the payment of any delinquent Lease Payments, and thereafter shall be credited towards the District s obligations under the Lease Agreement. Lease Payments due after any such partial prepayment shall be in the amounts set forth in a revised Lease Payment schedule which shall be provided by, or caused to be provided by, the District to the Trustee and which shall represent an adjustment to the schedule set forth in the Lease Agreement taking into account said partial prepayment. ASSIGNMENT AGREEMENT The Assignment Agreement is entered into between the Corporation and the Trustee, pursuant to which the Corporation assigns and transfers to the Trustee, for the benefit of the Owners, certain of the rights of the Corporation under the Lease Agreement, including the right to receive Lease Payments under the Lease Agreement and the rights and remedies of the Corporation under the Lease Agreement to enforce payment of Lease Payments or otherwise to protect and enforce the Lease Agreement in the event of default by the County. Certain rights of the Corporation to payment of advances, indemnification and attorneys fees and expenses are not assigned. Delivery Costs Fund; Payment of Delivery Costs TRUST AGREEMENT There shall be deposited in the Delivery Costs Fund the proceeds of sale of the Certificates required to be deposited therein pursuant to the Trust Agreement and any other funds from time to time deposited with the Trustee for such purpose and identified in writing to the Trustee. The moneys in the Delivery Costs Fund shall be disbursed by the Trustee to pay the Delivery Costs. Disbursements from the Delivery Costs Fund shall be made by the Trustee on receipt of a sequentially numbered requisition, signed by a District Representative. The Trustee shall be responsible for the safekeeping and investment (in accordance with the Trust Agreement) of the moneys held in the Delivery Costs Fund and the payment thereof in accordance with the Trust Agreement, but the Trustee shall not be responsible for the truth or accuracy of such requisitions, may rely conclusively thereon and shall be under no duty to investigate or verify any statements made therein. Upon written notice from a District Representative that all Delivery Costs have been paid, the Trustee shall transfer any moneys then remaining in the Delivery Costs Fund shall be transferred to the County Treasurer-Tax Collector, to be held and invested for the benefit of the District and applied to pay the Improvement Costs upon requests submitted by the District, the Delivery Costs Fund shall be closed, the Trustee shall no longer be obligated to make payments for Delivery Costs and all further Delivery Costs shall be paid by the District. Appendix B Page 18

80 Assignment of Rights in Lease Agreement The Corporation has, in the Assignment Agreement, transferred, assigned and set over to the Trustee certain of its rights but none of its obligations set forth in the Lease Agreement, including but not limited to all of the Corporation s rights to receive and collect Lease Payments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease Agreement or pursuant to the Trust Agreement. All Lease Payments and such other amounts to which the Corporation may at any time be entitled shall be paid directly to the Trustee and all of the Lease Payments collected or received by the Corporation shall be deemed to be held and to have been collected or received by the Corporation as the agent of the Trustee, and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee within one Business Day after the receipt thereof, and all such Lease Payments and such other amounts shall be forthwith deposited by the Trustee upon the receipt thereof in the Lease Payment Fund. Lease Payment Fund All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the District nor the Corporation shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement. There shall be deposited in the Lease Payment Fund all Lease Payments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement or the Lease Agreement, and any other moneys required to be deposited therein pursuant to the Lease Agreement or the Trust Agreement. All amounts in the Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the Certificates as the same shall become due and payable in accordance with the provisions of the Trust Agreement. Any surplus remaining in the Lease Payment Fund after redemption and/or payment of all Certificates, including accrued interest (if any) and payment of any applicable fees and expenses to the Trustee, or provision for such redemption or payment having been made to the satisfaction of the Trustee shall be withdrawn by the Trustee and remitted to the District. Reserve Fund All moneys at any time on deposit in the Reserve Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates, and applied solely as provided in the Trust Agreement. If, on any Interest Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the principal and interest with respect to the Certificates then coming due and payable, the Trustee shall apply the moneys available in the Reserve Fund to make delinquent Lease Payments by transferring the amount necessary for this purpose to the Lease Payment Fund. Upon receipt of any delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment shall be deposited in the Reserve Fund to the extent of such advance. If, on any Interest Payment Date, the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal and interest with respect to Certificates not presented for payment) are sufficient to pay all Outstanding Certificates, including all principal and interest, the Trustee shall transfer all amounts then on deposit in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments, and such moneys shall be distributed to the Owners of Certificates in accordance with the Trust Agreement. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates and all amounts due the Trustee hereunder, or upon provision for such payment as provided in the Trust Agreement, shall be withdrawn by the Trustee and paid to the District. There shall be deposited in the Reserve Fund any other funds from time to time deposited with the Trustee for such purpose and identified in writing to the Trustee. Appendix B Page 19

