NEW ISSUE BOOK ENTRY ONLY

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1 NEW ISSUE BOOK ENTRY ONLY Series A Bonds RATINGS: See RATINGS herein S&P: AAA Moody s: Aaa Series B Bonds: UNRATED In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, interest on the Series B Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations, but may be subject to the corporate alternative minimum tax because of the adjustments for current earnings of certain corporations. In the further opinion of Bond Counsel, interest on the Series A Bonds and Series B Bonds is exempt from California personal income taxes. Bond Counsel expresses no opinion regarding other federal or state tax consequences related to the accrual or receipt of interest with respect to the Bonds. The interest on the Series A Bonds is not exempt from gross income for federal income tax purposes. See TAX MATTERS herein. REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AMENDED AND RESTATED MERGED CENTRAL BUSINESS DISTRICT AND WEST END REDEVELOPMENT PROJECT AREA $15,780,000 $4,790,000 Dated: Date of Delivery TAXABLE TAX ALLOCATION BONDS TAX ALLOCATION BONDS (SUBORDINATE LIEN) (SECOND SUBORDINATE LIEN) 2007 SERIES A 2007 SERIES B Due: August 1, as shown on the inside front cover The Redevelopment Agency of the City of Azusa (the Agency ) will issue its Amended and Restated Merged Central Business District and West End Redevelopment Project Area Taxable Tax Allocation Bonds (Subordinate Lien) 2007 Series A (the Series A Bonds ) and the Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Second Subordinate Lien) 2007 Series B Bonds (the Series B Bonds, collectively with the Series A Bonds, the Bonds ) under two separate Indentures, by and between the Agency and Wells Fargo Bank, National Association, as trustee. The Bonds will be issued as two separate series of bonds and are each payable from and secured by certain tax increment revenues eligible for allocation to the Agency in connection with the Agency s Amended and Restated Central Business District and West End Redevelopment Project Area (the Project Area ) as provided for in the Redevelopment Plan (as defined herein) and certain funds and accounts held under the Indentures. The Bonds are being issued for sale to the Azusa Public Financing Authority, which is concurrently selling the Bonds to the Underwriter. Proceeds of the Series A Bonds will be used to (i) provide funds to finance redevelopment projects, (ii) satisfy the Reserve Requirement for the Series A Bonds, and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Series A Bonds. Proceeds of the Series B Bonds will be used to (i) refund on a current basis the $6,470,000 Redevelopment Agency of the City of Azusa Merged Project Area Tax Allocation Refunding Bonds 1997 Series A (the 1997 Bonds ), (ii) satisfy the Reserve Requirement for the Series B Bonds, and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Series B Bonds. The Bonds of each series will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for each series of the Bonds. Individual purchasers of the Bonds may be made in book-entry form only. The Bonds of each series shall be issued in denominations of $5,000 each or any integral multiple thereof. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal of and interest on the Bonds of each series will be paid directly to DTC by the Trustee. Principal of the Bonds of each series is payable on the dates set forth on the inside cover page hereof. Interest on the Bonds of each series is payable on February 1 and August 1 of each year, commencing February 1, Upon its receipt of payments of principal and interest, DTC is in turn obligated to remit such principal and interest to DTC participants for subsequent disbursement to the beneficial owners of the Bonds as described herein. Each series of the Bonds are subject to optional and mandatory sinking fund redemption as described herein. The Series A Bonds are payable from and secured by Subordinate Tax Revenues, described herein, and are issued on a subordinate basis with certain other debt of the Agency. The Series B Bonds are payable from and secured by Second Subordinate Tax Revenues, described herein, and are issued on a subordinate basis with certain other debt of the Agency and the Series A Bonds. Additional obligations on a parity basis with each series of the Bonds may be incurred in the future by the Agency upon the satisfaction of certain conditions described herein. See SECURITY FOR THE BONDS herein. Scheduled payment of the principal of and interest on the Series A Bonds will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the execution and delivery of the Series A Bonds. See BOND INSURANCE herein. The Series B Bonds are not insured. THE BONDS ARE SPECIAL OBLIGATIONS OF THE AGENCY PAYABLE FROM AND SECURED BY A PLEDGE OF CERTAIN TAX INCREMENT REVENUES, AS DESCRIBED HEREIN, AND AMOUNTS HELD IN CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE RELATED INDENTURE. THE BONDS ARE NOT A DEBT OF THE CITY OF AZUSA (THE CITY ), THE STATE OF CALIFORNIA (THE STATE ), OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY), AND NEITHER THE CITY, THE STATE, NOR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) IS LIABLE THEREFOR, NOR IN ANY EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE AGENCY AS SET FORTH IN THE RELATED INDENTURE. NEITHER THE MEMBERS OF THE AGENCY NOR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY FOR THE BONDS. THE AGENCY HAS NO TAXING POWER. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. MATURITY SCHEDULE (see inside cover hereof) This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds are offered when, as and if issued, subject to the approval as to their legality by Best Best & Krieger LLP, Riverside, California, Bond Counsel. Certain legal matters will be passed on for the Agency by Best Best & Krieger LLP, as Agency General Counsel and Disclosure Counsel. It is anticipated that the Bonds will be available for delivery in book-entry form through the facilities of DTC on or about July 31, Dated: July 18, 2007

2 SERIES A BONDS MATURITY SCHEDULE $15,780,000 Series A Bonds Current Interest Bonds (Base CUSIP: ) Maturity Date (August 1) Amount Rate Yield Price CUSIP 2008 $340, % 5.268% EJ , % 5.298% EK0 $3,760, % Term Bonds Due August 1, 2017 Yield 5.765% Price CUSIP EL8 $3,380, % Term Bonds Due August 1, 2022 Yield 6.065% Price CUSIP EM6 $7,935, % Term Bonds Due August 1, 2035 Yield 6.266% Price CUSIP EN4 SERIES B BONDS MATURITY SCHEDULE $4,790,000 Series B Bonds Current Interest Bonds (Base CUSIP: ) Maturity Date (August 1) Amount Rate Yield Price CUSIP 2008 $80, % 4.000% EP , % 4.150% EQ , % 4.300% ER , % 4.400% ES , % 4.500% ET , % 4.600% EU , % 4.700% EV , % 4.800% EW , % 4.850% EX , % 4.900% EY , % 4.950% EZ , % 5.000% FA , % 5.050% FB , % 5.100% FC7 $1,025, % Term Bonds Due August 1, 2027 Yield 5.250% Price CUSIP FD5 $2,255, % Term Bonds Due August 1, 2036 Yield 5.300% Price CUSIP FE3

3 No dealer, broker, salesperson or other person has been authorized by the Agency 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 any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any Bonds by any person in any jurisdiction in which such offer of solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matter of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of fact. Certain statements included or incorporated by reference in this Official Statement constitute forwardlooking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, or other similar words and include, but are not limited to, statements under the caption THE PROJECT AREA Projected Taxable Valuation and Tax Revenues; Debt Service Coverage. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. While the Agency has agreed to provide certain on-going financial and operating data for a limited period of time (see CONTINUING DISCLOSURE ), the Agency does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based change. The information set forth herein has been obtained from the City, the Agency and other sources that are believed to be reliable, but it is not guaranteed as to its accuracy or completeness. The information and expressions of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the City since the date hereof. All summaries of the resolutions, the Indenture, laws and statutes or 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. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Bonds have not been registered under the Securities Act of 1933, as amended, nor has the Indenture been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon an exception from the registration requirements contained in such acts. The Bonds have not been registered or qualified under the securities laws of any state. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL BONDS TO CERTAIN DEALERS AND OTHERS AT A PRICE LOWER THAN THE OFFERING PRICE. THE OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE ORIGINAL PURCHASERS.

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5 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AZUSA, CALIFORNIA AGENCY MEMBERS AND CITY COUNCIL Joseph R. Rocha, Chairman and Mayor Keith Hanks, Vice Chairman and Mayor Pro Tem Angel Carrillo, Agency Member and Council Member Robert Gonzales, Agency Member and Council Member Uriel E. Macias, Agency Member and Council Member AGENCY STAFF AND CITY STAFF F. M. Delach, Executive Director Robert Person, Assistant City Manager Bruce Coleman, Director of Economic and Community Development Alan Kreimeier, Director of Administrative Services/Chief Financial Officer Marcene Hamilton, City Treasurer Vera Mendoza, Agency Clerk and City Clerk Roseanna J. Jara, Senior Accountant - Redevelopment SPECIAL SERVICES Agency Counsel Best Best & Krieger LLP Irvine, California Bond Counsel & Disclosure Counsel Best Best & Krieger LLP Riverside, California Trustee Wells Fargo Bank, National Association Los Angeles, California Financial Advisor to the Agency CM de Crinis & Co., Inc. Sherman Oaks, California Redevelopment Consultant HdL Coren & Cone Diamond Bar, California Verification Agent Barthe & Wahrman P.A. CPAs Minneapolis, Minnesota

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7 PAGE INTRODUCTION...1 General...1 The City, the Agency and the Project Area...2 Tax Allocation Financing...3 Security for the Bonds; Plan of Financing...4 Professionals Involved in the Offering...4 Summaries of Documents...5 Continuing Disclosure...5 Other Information...5 THE FINANCING PLAN...5 Use of Bond Proceeds...5 SERIES A BONDS SOURCES AND USES OF FUNDS...6 SERIES B BONDS SOURCES AND USES OF FUNDS...6 THE BONDS...7 General...7 Series A Bonds Redemption...7 Series B Bonds Redemption...8 Other Redemption Provisions...9 Book-Entry Only System...10 SERIES A BONDS ANNUAL DEBT SERVICE...11 SERIES B BONDS ANNUAL DEBT SERVICE...12 SECURITY FOR THE BONDS...13 Tax Allocation Financing Generally...13 Allocation of Taxes...13 Issuance of Additional Bonds...16 Reserve Account...19 Limited Liability...20 BOND INSURANCE...20 Payments Pursuant to Financial Guaranty Insurance Policy...20 Ambac Assurance Corporation...21 Available Information...22 Incorporation of Certain Documents by Reference...22 Debt Service Reserve Fund Ambac Assurance Surety Bond...22 THE AGENCY...23 Agency Members...23 Agency Administration...24 Agency Powers...25 Factors Affecting Redevelopment Agencies Generally...25 Financial Statements; Agency Budget; Statement of Indebtedness...25 Regulatory Issues...26 THE PROJECT AREA...26 Redevelopment Plan...26 History of the Project Area...26 Redevelopment Projects...27 Assessed Valuation...28 Land Use in the Project Area...29 Major Taxpayers...30 Bonded Indebtedness and Certain Other Obligations...30 Projected Taxable Valuation and Tax Revenues; Debt Service Coverage...31 Section Pass-Through Payments...33 Projected Tax Revenues and Debt Service Coverage...34 BONDOWNERS RISKS...37 Limited Obligations of the Agency...38 TABLE OF CONTENTS PAGE Reduction in Taxable Value...38 Article XIIIA Litigation...38 Reduction in Inflationary Rate...38 Legislation Affecting Redevelopment Agencies...39 Santa Ana Unified School District Case...40 Development Risks...41 Levy and Collection...41 ERAF; State Budget Deficit...41 Property Tax Appeals...43 Additional Financing...44 Seismic Considerations...44 Hazardous Substances...44 Enforceability of Remedies...45 Investment of Funds...45 Loss of Tax Exemption...45 Secondary Market...45 LIMITATIONS ON TAX REVENUES...45 Property Tax Limitations - Article XIIIA...45 Challenges to Article XIIIA...46 Implementing Legislation...46 Proposition Appropriations Limitations: Article XIIIB of the California Constitution...47 Unitary Taxation of Utility Property...47 Housing Set-Aside...48 Property Tax Collection Procedures...49 County Tax Allocation Procedures Applicable to the Agency...50 Certification of Agency Indebtedness...50 Plan Limitations...51 TAX MATTERS...52 FINANCIAL ADVISOR...54 RATINGS ON THE SERIES A BONDS...54 UNDERWRITING...54 NO LITIGATION...54 LEGAL MATTERS...55 VERIFICATION OF MATHEMATICAL COMPUTATIONS...55 CONTINUING DISCLOSURE...55 MISCELLANEOUS...55 APPENDIX A - SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA...A-1 APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C - FISCAL CONSULTANT S REPORT DATED JUNE 26, C-1 APPENDIX D-1 SERIES A BONDS FORM OF BOND COUNSEL OPINION... D-1-1 APPENDIX D-2 SERIES B BONDS FORM OF BOND COUNSEL OPINION... D-2-1 APPENDIX E-1 SERIES A BONDS SUMMARY OF LEGAL DOCUMENTS...E-1-1 APPENDIX E-2 SERIES B BONDS SUMMARY OF LEGAL DOCUMENTS...E-2-1 APPENDIX F - BOOK-ENTRY ONLY SYSTEM... F-1 APPENDIX G - FORM OF CONTINUING DISCLOSURE CERTIFICATE...G-1 APPENDIX H - SPECIMEN OF BOND INSURANCE POLICY...H-1 i

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9 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AMENDED AND RESTATED MERGED CENTRAL BUSINESS DISTRICT AND WEST END REDEVELOPMENT PROJECT AREA $15,780,000 $4,790,000 TAXABLE TAX ALLOCATION BONDS TAX ALLOCATION BONDS (SUBORDINATE LIEN) (SECOND SUBORDINATE LIEN) 2007 SERIES A 2007 SERIES B INTRODUCTION This introduction does not purport to be complete, and reference is made to the body of this Official Statement, appendices and the documents referred to herein for more complete information with respect to the matter concerning the Bonds. Potential investors are encouraged to read the entire Official Statement. Capitalized terms used and not defined in this Introduction shall have the meanings assigned to them elsewhere in this Official Statement. General This Official Statement, including the cover page and appendices hereto, is provided to furnish information in connection with the sale by the Redevelopment Agency of the City of Azusa (the Agency ) of the $15,780,000 aggregate principal amount of its Amended and Restated Merged Central Business District and West End Redevelopment Project Area Taxable Tax Allocation Bonds (Subordinate Lien) 2007 Series A (the Series A Bonds ) and the $4,790,000 aggregate principal amount of its Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Second Subordinate Lien) 2007 Series B (the Series B Bonds, and together with the Series A Bonds, the Bonds ). The Bonds are being issued for sale to the Azusa Public Financing Authority, which will concurrently sell the Bonds to the Underwriter. The Series A Bonds are being issued pursuant to (i) the Constitution and the laws of the State of California (the State ), including the Community Redevelopment Law (codified in Part 1 of Division 24 of the California Health and Safety Code) (the Redevelopment Law ), (ii) Resolution No. 07-R20 of the Agency adopted on July 2, 2007 (the Resolution ), and (iii) a Trust Indenture (the Series A Indenture ) dated as of July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association, as the Trustee. Proceeds of the Series A Bonds will be used to (i) fund redevelopment projects of the Agency, (ii) satisfy the Reserve Requirement for the Series A Bonds, and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Series A Bonds, including the premium for a financial guaranty insurance policy (the Bond Insurance Policy ). The Series B Bonds are being issued pursuant to (i) the Constitution and laws of the State, including the Refunding Bond Law (being Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California) (the Refunding Bond Law ), (ii) the Resolution and (iii) a Trust Indenture (the Series B Indenture, collectively with the Series A Indenture, the Indentures ) dated July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association. Proceeds of the Series B Bonds will be used, together with certain other funds, to (i) refund the Agency s 1997 Tax Allocation Refunding Bonds original principal amount of $6,470,000 (the 1997 Bonds ), (ii) satisfy the Reserve Requirement for the Series B Bonds, and (iii) pay costs incurred in connection with the issuance, sale and deliver of the Series B Bonds. 1