81 At any time, moneys on deposit in the Reserve Fund may be substituted by the District with a letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution, the long-term, unsecured obligations of which are rated in the highest rating category by Moody s and S&P, in an amount equal to the Reserve Requirement, upon presentation to the Trustee of such letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution, with evidence from the District that such letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution rated in the highest rating category by Moody s and S&P. Upon such substitution, the Trustee shall transfer amounts on deposit in the Reserve Fund to the District in an amount equal to the maximum limits or principal amount, as applicable, of such letter of credit, surety bond, bond insurance policy or other form of guarantee which shall be segregated by the District and applied solely to the funding of capital projects. Insurance and Condemnation Fund; Application of Net Proceeds of Insurance Award (a) Any Net Proceeds of insurance against damage to or destruction of any part of the Property collected by the District in the event of any such damage or destruction shall be paid to the Trustee by the District pursuant to the Lease Agreement and deposited by the Trustee promptly upon receipt thereof in a special fund designated as the Insurance and Condemnation Fund to be established by the Trustee when deposits are required to be made therein. (b) Within ninety (90) days following the date of such deposit, the District shall determine and notify the Trustee in writing of its determination either (i) that the replacement, repair, restoration, modification or improvement of the Property is not economically feasible or in the best interest of the District, or (ii) that all or a portion of such Net Proceeds are to be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Property. (c) In the event the District s determination is as set forth in clause (i) of paragraph (b) above, such Net Proceeds shall be promptly transferred by the Trustee to the Lease Payment Fund, applied to the prepayment of Lease Payments pursuant to the Lease Agreement and applied to the redemption of Certificates as provided in the Trust Agreement; provided, however, that in the event of damage or destruction of the Property in full, such Net Proceeds may be transferred to the Lease Payment Fund only if sufficient, together with other moneys available therefor, to cause the prepayment of the principal components of all unpaid Lease Payments pursuant to the Lease Agreement, otherwise such Net Proceeds shall be applied to the replacement, repair, restoration, modification or improvement of the Property; provided further, however, that in the event of damage or destruction of the Property in part, such Net Proceeds may be transferred to the Lease Payment Fund and applied to the prepayment of Lease Payments only if the resulting Lease Payments represent fair consideration for the remaining portions of the Property, evidenced by a certificate signed by a District Representative and an Corporation Representative. (d) In the event the District s determination is as set forth in clause (ii) of paragraph (b) above, Net Proceeds deposited in the Insurance and Condemnation Fund shall be applied to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Property by the District, and disbursed by the Trustee upon receipt of requisitions signed by a District Representative stating with respect to each payment to be made (i) the requisition number, (ii) the name and address of the person, firm or corporation to whom payment is due, (iii) the amount to be paid and (iv) that each obligation mentioned therein has been properly incurred, is a proper charge against the Insurance and Condemnation Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation, accompanied by a bill or a statement of account for such obligation. The Trustee shall not be responsible for the representations made in such requisitions and may conclusively rely thereon and shall be under no duty to investigate or verify any statements made therein. Any balance of the Net Proceeds remaining after such work has been completed shall be paid to the District. Appendix B Page 20