10 The Series A Bonds are payable from and secured by Subordinate Tax Revenues (as defined below) allocable to the Agency from the Project Area (as defined below) and certain funds and accounts established pursuant to the Series A Indenture. The Series B Bonds are payable from and secured by Second Subordinate Tax Revenues (defined below) allocable to the Agency from the Project Area and certain funds and accounts established pursuant to the Series B Indenture. The Series A Bonds are issued on a subordinate basis to the Agency s outstanding 2003 Tax Allocation Bonds (the 2003 Bonds ) and 2005 Tax Allocation Bonds (the 2005 Bonds ). In addition, the Series B Bonds are subordinate to the 2003 Bonds, the 2005 Bonds and the Series A Bonds. See Security for the Bonds; Plan of Financing below. Subject to certain conditions, additional obligations on a parity basis with the Bonds may be incurred in the future by the Agency. See SECURITY FOR THE BONDS. Scheduled payment of the principal of and interest on the Series A Bonds, when due, will be insured, respectively, by the Bond Insurance Policy. The Bond Insurance Policy will be issued by Ambac Assurance Corporation (the Bond Insurer ) simultaneously with the delivery of the Bonds. Bond Insurance is not provided for the Series B Bonds. See BOND INSURANCE and APPENDIX H SPECIMEN OF BOND INSURANCE POLICY. The City, the Agency and the Project Area The City of Azusa (the City ) is located in Los Angeles County (the County ), California. Incorporated in 1898 as a general law city, the City encompasses an area of approximately 9 square miles. The City operates according to the Council/Manager form of government. The City Manager is appointed by the City Council to manage the City s staff and generally implement policies established by the City Council. See APPENDIX A SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA for more general information about the City. The Redevelopment Plan for the Central Business District Redevelopment Project was adopted on September 18, 1978, by City Council Ordinance No The redevelopment plan has been amended twelve times: on July 2, 1979, by Ordinance No, 2077; on July 20, 1981, by Ordinance No. 2113; on November 28, 1983, by Ordinance No. 2197; on December 17, 1984, by Ordinance No. 2249; on December 17, 1984, by Ordinance No. 2250; on November 7, 1988, by Ordinance No and on December 19, 1994, by Ordinance No ; on October 6, 2003, by Ordinance No ; on December 1, 2003, by Ordinance No ; on October 4, 2004, by Ordinance No ; on October 2, 2006, by Ordinance No and on February 5, 2007, by Ordinance No The first amendment added territory to the Central Business District Project. The second amendment increased the tax increment and bonded indebtedness limits, and added territory. Third amendment reduced the time limit for commencement of eminent domain proceedings; and added territory. The fourth amendment deleted territory from the Central Business District Project. The fifth amendment revised the financial provisions of the redevelopment plan, extended the debt establishment time limit, and added back the territory deleted by the fourth amendment. The sixth amendment merged the Central Business District Redevelopment Project with the West End Redevelopment Project. The seventh amendment revised the plan s financial time limits to bring them into conformity with new Community Redevelopment Law maximums established in AB The eighth amendment to the Redevelopment Plan for the Central Business District Redevelopment Project and the third amendment for the West End Redevelopment Project was enacted by Ordinance No on October 6, 2003, and enacted the following: 1) replaced the Central Business District Redevelopment Plan, as well as the redevelopment plan for the West End Redevelopment Project, with one amended and restated redevelopment plan applicable to the entire Project Area; 2) added certain territory to the Project Area; 3) established or re-established the time limit for commencement of eminent domain proceedings to acquire certain specified non-residential properties within the Project Area; 4) combined the tax increment limits of the merged component projects into a single tax increment limit applicable to the entire Project Area; 5) extended the time limits for the repayment of Project Area debt with tax increment; and 6) extended the duration of the amended and restated redevelopment plan s 2

11 effectiveness applicable to the Project Area. The ninth, tenth, eleventh and twelfth amendments are described below. The Redevelopment Plan for the West End Redevelopment Project was adopted on November 28, 1983, by City Council Ordinance No The redevelopment plan has been amended seven times: On November 7, 1988, by Ordinance No. 2382, and on December 19, 1994, by Ordinance No The first amendment merged the West End Redevelopment Project with the Central Business District Redevelopment Project. The second amendment revised the plan s financial time limits to bring them into conformity with the new Community Redevelopment Law maximums established in AB The third amendment is described in the previous paragraph and the fourth, fifth, sixth and seventh amendments are described below. On December 1, 2003, the City Council adopted Ordinance No which enacted the ninth amendment to the Central Business District Redevelopment Project and the fourth amendment to the West End Redevelopment Project. The amendment eliminated the time limits for the establishment of loans, and indebtedness relating to the Project Area. Additionally, on October 4, 2004, the City Council adopted Ordinance No which was the fifth amendment to the West End Redevelopment Project and the tenth amendment to the Central Business District Redevelopment Project, and extended by one year the effective dates of the Redevelopment Plan and the date for the Agency to receive tax increment pursuant to Section (e)(2)(c) of the California Health and Safety Code. On October 2, 2006, the City Council adopted Ordinance No which permitted the Agency to use eminent domain to acquire non-residential properties within the existing Project Area. Such Ordinance constitutes the eleventh amendment to the Central Business District Redevelopment Project and sixth amendment to the West End Redevelopment Project. On February 5, 2007, the City Council adopted Ordinance No which enacted the twelfth amendment to the Central Business District Redevelopment Project and seventh amendment to the West End Redevelopment Project and extended the time to collect tax increment because of the loss of funds resulting from the requirement to make payments to the Educational Revenue Augmentation Fund ( ERAF ) that would have otherwise been used to pay for the costs of projects within the Central Business District Project and the West End Project Area and extend the effective date of the plan for the West End Project Area. The Agency s audited financial statements for the fiscal year ended June 30, 2006, are included in APPENDIX B and should be read in their entirety. The Agency s financial statements were audited by the independent accounting firm of Lance, Soll & Lunghard, Certified Public Accountants. The Agency s audited financial statements for the year ended June 30, 2005, and prior years are on file for public inspection with the Agency Clerk. Copies can also be obtained from the Agency s Finance Department, City of Azusa, 213 E. Foothill Boulevard, Azusa, California Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of tax increment revenues collected within a redevelopment project area. With limited exceptions, taxes collected upon any increase in assessed valuation of a taxable property over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Subject to certain exceptions and prior claims on such tax increment revenues, the Agency has pledged certain tax increment revenues with respect to the Project Area to the payment of the principal of, premium (if any) and interest on the Bonds. See SECURITY FOR THE BONDS. 3

12 Security for the Bonds; Plan of Financing The Series A Bonds are special obligations of the Agency payable solely from Subordinate Tax Revenues (defined below) and other funds and accounts pledged therefor pursuant to the Series A Indenture. The Series B Bonds are special obligations of the Agency payable solely from Second Subordinate Tax Revenues (defined below) and other funds and accounts pledged therefor pursuant to the Series B Indenture. Tax Revenues are defined as the taxes eligible for allocation to the Agency pursuant to the Redevelopment Law in connection with the Project Area as provided in the Redevelopment Plan, including housing set-aside revenues to the extent that such revenues are permitted to pay debt service on the Bonds, but excluding amounts of such tax revenues payable to certain taxing agencies pursuant to tax sharing agreements and statutory pass-through payments. The Agency s receipt of Tax Revenues is subject to certain risks and limitations. Subordinate Tax Revenues (more specifically described below) are Tax Revenues less the debt service on the 2003 Bonds and the 2005 Bonds. Second Subordinate Tax Revenues are Tax Revenues less the debt service on the 2003 Bonds, 2005 Bonds and Series A Bonds. See SECURITY FOR THE BONDS, THE PROJECT AREA Bonded Indebtedness and Certain Other Obligations, Tax Sharing Agreements, Section Pass-Through Payments, BONDOWNERS RISKS and LIMITATIONS ON TAX REVENUES. The Bonds of each series are subordinate to the following two outstanding bond issues: $11,580,000 aggregate principal amount of Amended and Restated Merged Project Area Tax Allocation Refunding Bonds, 2003 Series A (the 2003 Bonds ), of which $10,145,000 was outstanding as of June 30, 2007, and $9,022,800 Amended and Restated Central Business District and West End Redevelopment Project Area Tax Allocation Bonds, 2005 Series A (the 2005 Bonds ), of which $9,154,907 was outstanding as of June 30, The 2003 Bonds and 2005 Bonds are hereinafter collectively referred to as the Senior Lien Bonds. The 2003 Bonds were issued under the Trust Indenture, dated as of August 1, 1986 (the CBD Indenture ), by and between the Agency and Security Pacific National Bank, subsequently succeeded by Bank of America National Trust and Savings Association and further succeeded by Wells Fargo Bank, National Association as trustee (the Senior Lien Trustee ), a Trust Indenture, dated as of August 1, 1986 (the West End Indenture ), by and between the Agency and the Trustee, a First Supplement to Trust Indentures, dated as of May 1, 1992 (the First Supplement ), by and between the Agency and the Senior Lien Trustee, a Second Supplement to Trust Indentures, dated as of March 1, 1994 (the Second Supplement ), by and between the Agency and the Senior Lien Trustee, a Third Supplement to Trust Indentures, dated as of September 1, 1997 (the Third Supplement ), by and between the Agency and the Senior Lien Trustee, a Fourth Supplement to Trust Indentures, dated as of December 1, 2003 (the Fourth Supplement ), by and between the Agency and the Senior Lien Trustee, and a Fifth Supplement to Trust Indentures (the Fifth Supplement ) dated as of February 1, 2005, by and between the Agency and the Senior Lien Trustee. The CBD Indenture, the West End Indenture, the First Supplement, the Second Supplement, the Third Supplement, the Fourth Supplement and the Fifth Supplement, are collectively referred to herein as the Senior Indenture. In addition, the Series B Bonds are subordinate to the Series A Bonds and any other Bonds issued on a parity basis under the Series A Indenture. The Senior Lien Bonds, the Series A Bonds and any Parity Obligations are hereinafter collectively referred to as the Senior and Subordinate Lien Bonds. Subject to certain conditions, additional obligations on a parity basis with the Bonds may be incurred in the future by the Agency. SECURITY FOR THE BONDS Issuance of Parity Bonds, APPENDIX E-1 SERIES A BONDS SUMMARY OF LEGAL DOCUMENTS, and APPENDIX E-2 SERIES B BONDS SUMMARY OF LEGAL DOCUMENTS. Professionals Involved in the Offering Wells Fargo Bank, National Association, Los Angeles, California, will act as Trustee with respect to the Bonds. 4