82 Application of Net Proceeds of Eminent Domain Award If all or any part of the Property shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain), the Net Proceeds therefrom shall be deposited with the Trustee in the Insurance and Condemnation Fund pursuant to the Lease Agreement and shall be applied and disbursed by the Trustee as follows: (a) If the District has given written notice to the Trustee of its determination that (i) such eminent domain proceedings have not materially affected the operation of the Property or the ability of the District to meet any of its obligations with respect to the Property under the Lease Agreement, and (ii) such proceeds are not needed for repair or rehabilitation of the Property, the District shall so certify to the Trustee and the Trustee, at the District s written request, shall transfer such proceeds to the Lease Payment Fund to be credited towards the prepayment of the Lease Payments pursuant to the Lease Agreement and applied to the redemption of Certificates in the manner provided in the Trust Agreement. (b) If the District has given written notice to the Trustee of its determination that (i) such eminent domain proceedings have not materially affected the operation of the Property or the ability of the District to meet any of its obligations with respect to the Property under the Lease Agreement, and (ii) such proceeds are needed for repair, rehabilitation or replacement of the Property, the District shall so certify to the Trustee and the Trustee, at the District s written request, shall pay to the District, or to its order, from said proceeds such amounts as the District may expend for such repair or rehabilitation, upon the filing with the Trustee of requisitions of the District Representative in the form and containing the provisions set forth in the Trust Agreement. The Trustee shall not be responsible for the representations made in such requisitions and may conclusively rely thereon and shall be under no duty to investigate or verify any statements made therein. (c) If (i) less than all of the Property shall have been taken in such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and if the District has given written notice to the Trustee of its determination that such eminent domain proceedings have materially affected the operation of the Property or the ability of the District to meet any of its obligations with respect to the Property under the Lease Agreement or (ii) all of the Property shall have been taken in such eminent domain proceedings, then the Trustee shall transfer such proceeds to the Lease Payment Fund to be credited toward the prepayment of the Lease Payments pursuant to the Lease Agreement and applied to the redemption of Certificates in the manner provided in the Trust Agreement. Application of Net Proceeds of Title Insurance Award The Net Proceeds from a title insurance award shall be deposited with the Trustee in the Insurance and Condemnation Fund pursuant to the Lease Agreement and shall be transferred to the Lease Payment Fund to be credited towards the prepayment of Lease Payments required to be paid pursuant to the Lease Agreement and applied to the redemption of Certificates in the manner provided in the Trust Agreement. Moneys in Funds; Investment Held in Trust. The moneys and investments held by the Trustee under the Trust Agreement are irrevocably held in trust for the benefit of the Owners of the Certificates and for the purposes specified in the Trust Agreement and such moneys, and any income or interest earned thereon, shall be expended only as provided in the Trust Agreement and shall not be subject to levy, attachment or lien by or for the benefit of any creditor of the Corporation, the Trustee, the District or any Owner of Certificates. Investments Authorized. Moneys held by the Trustee under the Trust Agreement shall, upon written order of a District Representative, be invested and reinvested by the Trustee in Permitted Investments. The Trustee may deem all investments directed by a District Representative as Permitted Investments without independent investigation thereof. If a District Representative shall fail to so direct investments, the Trustee shall invest the affected moneys in Permitted Investments described in paragraph (g) of the definition thereof. Such investments, if registrable, shall be registered in the name of and held by the Trustee or its nominee. The Trustee may purchase or sell to itself or any affiliate, as Appendix B Page 21

83 principal or agent, investments authorized by this the Trust Agreement. Such investments and reinvestments shall be made giving full consideration to the time at which funds are required to be available. The Trustee may act as principal or agent in the making or disposing of any investment and make or dispose of any investment through its investment department or that of an affiliate and shall be entitled to its customary fees therefor. The Trustee is authorized, in making or disposing of any investment permitted by the Trust Agreement, to deal with itself (in its individual capacity) or with one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or dealing as principal for its own account. Allocation of Earnings. Unless and until otherwise directed by the District to the Trustee in writing, all interest or income received by the Trustee on investment of the Lease Payment Fund shall be retained in the Lease Payment Fund. Amounts retained or deposited in the Lease Payment Fund pursuant to the Trust Agreement shall be applied as a credit against the Lease Payment due by the District pursuant to the Lease Agreement on the Lease Payment Date following the date of deposit. All interest received by the Trustee on investment of the Reserve Fund shall be retained in the Reserve Fund in the event that amounts on deposit in the Reserve Fund are less than the Reserve Requirement. Reserve Fund investments may not have maturities extending beyond five years. In the event that amounts then on deposit in the Reserve Fund on the valuation date described in the Trust Agreement equal or exceed the Reserve Requirement, such excess shall be transferred to the Lease Payment Fund. Transfers to the Lease Payment Fund from the Reserve Fund shall be made by the Trustee on or prior to each February 1 and August 1. All interest or income in the Delivery Costs Fund shall be retained in the Delivery Costs Fund until the Delivery Costs Fund is closed pursuant to the Trust Agreement. Such investments shall be valued by the Trustee not less often than quarterly, at the market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding valuation date. Investments purchased with funds on deposit in the Reserve Fund shall have a term to maturity of not greater than five years. Amendments The Trust Agreement and the rights and obligations of the Owners of the Certificates, the Lease Agreement and the rights and obligations of the parties thereto, the Site and Facility Lease and the rights and obligations of the parties thereto and the Assignment Agreement and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement which shall become effective when tthe Owners of at least sixty percent (60%) in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, shall have been filed with the Trustee. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof, without the express consent of the Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of a Lease Agreement, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. Any such supplemental agreement shall become effective as provided in the Trust Agreement. The Trust Agreement and the rights and obligations of the Owners of the Certificates and the Lease Agreement and the rights and obligations of the respective parties thereto, may be modified or amended at any time by a supplemental agreement, without the consent of any such Owners, but only to the extent permitted by law and only (1) to add to the covenants and agreements of the Corporation or the District, (2) to cure, correct or supplement any ambiguous or defective provision contained therein and which shall not, in the opinion of nationally recognized bond counsel, adversely affect the interests of the Owners of the Certificates, (3) in regard to questions arising thereunder, as the parties thereto may deem necessary or desirable and which shall not, in the opinion of nationally recognized bond counsel, materially adversely affect the interests of the Owners of the Certificates; (4) to make such additions, deletions or modifications as may be necessary or appropriate in the opinion of bond counsel to assure the exclusion from gross income for federal income tax purposes of the interest component of Lease Payments and the interest payable with respect to the Certificates, (5) to add to the rights of the Trustee, Appendix B Page 22

84 or (6) to maintain the rating or ratings assigned to the Certificates. Any such supplemental agreement shall become effective upon execution and delivery by the parties thereto, as the case may be. The Trust Agreement and the Lease Agreement may not be modified or amended at any time by a supplemental agreement which would modify any of the rights and obligations of the Trustee without its written assent thereto. Certain Covenants Compliance With and Enforcement of Lease Agreement. The District covenants and agrees with the Owners of the Certificates to perform all obligations and duties imposed on it under the Lease Agreement. The Corporation covenants and agrees with the Owners of the Certificates to perform all obligations and duties imposed on it under the Lease Agreement. The District will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of their respective Lease Agreement by the Corporation thereunder. The Corporation and the District, immediately upon receiving or giving any notice, communication or other document in any way relating to or affecting their respective estates, or either of them, in the Property, which may or can in any manner affect such estate of the District or the Corporation, will deliver the same, or a copy thereof, to the Trustee. Observance of Laws and Regulations. The District and the Corporation will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the District or the Corporation, respectively, including its right to exist and carry on business as a public entity, to the end that such rights, privileges and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. Budgets. The District shall supply to the Trustee as soon as practicable, but not later than September 15 in each year, a written determination by a District Representative that the District has made adequate provision in its annual budget for the payment of Lease Payments due under the Lease Agreement in the Fiscal Year covered by such budget. The determination given by the District to the Trustee shall be that the amounts so budgeted are fully adequate for the payment of all Lease Payments and Additional Payments due under the Lease Agreement in the annual period covered by such budget. Continuing Disclosure. The District 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 the Trust Agreement, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, the Trustee may, upon payment of its fees and expenses, including counsel fees, and receipt of indemnity satisfactory to it, at the request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Certificates, shall or any holder or beneficial owner of the Certificates may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Limitation of Liability Limited Liability of District. Except for the payment of Lease Payments when due in accordance with the Lease Agreement and the performance of the other covenants and agreements of the District contained in the Lease Agreement and the Trust Agreement, the District shall have no pecuniary obligation or liability to any of the other parties or to the Owners of the Certificates with respect to the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee, except as expressly set forth in the Trust Agreement. No Liability of District or Corporation for Trustee Performance. Neither the District nor the Corporation shall have any obligation or liability to any of the other parties or to the Owners of the Appendix B Page 23