13 CM de Crinis & Co., Sherman Oaks, California, has served as Financial Advisor to the Agency in connection with the Bonds. HdL Coren & Cone, Diamond Bar, California, has served as Redevelopment Consultant in connection with the Bonds, has prepared a fiscal consultant s report dated June 26, 2007 (the Fiscal Consultant s Report ), attached hereto as Appendix C and has prepared information used in connection with this Official Statement. Barthe & Wahrman P.A. CPAs has served as the Verification Agent with respect to the issuance of the Bonds. All proceedings in connection with the issuance of the Bonds are subject to the approval of Best Best & Krieger LLP, Riverside, California, Bond Counsel and Disclosure Counsel. Certain legal matters will be passed on for the Agency by Best Best & Krieger LLP, Irvine, California, as General Counsel to the Agency. The fees and expenses of the Financial Advisor, Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. Summaries of Documents There follows in this Official Statement, descriptions of the Bonds, the Indenture, the Agency, the City, the Project Area, the Redevelopment Law, and various agreements. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each such document and, with respect to certain rights and remedies, to laws and principles of equity relating to or affecting creditors rights generally. Capitalized terms not defined herein shall have the meanings set forth in the Indenture. Copies of the Indenture are available for inspection during business hours at the corporate trust office of the Trustee in Los Angeles, California. Continuing Disclosure The Agency has covenanted in a Continuing Disclosure Certificate to prepare and deliver an annual report to certain national and state repositories and to provide certain other information. Wells Fargo Bank, National Association will act as Dissemination Agent on behalf of the Agency. See CONTINUING DISCLOSURE and APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE. Other Information This Official Statement speaks only as of its date, as set forth on the cover hereof, and the information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Agency or the City or the Project Area since the date hereof. Use of Bond Proceeds THE FINANCING PLAN Series A Bonds. Proceeds from the sale of the Series A Bonds, together with certain other available moneys, will be used to (i) repay a loan from the City of Azusa which was used to finance various redevelopment projects of the Agency within the Project Area and to finance additional redevelopment activities in the Project Area, (ii) comply with the Reserve Requirements for the Reserve Account for the Series A Bonds, and (iii) pay costs incurred in connection with the issuance, sale, and delivery of the Series A Bonds, including premium for the Bond Insurance Policy. 5

14 The Series A Indenture establishes the Redevelopment Fund to be held by the Trustee. The Agency may direct the Trustee to make payments from the Redevelopment Fund for redevelopment activities of the Agency. SERIES A BONDS SOURCES AND USES OF FUNDS The following tables show the estimated sources and uses of the proceeds from the sale of the Series A Bonds and certain other moneys: Sources: Par amount of the Bonds $15,780, Less: Original issue discount (158,807.45) Underwriter s discount (106,515.00) Total Sources $15,514, Uses: Redevelopment Fund $15,004, Costs of Issuance (1) 510, Total Uses $15,514, (1) Costs of Issuance include Bond Counsel, Disclosure Counsel, Financial Advisor, Fiscal Consultant and Trustee fees and expenses, bond insurance, surety premium and rating agency fees, printing expenses and other costs. Series B Bonds. Proceeds of the Series B Bonds will be used, together with certain other funds, to (i) refund the 1997 Bonds, (ii) satisfy the Reserve Requirement for the Reserve Account for the Series B Bonds, and (iii) pay costs incurred in connection with the issuance, sale and deliver of the Series B Bonds. The Agency and Wells Fargo Bank, National Association, as escrow bank (the Escrow Bank ) will enter into the Escrow Deposit and Trust Agreement dated July 1, 2007 (the Escrow Agreement ). The Agency shall transfer a portion of the proceeds from the Series B Bonds to the Escrow Bank for defeasance of the 1997 Bonds in accordance with the Escrow Agreement. The 1997 Bonds will be redeemed on August 7, SERIES B BONDS SOURCES AND USES OF FUNDS The following tables show the estimated sources and uses of the proceeds from the sale of the Series B Bonds and certain other moneys: Sources: Par amount of the Bonds $4,790,000 Less: Original issue discount (13,891.80) Underwriter s discount (57,480.00) Plus: Funds on Deposit for 1997 Bonds 818, Total Sources $5,537, Uses: Deposit to Escrow Fund $5,161, Reserve Account 325, Costs of Issuance (1) 51, Total Uses $5,537, (1) Costs of Issuance include Bond Counsel, Disclosure Counsel, Financial Advisor, Fiscal Consultant and Trustee fees and expenses, printing expenses and other costs. 6

15 THE BONDS General The Series A Bonds are being issued pursuant to the Constitution and laws of the State and under authority granted to the Agency by the Redevelopment Law constituting Part 1 of Division 24 of the California Heath and Safety Code, as amended, the Resolution and the Series A Indenture. The Series B Bonds are issued pursuant to the Refunding Bond Law, the Resolution and the Series B Indenture. The Bonds are special obligations of the Agency and as such are not a debt of the City, the State, or any of their political subdivisions (other than the Agency), and none of the City, the State or any of their political subdivisions (other than the Agency) is liable for the payment thereof. In no event shall the Bonds of each series be payable out of any funds or properties other than those of the Agency as set forth in the respective Indenture. The Bonds do not constitute an indebtedness in contravention of any constitutional or statutory debt limit or restriction. For a discussion of some of the risks associated with the purchase of the Bonds, see BONDOWNERS RISKS. The Agency has no taxing powers. The Bonds will be issued as the Series A Bonds in the amount of $15,780,000 and the Series B Bonds in the amount of $4,790,000 and will be issued in authorized denominations of $5,000 each or integral multiples thereof and will be dated their date of delivery. The Bonds of each series mature on the respective dates and bear interest at the respective rates per annum set forth on the inside cover page hereof. The Bonds of each series bear interest calculated on the basis of a 360-day year of twelve 30-day months and payable on February 1 and August 1 of each year, commencing February 1, 2008 (each an Interest Payment Date ), until maturity or earlier redemption thereof. Series A Bonds Redemption Series A Bonds Optional Redemption. The Series A Bonds shall be subject to call and redemption prior to maturity, at the option of the Agency, as a whole or in part, on any date on or after August 1, 2017, among maturities as shall be determined by the Agency, and by lot within each maturity (each Series A Bond being deemed to be composed of $5,000 portions with each such portion being separately redeemable), from funds derived by the Agency from any source, at a redemption price for each redeemed Series A Bond equal to the principal amount thereof, with accrued interest to the date of redemption. Series A Bonds Sinking Fund Redemption. The Series A Bonds maturing on August 1, 2017, August 1, 2022 and August 1, 2035 are subject to mandatory sinking fund redemption prior to maturity on August 1, 2010, August 1, 2018 and August 1, 2023, respectively and each August 1 thereafter to maturity from mandatory sinking fund payments equal to the principal amount in the principal amounts as set forth in the table below, with accrued interest to date set for redemption, without premium as follows: Series A Bonds Maturity August 1, 2017 Redemption Date (August 1) Principal Amount to be Redeemed 2010 $385, , , , , , , (maturity) 565,000 7

16 Series B Bonds Redemption Series A Bonds Maturity August 1, 2022 Redemption Date (August 1) Principal Amount to be Redeemed 2018 $605, , , , (maturity) 755,000 Series A Bonds Maturity August 1, 2035 Redemption Date (August 1) Principal Amount to be Redeemed 2023 $465, , , , , , , , , , , , (maturity) 1,625,000 Series B Bonds Optional Redemption. The Series B Bonds shall be subject to call and redemption prior to maturity, at the option of the Agency, as a whole or in part, on any date on or after August 1, 2017, among maturities as shall be determined by the Agency, and by lot within each maturity (each Series B Bond being deemed to be composed of $5,000 portions with each such portion being separately redeemable), from funds derived by the Agency from any source, at a redemption price for each redeemed Series B Bond equal to the principal amount thereof, with accrued interest to the date of redemption. Series B Bonds Sinking Fund Redemption. The Series B Bonds maturing on August 1, 2027 and August 1, 2036, are subject to mandatory sinking fund redemption prior to maturity on August 1, 2022 and August 1, 2028, respectively, and each August 1 thereafter to maturity from mandatory sinking fund payments equal to the principal amount in the principal amounts as set forth in the table below, with accrued interest to date set for redemption, without premium as follows: Series B Bonds Maturity August 1, 2028 Redemption Date (August 1) Principal Amount to be Redeemed 2022 $150, , , , , (maturity) 195,000 8

17 Series B Bonds Maturity August 1, 2036 Redemption Date (August 1) Principal Amount to be Redeemed 2028 $200, , , , , , , , (maturity) 305,000 Other Redemption Provisions In lieu of depositing cash with the Trustee as a mandatory sinking fund payment, the Agency shall have the option to tender to the Trustee for cancellation at least 60 days prior to a sinking fund redemption date any amount of the Bonds of each respective series purchased by the Agency, which Bonds may be purchased by the Agency at public or private sale as and when and at such prices as the Agency may in its discretion determine. The par amount of any Bonds so purchased by the Agency and tendered to the Trustee in any twelve-month period ending on August 1, in any calendar year shall be credited towards and shall reduce the next mandatory sinking fund payments required to be made in the order in which they are required to be made pursuant to the Indentures, as applicable. Notice of Redemption. As provided in the Indentures, notice of redemption will be mailed by first class mail, postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, to each of the registered owners of the Bonds of either series designated for redemption at their addresses appearing on the related series Bond registration books of the Trustee. Such notice shall also be given by first class mail, postage prepaid, confirmed facsimile transmission, or overnight delivery service, to each of the Securities Depositories named in the Indentures and to one or more of the Information Services named in the Indenture. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for the redemption of any Bonds or the cessation of interest thereon on the redemption date. Selection of Bonds for Redemption. Whenever provision is made in the Indentures for less than all of the Bonds of any series or maturity thereof to be redeemed, the Trustee will select the Bonds of such series to be redeemed from all the Bonds of such series not previously called for redemption, by lot in any manner which the Agency in its sole discretion shall deem appropriate under the circumstances. For purposes of such selection, all the Bonds of such series will be deemed to be comprised of separate $5,000 portions and such portions will be treated as separate bonds which may be separately redeemed. Effect of Redemption. If notice of redemption has been duly given as aforesaid and money for the payment of the redemption price of the Bonds of such series called for redemption is held by the Trustee, then on the redemption date designated in such notice the Bonds of such series so called for redemption will become due and payable, and from and after the date so designated interest on such Bonds of such series will cease to accrue, and the owners of such Bonds of such series shall have no rights in respect thereof except to receive payment of the redemption price thereof. Purchase in Lieu of Redemption. In lieu of redemption, the Agency is authorized to purchase Bonds of either series on the open market at any time at a price (inclusive of brokerage fees) not to exceed the par amount of the Bonds of such series so purchased, plus any applicable premium. 9

18 Book-Entry Only System The Bonds of each series will be issued as one fully registered bond without coupons for each maturity of each series and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (the DTC ). DTC will act as securities depository of each series of the Bonds. Individual purchases may be made in book-entry form only, in the principal amount of $5,000 and integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds of either series purchased. Principal and interest will be paid to DTC, which will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds of each series as described herein. So long as DTC s book-entry system is in effect with respect to the Bonds of each series, notices to Owners of the Bonds by the Agency or the Trustee will be sent to DTC. Notices and communication by DTC to its participants, and then to the beneficial owners of the Bonds, will be governed by arrangements among them, subject to then effective statutory or regulatory requirements. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. In the event that such book-entry system is discontinued with respect to the Bonds, the Agency will execute and deliver replacements in the form of registered certificates and, thereafter, the Bonds will be transferable and exchangeable on the terms and conditions provided in the Indenture. In addition, the following provisions would then apply: The principal of, and redemption premium, if any, on the Bonds will be payable on the surrender thereof at maturity or the redemption date, as applicable, at the corporate trust office of the Trustee in Los Angeles, California. The interest on the Bonds will be payable by check mailed on each Interest Payment Date to the registered owners thereof as shown on the registration books of the Trustee as of the close of business on the Record Date immediately prior to such Interest Payment Date; provided, that a registered owner of $1,000,000 or more in aggregate principal amount of Bonds of a series may specify in writing prior to the Record Date that the interest payment be made by wire transfer. 10

19 SERIES A BONDS ANNUAL DEBT SERVICE The following table shows the scheduled annual debt service for the Series A Bonds. Annual Principal Annual Interest Annual Debt Service 2008 $340,000 $945, $1,285, , , ,290, , , ,290, , , ,293, , , ,290, , , ,285, , , ,289, , , ,286, , , ,287, , , ,286, , , ,294, , , ,288, , , ,285, , , ,290, , , ,287, , , , , , , , , , , , , , , , , , , , , , , , ,109, , , ,105, , , , , , , , , , ,625,000 99, ,724, $15,780,000 $15,612, $31,392, Year Ending (August 1) (1) The Agency is authorized to receive Tax Revenues until November 2036, however, tax increment projections show the Agency will reach its limit on the amount of tax increment it can receive in Fiscal year The Agency has made a covenant to annually calculate the tax increment received against the remaining tax increment limitation. To the extent that the tax increment remaining to be received against the tax increment limitation is less than 110% of the total debt service on the Series A Bonds, the Series B Bonds and all Senior Lien Bonds, then the Agency will cause bonds to be redeemed, in order of seniority of lien, so that the remaining tax increment limitation shall be above 110% of debt service on the Series A Bonds, the Series B Bonds and the Senior Lien Bonds. 11

20 SERIES B BONDS ANNUAL DEBT SERVICE The following table shows the scheduled annual debt service for the Series B Bonds. Annual Principal Annual Interest Annual Debt Service 2008 $80,000 $243, $323, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 97, , ,000 85, , ,000 73, , ,000 59, , ,000 46, , ,000 31, , ,000 16, , $4,790,000 $4,566, $9,356, Year Ending (August 1) (1) The Agency is authorized to receive Tax Revenues until November 2036, however, tax increment projections show the Agency will reach its limit on the amount of tax increment it can receive in Fiscal year The Agency has made a covenant to annually calculate the tax increment received against the remaining tax increment limitation. To the extent that the tax increment remaining to be received against the tax increment limitation is less than 110% of the total debt service on the Series A Bonds, the Series B Bonds and all Senior Lien Bonds, then the Agency will cause bonds to be redeemed, in order of seniority of lien, so that the remaining tax increment limitation shall be above 110% of debt service on the Series A Bonds, the Series B Bonds and the Senior Lien Bonds. 12

21 SECURITY FOR THE BONDS The Bonds are special obligations of the Agency, payable solely from the sources described below. The Bonds are not a debt of the City, the State of California or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable therefor. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limit or restriction. The principal of and interest on the Series A Bonds are payable from the Subordinate Tax Revenues received by the Agency and of the money on deposit in the Reserve Account for the Series A Bonds, including investment earnings thereon, described below. The principal of and interest on the Series B Bonds are payable from Second Subordinate Tax Revenues and from the money on deposit in the Reserve Account for the Series B Bonds including the investment earnings thereon, described below. The principal, interest and premium, if any, on the Bonds of either series may also be paid with any other funds the Agency may have available for that purpose. Tax Allocation Financing Generally The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of tax increment revenues collected within a project area. Once the taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. With certain limited exceptions, taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged to the repayment of bonds issued by the redevelopment agency. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of tax increment revenues produced as indicated above. Allocation of Taxes As provided in the Redevelopment Plan, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Project Area (or applicable portions thereof) each year by or for the benefit of the State of California, any city, county, city and county, district or other public corporation (the taxing agencies ) for fiscal years beginning after the effective date of the Project Area (or applicable portions thereof) are divided as follows: (a) The portion equal to the amount of taxes produced by the then current tax rate, applied to the assessed valuation of such property in the Project Area (or applicable portion thereof) as shown on the applicable base year assessment roll as last equalized prior to the establishment of the Project Area (or applicable portion thereof) shall be, when collected, paid into the funds of those respective taxing agencies; (b) Except for taxes which are attributable to a tax levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated (and when collected shall be paid) to the respective taxing agency, that portion of levied taxes each year in excess of such amount (including, to the extent permitted by law, all payments and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) will be paid to the Agency to pay the principal of and interest on loans to, money advanced to, or indebtedness incurred by the Agency to finance redevelopment projects. Revenues generated as set forth above and allocated to the Agency are generally referred to as tax increment revenues. Tax Revenues (as defined below) that secure the Series A Bonds and any additional parity bonds to be issued under the Series A Indenture and the Series B Bonds and any additional parity obligations issued under the Series B Indenture are a portion of such tax increment revenues. Tax 13