85 Certificates with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement. Indemnification of Trustee. The District shall to the extent permitted by law indemnify and save the Trustee, its officers, employees, directors, affiliates and agents harmless from and against all claims, losses, costs, expenses, liability and damages, including legal fees and expenses (including allocated costs of internal counsel), arising out of (i) the use, maintenance, condition or management of, or from any work or thing done on, the Property by the Corporation or the District, (ii) any breach or default on the part of the Corporation or the District the performance of any of their respective obligations under the Lease Agreement, the Assignment Agreement, the Trust Agreement and any other agreement made and entered into for purposes of the Property, (iii) any act of the Corporation or the District or of any of their respective agents, contractors, servants, employees, licensees with respect to the Property, (iv) any act of any assignee of, or purchaser from the Corporation or the District or of any of its or their respective agents, contractors, servants, employees or licensees with respect to the Property, (v) the authorization of payment of Delivery Costs, (vi) the actions of any other party, including but not limited to the ownership, operation or use of the Property by the Corporation or the District including, without limitation, the use, storage, presence, disposal or release of any Hazardous Substances on or about the Property, (vii) the Trustee s exercise and performance of its powers and duties under the Trust Agreement or as assigned to it under the Assignment Agreement, (viii) the offering and sale of the Certificates; (ix) the presence under or about or release from the Property, or any portion thereof, of any substance, material or waste which is or becomes regulated or classified as hazardous or toxic under State, local or federal law, or the violation of any such law by the District; or (x) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, in any official statement or other offering document utilized in connection with the sale of the Certificates. Such indemnification shall include the costs and expenses of defending against any claim or liability arising under the Trust Agreement. No indemnification will be made under the Trust Agreement for willful misconduct or negligence under the Trust Agreement by the Trustee, its officers, affiliates or employees. The District s obligations under the Trust Agreement shall remain valid and binding notwithstanding maturity and payment of the Certificates or resignation or removal of the Trustee. Assignment of Rights; Remedies. Pursuant to the Assignment Agreement, the Corporation has transferred, assigned and set over to the Trustee certain of the Corporation s rights in and to the Lease Agreement, including without limitation all of the Corporation s rights to exercise such rights and remedies conferred on the Corporation pursuant to the Lease Agreement as may be necessary or convenient (i) to enforce payment of the Lease Payments and any other amounts required to be deposited in the Lease Payment Fund or the Insurance and Condemnation Fund, and (ii) otherwise to exercise the Corporation s rights and take any action to protect the interests of the Trustee or the Certificate Owners in an Event of Default. If an Event of Default shall happen, then and in each and every such case during the continuance of such Event of Default, the Trustee may, and shall upon request of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding, upon payment of its fees and expenses, including counsel fees, and being indemnified to its satisfaction therefor shall, exercise any and all remedies available pursuant to law or granted pursuant to the Lease Agreement; provided, however, that notwithstanding anything in the Trust Agreement or in the Lease Agreement to the contrary, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payment not then in default to be immediately due and payable. Appendix B Page 24

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87 APPENDIX C THE BASIC FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDED JUNE 30, 2007

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185 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE

186 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE This CONTINUING DISCLOSURE CERTIFICATE (the Disclosure Certificate ) is executed and delivered by the CITY OF SANTA ROSA HIGH SCHOOL DISTRICT (the District ) in connection with the execution and delivery of $6,116, City of Santa Rosa High School District Certificates of Participation (2008 Capital Project) Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the District as the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California (consisting of $3,020,000 Current Interest Certificates and $3,096, Capital Appreciation Certificates) (the Certificates ). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of June 1, 2008, by and among U.S. Bank National Association, as trustee (the Trustee ), the District and the Public Property Financing Corporation of California (the Trust Agreement ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, 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 District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Dissemination Agent shall mean Government Financial Strategies inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Participating Underwriter shall mean any of the original underwriters of the Certificates required to comply with the Rule in connection with offering of the Certificates. Repository shall mean each National Repository and each State Repository. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State Repository shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than April 15 following the end of each fiscal year, commencing April 15, 2009, with the report for the fiscal year, provide to each Repository and to the Financial Guaranty Insurer (as defined in the Trust Agreement) an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). The District shall provide a written certificate with each *Preliminary, subject to change. Appendix D Page 1

187 Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certificate of the District and shall have no duty or obligation to review such Annual Report. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District 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 not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the District is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the District shall send a notice to the Municipal Securities Rulemaking Board and the State Repository in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the District and if the District requests the Dissemination Agent to provide the Annual Report to the Repositories, and if and to the extent the District has provided an Annual Report in final form to the Dissemination Agent for dissemination, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The District s Annual Report shall be in a format suitable for filing with each Repository and shall contain or incorporate by reference the following: (a) Audited Financial Statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District 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 set forth in the Audited Financial Statements, operating data with respect to the District for preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the official statement for the Certificates: (i) general fund revenue sources by type (over $1,000,000); (ii) annual contribution (District s share) to the Public Employees Retirement System; and (iii) adopted general fund budget. 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 District or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. (c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the District shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. The District is solely responsible for the content and format of the Annual Report. Appendix D Page 2

188 Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if the District determines that such event is material: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) Principal and interest payment delinquencies. Non-payment related defaults. Unscheduled draws on debt service reserves reflecting financial difficulties. Unscheduled draws on credit enhancements reflecting financial difficulties. Substitution of credit or liquidity providers, or their failure to perform. Adverse tax opinions or events affecting the tax-exempt status of the security. Modifications to rights of security holders. Contingent or unscheduled bond calls. Defeasances. Release, substitution, or sale of property securing repayment of the securities. Rating changes. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal securities law. The Dissemination Agent shall have no responsibility for such determination and shall be entitled to conclusively rely on the District s determination. (c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates pursuant to the Trust Agreement. Section 6. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The District 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be Government Financial Strategies inc. The Dissemination Agent may resign by providing thirty days written notice to the District. If at any time there is no designated Dissemination Agent appointed by the District, or if the Dissemination Agent so appointed is unwilling or unable to perform the duties of Dissemination Agent hereunder, the District shall be the Dissemination Agent and undertake or assume its obligations hereunder. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate (provided the Dissemination Agent shall not be obligated to enter into any such amendment that modifies or increases its duties hereunder), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) 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 Certificates, or type of business conducted; Appendix D Page 3

189 (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Certificates. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District 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 District 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 District 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 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Lease Agreement or the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. All of the immunities, indemnities, and exceptions from liability in Article IX of the Trust Agreement insofar as the relate to the Trustee shall apply to the Dissemination Agent in this Disclosure Certificate. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of the disclosure of information pursuant to the Disclosure Certificate or arising out of or in the exercise of performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall have no duty of obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the owner of a Certificate, or any other party. The Trustee shall have no liability to any party for any monetary damages or other financial liability of any kind whatsoever related to or arising from any breach of this Disclosure Certificate. No person shall have any right to commence any action against the Appendix D Page 4

190 Dissemination Agent seeking any remedy other than to compel specific performance of this Certificate. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any written direction from the District or an opinion of Bond Counsel. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent or the Trustee and payment of the Certificates. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Certificates, and shall create no rights in any other person or entity. Section 13. Fees and Expenses. (a) The Dissemination Agent shall be entitled to payment and reimbursement from the District for its services and all advances, counsel fees and other expenses reasonably made and incurred by the Dissemination Agent. (b) The Dissemination Agent may rely on and shall be protected in acting and refraining from acting upon any direction from the District or an opinion of nationally recognized bond counsel. Section 14. Alternative Filing Location. Any filing under this Disclosure Certificate may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the MAC ) as provided at unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC, dated September 7, Date: [Closing Date] CITY OF SANTA ROSA HIGH SCHOOL DISTRICT By Authorized Officer ACKNOWLEDGED: GOVERNMENT FINANCIAL STRATEGIES INC., as Dissemination Agent By Authorized Officer Appendix D Page 5

191 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: Date of Issuance: City of Santa Rosa High School District $6,116, City of Santa Rosa High School District Certificates of Participation (2008 Capital Project) Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the District as the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California (consisting of $3,020,000 Current Interest Certificates and $3,096, Capital Appreciation Certificates) [Closing Date] NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Certificates as required by Section of the Trust Agreement, dated as of June 1, 2008, by and among U.S. Bank National Association, as trustee, the Issuer and the Public Property Financing Corporation of California. The Issuer anticipates that the Annual Report will be filed by. Dated: GOVERNMENT FINANCIAL STRATEGIES INC., as Dissemination Agent cc: Trustee By Authorized Officer Appendix D Page 6