22 Revenues are generally those tax increment revenues (including housing set-aside revenues to the extent that such revenues are permitted to pay debt service on the Bonds (see LIMITATIONS ON TAX REVENUES Housing Set-Asides ) received by the Agency within limitations upon the Redevelopment Plan ( Plan Limitations, as described below), and remaining after deductions for payments to taxing agencies pursuant to Tax Sharing Agreements (see THE PROJECT AREA Tax Sharing Agreements ) or Section of the Redevelopment Law (see THE PROJECT AREA Section Pass- Through Payments ) to the extent that such Tax Sharing Agreements or such statutory pass-through payments create a prior, unsubordinated lien on tax increment revenues. As used herein, the term Plan Limitations means the limitations contained or incorporated in the Redevelopment Plan on (a) the aggregate principal amount of indebtedness payable from tax increment revenues which may be outstanding at any time, (b) the aggregate amount of taxes which may be allocated to the Agency pursuant to the Redevelopment Plan, (c) the period of time for establishing or incurring indebtedness payable from tax increment revenues, (d) the period of time for receiving tax increment revenues to repay indebtedness and (e) the period of time for the duration and effectiveness of the Redevelopment Plan, in each case established pursuant to Section , or of the Redevelopment Law. See LIMITATIONS ON TAX REVENUES Plan Limitations. Pursuant to the provisions of the Indentures, the Agency has pledged that portion of the tax increment revenues that constitute the Subordinate Tax Revenues, as defined below, for repayment of the Series A Bonds and the Second Subordinate Tax Revenues, as defined below, for repayment of the Series B Bonds. The 2003 Bonds and 2005 Bonds are equally secured by a first pledge of and lien of all of the Tax Revenues and a first and exclusive pledge of and lien upon all of the money in certain funds and accounts created pursuant to the Senior Indenture including all amounts derived from the investment of such moneys, subject to the application in accordance with the Senior Indenture, without preference or priority for series, issue, number, sale date, date of execution or date of delivery. The Series A Bonds and any parity obligations issued under the Series A Indenture are equally secured by a first pledge of and lien of all of the Subordinate Tax Revenues and a first and exclusive pledge of and lien upon all of the money in certain funds and accounts created pursuant to the Series A Indenture including all amounts derived from the investment of such moneys, subject to the application in accordance with the Series A Indenture, without preference or priority for series, issue, number, sale date, date of execution or date of delivery. Except for the Subordinate Tax Revenues and such moneys, no funds or properties of the Agency are pledged to, or otherwise liable for, the payment of principal of or interest on the Series A Bonds. Subordinate Tax Revenues are moneys paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth in the Series A Indenture, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such from such taxes. Subordinate Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section of the Law prior to the date hereof, except agreements which are subordinate in payment by their respective terms, (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section of the law, (iii) that portion of Tax Revenues required by Section of the Law to be used by the Agency for increasing and improving the supply of low and moderate income housing, and (iv) the amounts necessary to pay debt service on the Senior Lien Bonds. 14

23 The Series B Bonds and any parity obligations issued under the Series B Indenture are equally secured by a first pledge of and lien of all of the Second Subordinate Tax Revenues and a first and exclusive pledge of and lien upon all of the money in certain funds and accounts created pursuant to the Series B Indenture including all amounts derived from the investment of such moneys, subject to the application in accordance with the Series B Indenture, without preference or priority for series, issue, number, sale date, date of execution or date of delivery. Except for the Second Subordinate Tax Revenues and such moneys, no funds or properties of the Agency are pledged to, or otherwise liable for, the payment of principal of or interest on the Series B Bonds. The Second Subordinate Tax Revenues are paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth in the Series B Indenture, including a portion of the amount required by Section of the Law to be used by the Agency to increase and improve the supply of Low and Moderate Income Housing, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such from such taxes. Second Subordinate Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section of the Law prior to the date hereof, except agreements which are subordinate in payment by their respective terms, (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section of the law, and (iii) the amounts necessary to pay debt service on the Senior and Subordinate Lien Bonds. Subordinate Tax Revenues are deposited into the Special Funds established pursuant to the Series A Indenture and are pledged in their entirety to the payment of principal of, premium, if any, and interest on the Series A Bonds until such Series A Bonds have been paid or until moneys have been set aside irrevocably for that purpose. Notwithstanding the foregoing, the Series A Indenture provides that if the Trustee has deposited in the Series A Special Fund Tax Revenues sufficient to pay 100% of applicable Annual Debt Service on the Series A Bonds for the then current Bond Year (as defined in the Series A Indenture) and to maintain the Series A Reserve Account in an amount equal to the Series A Reserve Requirement, then the Subordinate Tax Revenues subsequently received during that Bond Year may be used by the Agency for any lawful purpose. See APPENDIX E SUMMARY OF LEGAL DOCUMENTS. Second Subordinate Tax Revenues are deposited into the Special Funds established pursuant to the Series B Indenture and are pledged in their entirety to the payment of principal of, premium, if any, and interest on the Series B Bonds until such Series B Bonds have been paid or until moneys have been set aside irrevocably for that purpose. Notwithstanding the foregoing, the Series B Indenture provides that if the Trustee has deposited in the Series B Special Fund Tax Revenues sufficient to pay 100% of applicable Annual Debt Service on the Series B Bonds for the then current Bond Year (as defined in the Series B Indenture) and to maintain the Series B Reserve Account in an amount equal to the Series B Reserve Requirement, then the Second Subordinate Tax Revenues subsequently received during that Bond Year may be used by the Agency for any lawful purpose. See APPENDIX E SUMMARY OF LEGAL DOCUMENTS. The Agency has no power to levy and collect taxes, and any legislative property tax de-emphasis or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate must necessarily reduce the amount of Tax Revenues that would otherwise be available to pay the principal of, and interest on the Bonds of each series. Likewise, broadened property tax exemptions could have a similar effect. 15

24 Issuance of Additional Bonds Series A Bonds. The Series A Bonds are issued on a subordinate basis to the Senior Lien Bonds. The Agency may not issue additional obligations including bonds on a parity with the Senior Lien Bonds, which are senior to the Series A Bonds pursuant to the Series A Indenture. In addition to the Series A Bonds, the Agency may, by a supplemental indenture, issue parity bonds payable from Subordinate Tax Revenues as and to the extent provided in the Series A Indenture and secured by the pledge made under the Series A Indenture equally and ratably with the Series A Bonds previously issued. The Agency may issue, and the Trustee may authenticate and deliver to the purchasers thereof, parity bonds, in such principal amount as shall be determined by the Agency, but only upon compliance by the Agency with the provisions of the Series A Indenture hereof and any additional requirements set forth in said supplemental indenture and subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such parity bonds: (a) Indenture; No event of default shall have occurred and then be continuing under the Series A (b) A Tax Revenue certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 125% of the sum of Annual Debt Service on the Senior Lien Bonds and the Series A Bonds (including such parity debt) for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series A Bonds and any parity debt. The Tax Revenue certificate shall also show that the amount of Tax Revenues, including debt service on the Senior Lien Bonds, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, and excluding the taxpayer with the highest assessed value in the Project Area, shall be at least equal to 100% of the sum of annual debt service on the Senior Lien Bonds and the Series A Bonds (including such parity debt). For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (c) The Agency shall certify to the Trustee that the aggregate amount of the principal of and interest on all Outstanding Series A Bonds (including the Senior Lien Bonds) coming due and payable following the issuance of such parity bonds shall not exceed the maximum amount of Tax Revenues permitted under the Redevelopment Plan to be allocated and paid to the Agency following the issuance of such parity bonds, and shall not exceed any limitation on the time during which such tax increment revenues may be received; (d) The Supplemental Indenture authorizing the issuance of parity bonds shall provide that (i) interest on such parity bonds shall be calculated at a fixed interest rate if the Agency determines in such Supplemental Indenture that it is to be paid on a current basis, shall be payable on February 1 and August 1 in each year of the term of such parity bonds except the first twelve-month period during which interest may be payable on any February 1 or August 1, and (ii) the principal of such parity bonds shall be payable on August 1 in any year, as determined by the Agency, in which principal is payable; (e) Money shall be deposited in the Reserve Account or in a subaccount therein (or a reserve fund letter of credit, bank insurance policy or other comparable credit facility provided) in an amount equal to the Reserve Requirement for all Outstanding Series A Bonds, including such parity bonds; and 16

25 (f) The Agency shall deliver to the Trustee a certificate of the Agency certifying that the conditions precedent to the issuance of such parity bonds set forth in the Series A Indenture have been satisfied and that the deposit into the Reserve Account for the Series A Bonds as set forth above has been made. With respect to the issuance of parity bonds, Outstanding Series A Bonds and parity bonds shall not include a principal amount of such parity bonds, determined on such basis among maturities as the Agency may determine, equal to the proceeds of such parity bonds to be deposited in an escrow fund established for such parity bonds (the Series A Escrowed Bonds ), provided that the Supplemental Indenture authorizing the issuance of such parity bonds shall provide that: (1) Such proceeds shall be invested in Permitted Investments, and an amount equal to the difference between the projected interest earnings on such proceeds and the interest due on the Escrowed Bonds shall be deposited in the Interest Account so as to pay interest on the Series A Escrowed Bonds as it becomes due and payable; (2) Moneys may be transferred from the escrow fund established for the Series A Escrowed Bonds only if a Tax Revenue certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 125% of the sum of annual debt service on the Series A Bonds (including such parity debt) and annual debt service on the Senior Lien Bonds for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series A Bonds and any parity debt, and 100% of annual debt service on the Senior Lien Bonds and the Series A Bonds excluding the taxpayer in the Project Area with the highest assessed valuation. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (3) Such parity bonds shall be redeemed from moneys remaining on deposit in the escrow fund established for the Series A Escrowed Bonds at the expiration of a specified escrow period in such manner as may be determined by the Agency in the supplemental indenture; and (4) The Insurer shall be provided with notice of the issuance of such Series A Escrow Bonds and a copy of the related Supplemental Indenture. The Agency shall not issue any indebtedness bearing interest at variable rates. For a further discussion of Additional Bonds, see APPENDIX E-1 SERIES A BONDS SUMMARY OF LEGAL DOCUMENTS Issuance of Additional Bonds herein. 17

26 Series B Bonds. The Series B Bonds are issued on a subordinate basis to the Senior and Subordinate Lien Bonds. The Agency may issue bonds on a basis senior to the Series B Indenture so long as the provisions of the Senior and Subordinate Lien Bonds have been satisfied. In addition to the Series B Bonds, the Agency may, by a supplemental indenture, issue parity bonds payable from Second Subordinate Tax Revenues as and to the extent provided in the Series B Indenture and secured by the pledge made under the Series B Indenture equally and ratably with the Series B Bonds previously issued. The Agency may issue, and the Trustee may authenticate and deliver to the purchasers thereof, parity bonds, in such principal amount as shall be determined by the Agency, but only upon compliance by the Agency with the provisions of the Series B Indenture hereof and any additional requirements set forth in said supplemental indenture and subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such parity bonds: (a) Indenture; No event of default shall have occurred and then be continuing under the Series B (b) A Tax Revenue certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 110% of the sum of annual debt service on the Series B Bonds (including parity debt) and annual debt service on the Senior and Subordinate Lien Bonds for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series B Bonds and any parity debt. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (c) The Agency shall certify to the Trustee that the aggregate amount of the principal of and interest on all Outstanding Series B Bonds (including the Senior and Subordinate Lien Bonds) coming due and payable following the issuance of such parity bonds shall not exceed the maximum amount of Tax Revenues permitted under the Redevelopment Plan to be allocated and paid to the Agency following the issuance of such parity bonds, and shall not exceed any limitation on the time during which such tax increment revenues may be received; (d) The Supplemental Indenture authorizing the issuance of parity bonds shall provide that (i) interest on such parity bonds shall be calculated at a fixed interest rate if the Agency determines in such Supplemental Indenture that it is to be paid on a current basis, shall be payable on February 1 and August 1 in each year of the term of such parity bonds except the first twelve-month period during which interest may be payable on any February 1 or August 1, and (ii) the principal of such parity bonds shall be payable on August 1 in any year, as determined by the Agency, in which principal is payable; (e) Money shall be deposited in the Reserve Account for the Series B Bonds or in a subaccount therein (or a reserve fund letter of credit, bank insurance policy or other comparable credit facility provided) in an amount equal to the Reserve Requirement for all Outstanding Series B Bonds, including such parity bonds; and (f) The Agency shall deliver to the Trustee a certificate of the Agency certifying that the conditions precedent to the issuance of such parity bonds set forth in the Series B Indenture have been satisfied and that the deposit into the Reserve Account as set forth above has been made. 18

27 With respect to the issuance of parity bonds, Outstanding Series B Bonds and parity bonds shall not include a principal amount of such parity bonds, determined on such basis among maturities as the Agency may determine, equal to the proceeds of such parity bonds to be deposited in an escrow fund established for such parity bonds (the Series B Escrowed Bonds ), provided that the Supplemental Indenture authorizing the issuance of such parity bonds shall provide that: (1) Such proceeds shall be invested in Permitted Investments, and an amount equal to the difference between the projected interest earnings on such proceeds and the interest due on the Series B Escrowed Bonds shall be deposited in the Interest Account so as to pay interest on the Series B Escrowed Bonds as it becomes due and payable; (2) Moneys may be transferred from the escrow fund established for the Series B Escrowed Bonds only if a Tax Revenue certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 110% of the sum of annual debt service on the Series B Bonds (including such parity debt) and annual debt service on the Senior and Subordinate Lien Bonds for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series B Bonds and any parity debt. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (3) Such parity bonds shall be redeemed from moneys remaining on deposit in the escrow fund established for the Series B Escrowed Bonds at the expiration of a specified escrow period in such manner as may be determined by the Agency in the supplemental indenture; and The Agency shall not issue any indebtedness bearing interest at variable rates. For a further discussion of Additional Bonds, see APPENDIX E-2 SERIES B BONDS SUMMARY OF LEGAL DOCUMENTS Issuance of Additional Bonds herein. Reserve Account In order to further secure the payment of principal of and interest on the Bonds, the Agency is required upon delivery of the Bonds of each series to deposit under the respective Indenture an amount at least equal to the Reserve Requirement (as defined in the respective Indenture for each series of the Bonds) with respect to all outstanding bonds in each series of Bonds into the Reserve Account established by the respective Indenture. If the applicable Reserve Account is drawn down to pay debt service, Subordinate Tax Revenues with respect to the Series A Bonds and Second Subordinate Tax Revenues with respect to the Series B Bonds must be transferred by the Agency to the Trustee for deposit in the applicable Reserve Account in order to restore the amount in applicable Reserve Account to the applicable Reserve Requirement. The Agency has elected to substitute for the amount deposited in the Reserve Account for the Series A Bonds, a Debt Service Reserve Fund Surety Bond to be provided by the Bond Insurer. The provisions of the Surety Bond are more completely discussed under BOND INSURANCE herein. 19

28 In consideration of the acceptance of the Bonds by those who hold the same from time to time, the Indentures are deemed to be and constitute a contract between the Agency and the Owners of the applicable series of Bonds from time to time of the Bonds and the covenants and agreements therein set forth to be performed on behalf of the Agency will be for the equal and proportionate benefit, security and protection of all Owners of the applicable series of Bonds without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the other Bonds, or of the Bonds over any other parity obligations, by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein. Limited Liability THE BONDS ARE SPECIAL OBLIGATIONS OF THE AGENCY AND AS SUCH ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) AND NONE OF THE CITY, THE STATE, OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) IS LIABLE FOR THE PAYMENT THEREOF. IN NO EVENT SHALL THE BONDS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE AGENCY SET FORTH IN THE INDENTURE. Any future decrease in the taxable valuation of property in the Project Area or in the applicable tax rates relating thereto will reduce the tax increment revenues allocated to the Agency from the Project Area and correspondingly will have an adverse impact on the ability of the Agency to pay the principal of and interest on the Bonds. Except for the Subordinate Tax Revenues with respect to the Series A Bonds, and Second Subordinate Tax Revenues with respect to the Series B Bonds, and the amounts held in trust under the applicable Indentures, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the respective series of Bonds. The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measures, voter initiative or provisions or additional sources of income to taxing agencies having the effect of reducing the property tax could reduce the amount of Tax Revenues that would otherwise be available to pay debt service on the Bonds. Likewise, broadened property tax exemptions could have a similar effect. See BONDOWNERS RISKS. BOND INSURANCE Payments Pursuant to Financial Guaranty Insurance Policy Ambac Assurance Corporation ( Ambac Assurance ) has made a commitment to issue a financial guaranty insurance policy (the Financial Guaranty Insurance Policy ) relating to the Series A Bonds, effective as of the date of issuance of the Series A Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York, or any successor thereto (the Insurance Trustee ), that portion of the principal of and interest on the Series A Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the Series A Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Series A Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Series A Bonds, Ambac Assurance will remain obligated to pay the principal of and interest on outstanding Series A Bonds on the originally scheduled interest and principal payment dates, including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the Series A Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac Assurance elects, in its sole discretion, to pay all or a portion of the accelerated principal and 20

29 interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac Assurance s obligations under the Financial Guaranty Insurance Policy shall be fully discharged. In the event the Trustee has notice that any payment of principal of or interest on a Series A Bond that has become Due for Payment and that is made to a holder by or on behalf of the Obligor been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, non-appealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment (as set forth in the Financial Guaranty Insurance Policy). Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; 2. payment of any redemption, prepayment or acceleration premium; and 3. nonpayment of principal or interest caused by the insolvency o negligence of the Trustee, Paying Agent or Bond Registrar, if any. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of the Series A Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Series A Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of holder entitlement to interest payments and an appropriate assignment of the holder s right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Series A Bonds appurtenant coupon, if any, or right to payment of the principal of or interest on such Series A Bonds and will be fully subrogated to the surrendering holder s rights to payment. The Financial Guaranty Insurance Policy does not insure against loss relating to payments of the purchase price of the Series A Bonds upon tender by a registered owner thereof or any preferential transfer relating to payments of the purchase price of the Series A Bonds upon tender by a registered owner thereof. In the event that Ambac Assurance were to become insolvent, any claims arising under the Financial Guaranty Insurance Policy would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California. Ambac Assurance Corporation Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $10,194,000,000 (unaudited) and statutory capital of approximately $6,557,000,000 (unaudited) as of March 31, Statutory capital consists of Ambac Assurance s policyholders surplus and statutory contingency reserve. Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody s Investors Service, Inc. and Fitch Ratings have each assigned a triple-a financial strength rating to Ambac Assurance. 21