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193 APPENDIX E FORM OF OPINION OF SPECIAL COUNSEL

194 APPENDIX E FORM OF OPINION OF SPECIAL COUNSEL [Letterhead of Quint & Thimmig LLP] [Closing Date] Board of Education of the City of Santa Rosa High School District 211 Ridgway Avenue Santa Rosa, California OPINION: $6,116, City of Santa Rosa High School District Certificates of Participation (2008 Capital Project) Evidencing Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the District as the Rental for Certain Property Pursuant to a Lease Agreement with the Public Property Financing Corporation of California (consisting of $3,020,000 Current Interest Certificates and $3,096, Capital Appreciation Certificates) Members of the Board of Education: We have acted as special counsel in connection with the delivery by the City of Santa Rosa High School District (the District ), of its $6,116, Lease Agreement, dated as of June 1, 2008, by and between the Public Property Financing Corporation of California (the Corporation ) and the District (the Lease Agreement ), pursuant to the California Education Code. The Corporation has, pursuant to the Assignment Agreement, dated as of June 1, 2008 (the Assignment Agreement ), by and between the Corporation and U.S. Bank National Association, as trustee (the Trustee ), assigned certain of its rights under the Lease Agreement, including its right to receive a portion of the lease payments made by the District thereunder (the Lease Payments ), to the Trustee. Pursuant to the Trust Agreement, dated as of June 1, 2008, by and among the Trustee, the Corporation and the District (the Trust Agreement ), the Trustee has executed and delivered certificates of participation (the Certificates ) evidencing direct, undivided fractional interests of the owners thereof in the Lease Payments. 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 District contained in the Lease Agreement 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 our examination, we are of the opinion, under existing law, as follows: 1. The District is duly created and validly existing as a school district organized and existing under the laws of the State of California with the power to enter into the Lease Agreement and the Trust Agreement and to perform the agreements on its part contained therein. 2. The Lease Agreement has been duly authorized, executed and delivered by the District and is an obligation of the District valid, binding and enforceable against the District in accordance with its terms. 3. The Trust Agreement and the Assignment Agreement are valid, binding and enforceable in accordance with their terms. Appendix E Page 1

195 4. Subject to the terms and provisions of the Lease Agreement, the Lease Payments to be made by the District are payable from general funds of the District lawfully available therefor. By virtue of the Assignment Agreement, the owners of the Certificates are entitled to receive their fractional share of the Lease Payments in accordance with the terms and provisions of the Trust Agreement. 5. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is excludable from gross income for federal income tax purposes under section 103 of the Internal Revenue Code of 1986, as amended (the Code ) and, under section 55 of the Code, is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Code but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the delivery of the Lease Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Lease Agreement. We express no opinion regarding other federal tax consequences arising with respect to the Lease Agreement and the Certificates. 6. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is exempt from personal income taxation imposed by the State of California. Ownership of the Certificates may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Certificates. The rights of the owners of the Certificates and the enforceability of the Lease Agreement, the Assignment Agreement and the Trust Agreement may be subject to the 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 District 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

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197 APPENDIX F SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

198 Assured Guaranty Corp Avenue of the Americas New York, NY t Financial Guaranty Insurance Policy Issuer: Policy No.: Obligations: Premium: Effective Date: Assured Guaranty Corp., a Maryland corporation ( Assured Guaranty ), in consideration of the payment of the Premium and on the terms and subject to the conditions of this Policy (which includes each endorsement hereto), hereby unconditionally and irrevocably agrees to pay to the trustee (the Trustee ) or the paying agent (the Paying Agent ) for the Obligations (as set forth in the documentation providing for the issuance of and securing the Obligations) for the benefit of the Holders, that portion of the Insured Payments which shall become Due for Payment but shall be unpaid by reason of Nonpayment. Assured Guaranty will make such Insured Payments to the Trustee or the Paying Agent on the later to occur of (i) the date applicable principal or interest becomes Due for Payment, or (ii) the Business Day next following the day on which Assured Guaranty shall have Received a completed Notice of Nonpayment. If a Notice of Nonpayment by Assured Guaranty is incomplete or does not in any instance conform to the terms and conditions of this Policy, it shall be deemed not Received, and Assured Guaranty shall promptly give notice to the Trustee or the Paying Agent. Upon receipt of such notice, the Trustee or the Paying Agent may submit an amended Notice of Nonpayment. The Trustee or the Paying Agent will disburse the Insured Payments to the Holders only upon receipt by the Trustee or the Paying Agent, in form reasonably satisfactory to it of (i) evidence of the Holder's right to receive such payments, and (ii) evidence, including without limitation any appropriate instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Assured Guaranty. Upon and to the extent of such disbursement, Assured Guaranty shall become the Holder of the Obligations, any appurtenant coupon thereto and right to receipt of payment of principal thereof or interest thereon, and shall be fully subrogated to all of the Holder's right, title and interest thereunder, including without limitation the right to receive payments in respect of the Obligations. Payment by Assured Guaranty to the Trustee or the Paying Agent for the benefit of the Holders shall discharge the obligation of Assured Guaranty under this Policy to the extent of such payment. This Policy is non-cancelable by Assured Guaranty for any reason. The Premium on this Policy is not refundable for any reason. This Policy does not insure against loss of any prepayment premium or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Assured Guaranty, nor against any risk other than Nonpayment. Except to the extent expressly modified by any endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Avoided Payment means any amount previously distributed to a Holder in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Business Day means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. Due for Payment means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (ii) when referring to interest on an Obligation, the stated date for payment of such interest. Holder means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligations. Insured Payments means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. Nonpayment means, in respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. Receipt or Received means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to Assured Guaranty may be mailed by registered mail or personally delivered or telecopied to it at 1325 Avenue of the Americas, New York, New York 10019, Telephone Number: (212) , Facsimile Number: (212) , Attention: Risk Management Department Public Finance Surveillance, with a copy to the General Counsel, or to such other address as shall be specified by Assured Guaranty to the Trustee or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by Assured Guaranty on a given Business Day if it is Received prior to 12:00 noon (New York City time) on such Business Day; otherwise it will be deemed Received on the Page 1 of 2 Form FG001 (05/07)

199 next Business Day. Term means the period from and including the Effective Date until the earlier of (i) the maturity date for the Obligations, or (ii) the date on which the Issuer has made all payments required to be made on the Obligations. At any time during the Term of this Policy, Assured Guaranty may appoint a fiscal agent (the Fiscal Agent ) for purposes of this Policy by written notice to the Trustee or the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of Receipt of such notice by the Trustee or the Paying Agent, copies of all notices and documents required to be delivered to Assured Guaranty pursuant to this Policy shall be delivered simultaneously to the Fiscal Agent and to Assured Guaranty. All payments required to be made by Assured Guaranty under this Policy may be made directly by Assured Guaranty or by the Fiscal Agent on behalf of Assured Guaranty. The Fiscal Agent is the agent of Assured Guaranty only, and the Fiscal Agent shall in no event be liable to the Trustee or the Paying Agent for any acts of the Fiscal Agent or any failure of Assured Guaranty to deposit, or cause to be deposited, sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, Assured Guaranty hereby waives, in each case for the benefit of the Holders only, all rights and defenses of any kind (including, without limitation, the defense of fraud in the inducement or in fact or any other circumstance that would have the effect of discharging a surety, guarantor or any other person in law or in equity) that may be available to Assured Guaranty to deny or avoid payment of its obligations under this Policy in accordance with the express provisions hereof. Nothing in this paragraph will be construed (i) to waive, limit or otherwise impair, and Assured Guaranty expressly reserves, Assured Guaranty s rights and remedies, including, without limitation: its right to assert any claim or to pursue recoveries (based on contractual rights, securities law violations, fraud or other causes of action) against any person or entity, in each case, whether directly or acquired as a subrogee, assignee or otherwise, subsequent to making any payment to the Trustee or the Paying Agent, in accordance with the express provisions hereof, and/or (ii) to require payment by Assured Guaranty of any amounts that have been previously paid or that are not otherwise due in accordance with the express provisions of this Policy. This Policy (which includes each endorsement hereto) sets forth in full the undertaking of Assured Guaranty with respect to the subject matter hereof, and may not be modified, altered or affected by any other agreement or instrument, including, without limitation, any modification thereto or amendment thereof. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. This Policy will be governed by, and shall be construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, Assured Guaranty has caused this Policy to be affixed with its corporate seal, to be signed by its duly authorized officer, and to become effective and binding upon Assured Guaranty by virtue of such signature. (SEAL) ASSURED GUARANTY CORP. By: [Insert Authorized Signatory Name] [Insert Authorized Signatory Title] Signature attested to by: Counsel Page 2 of 2 Form NY-FG (05/07)

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