30 Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in the Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor. Ambac Assurance makes no representation regarding the Series A Bonds or the advisability of investing in the Series A Bonds and makes no representation regarding, nor has it participated in the preparation of, this Official Statement other than the information supplied by Ambac Assurance and presented under the heading BOND INSURANCE and SECURITY FOR THE BONDS Reserve Account. Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the Company ), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the SEC ). These reports, proxy statements and other information can be read and copied at the SEC s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C Please call the SEC at SEC-0330 for further information on the public reference room. The SEC maintains an internet site at that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York Copies of Ambac Assurance s financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance s administrative offices is One State Street Plaza, 19th Floor, New York, New York 10004, and its telephone number is (212) Incorporation of Certain Documents by Reference The following documents filed by the Company with the SEC (File No ) are incorporated by reference in this Official Statement: 1. The Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and filed on March 1, 2007; 2. The Company s Current Report on Form 8-K dated and filed on April 25, 2007; and 3. The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2007 and filed on May 10, All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in Available Information. Debt Service Reserve Fund Ambac Assurance Surety Bond The Series A Indenture requires the establishment of a Debt Service Reserve Fund. The Series A Indenture authorizes the Obligor to obtain a Surety Bond in place of fully funding the Debt Service Reserve Fund. Accordingly, application has been made to Ambac Assurance Corporation ( Ambac Assurance ) for the issuance of a Surety Bond for the purpose of funding the Debt Service Reserve Fund (see Appendix E-1 herein). The Series A Bonds will only be delivered upon the issuance of such Surety Bond. The premium on the Surety Bond is to be fully paid at or prior to the issuance and delivery of the 22

31 Series A Bonds. The Surety Bond provides that upon the later of (i) one (1) day after receipt by Ambac Assurance of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Series A Bonds when due has not been made or (ii) the interest payment date specified in the Demand for Payment submitted to Ambac Assurance, Ambac Assurance will promptly deposit funds with the Paying Agent sufficient to enable the Paying Agent to make such payments due on the Series A Bonds, but in no event exceeding the Surety Bond Coverage, as defined in the Surety Bond. Pursuant to the terms of the Surety Bond, the Surety Bond Coverage is automatically reduced to the extent of each payment made by Ambac Assurance under the terms of the Surety Bond and the Obligor is required to reimburse Ambac Assurance for any draws under the Surety Bond with interest at a market rate. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the Surety Bond Coverage. The reimbursement obligation of the Obligor is subordinate to the Obligor s obligations with respect to the Series A Bonds. In the event the amount on deposit, or credited to the Debt Service Reserve Fund, exceeds the amount of the Surety Bond, any draw on the Surety Bond shall be made only after all the funds in the Debt Service Reserve Fund have been expended. In the event that the amount on deposit in, or credited to, the Debt Service Reserve Fund for the Series A Bonds, in addition to the amount available under the Surety Bond, includes amounts available under a letter of credit, insurance policy, Surety Bond or other such funding instrument (the Additional Funding Instrument ), draws on the Surety Bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. The Series A Indenture provides that the Debt Service Reserve Fund shall be replenished in the following priority: (i) principal and interest on the Surety Bond shall be paid from first available Revenues; (ii) after all such amounts are paid in full, amounts necessary to fund the Debt Service Reserve Fund to the required level, after taking into account the amounts available under the Surety Bond shall be deposited from next available Revenues. The Surety Bond does not insure against nonpayment caused by the insolvency or negligence of the Trustee or the Paying Agent. In the event that Ambac Assurance were to become insolvent, any claims arising under the Financial Guaranty Insurance Policy would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California. Agency Members THE AGENCY The Agency was activated on May 7, 1973, by Ordinance No of the City Council pursuant to the Redevelopment Law. The five members of the City Council serve as members of the governing body of the Agency, and exercise all rights, powers, duties and privileges of the Agency. The elected Mayor is also Chairman of the Agency. Current members of the governing body of the Agency are as follows: Name and Office Term Expires Joseph R. Rocha, Chairman and Mayor March 2009 Keith Hanks, Vice Chairman and Mayor Pro Tem March 2009 Angel Carrillo, Agency Member and Council Member March 2009 Uriel E. Macias, Agency Member and Council Member March 2011 Robert Gonzales, Agency Member and Council Member March

32 Agency Administration The City has agreed to provide the Agency with staff, office space and supplies and the Agency has agreed to reimburse the City for such services, supplies and equipment. The Agency and the City adopt an annual administrative budget delineating the costs of such services. The Agency reimburses the City out of available tax increment revenues. Such reimbursement is subordinate to any outstanding bonded indebtedness of the Agency including the Bonds. The City is a general law city and operates according to the Council/Manager form of government. The City Manager is appointed by the City Council to manage the City s staff and generally implement policies established by the City Council. Current staff assigned to administer the Agency activities include: Francis M. Delach, City Manager. Mr. Delach joined the City of Azusa on June 1, He previously served as Chief Administrative Officer of HdL Companies from December 1999 to June HdL is a local government revenue consulting firm serving over 275 cities and counties throughout California. Prior to joining the private sector in 1999, Mr. Delach served in local government management for 22 years, from 1978 to 2000, with almost 7 years as City Manager of the City of Covina. Graduating from Azusa Pacific University in 1977, he earned a Masters Degree in Public Administration/Finance from California State University (CSU) in Fullerton in He has taught Public Administration for the University of La Verne and lectured at CSU Fullerton and CSU Los Angeles. Alan Kreimeier, Administrative Services Director/Chief Financial Officer. Mr. Kreimeier joined the City of Azusa in August, Immediately prior to coming to Azusa, he served 5 years as Finance Director/City Treasurer for the City of Norwalk, California. Prior to that, previous public sector employment included: Finance Director/City Treasurer for the City of Lawndale (3 years); Assistant Finance Director/Deputy City Treasurer for the City of Lakewood (2 years); Budget & Special Projects Manager for the City of Chino (7 years); Senior Management Analyst in the Public Works Department for the City of Santee (3 years); and Budgetary Accountant for the City of Buena Park (1 year). Prior to joining the public sector, Mr. Kreimeier was employed in the private sector accounting for 4 years while attending school and immediately subsequent. Mr. Kreimeier graduated from California State University in Fullerton in 1983 with a Bachelors Degree in Business Administration and earned a Masters Degree in Public Administration/Finance from California State University in Fullerton in Bruce Coleman, Director of Economic and Community Development. Mr. Coleman joined the City of Azusa in October, He previously served as Community Development Director for the City of Lathrop in northern California from October, 2001 through October, 2005, where he managed Economic Development, Planning, Building and Code Compliance services. While there, Mr. Coleman facilitated obtaining approvals for large Specific Plans consisting of 20,000 new houses and 9 million square feet of commercial/industrial space. Prior to joining the City of Lathrop, Mr. Coleman served as Deputy Director/Economic Development Manager for the City of Pomona from February, 2000 until October, 2001, attracting developers for a mixed use building and a new infill housing project in Downtown Pomona. Between January, 1995 and February, 2000, Mr. Coleman served as the Community Development Director for the City of Chino Hills. Prior to that time, he served as the Community Development Director for the City of Highland, with responsibilities for planning, redevelopment, economic development, building and code enforcement/neighborhood improvement services. Mr. Coleman is a native of New Jersey, and holds a Bachelor s Degree in International Relations from George Washington University located in Washington, D.C. He also holds a Master s Degree in Urban and Regional Planning from California State University located in Fresno, California. Mr. Coleman has worked in the community and economic development field for 30 years. 24

33 Agency Powers All powers of the Agency are vested in its members. Pursuant to the Redevelopment Law, the Agency is a separate public body and exercises governmental functions, including planning and implementing redevelopment projects. The Agency may exercise the right to issue bonds for authorized purposes and to expend their proceeds, and the right to acquire, sell, rehabilitate, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements, including streets, sidewalks, and utilities, and can further prepare for use as a building site any real property which it owns or administers. The Agency may, from any funds made available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities or other improvements to be publicly owned, provided that such improvements are expressly found to be of benefit to a redevelopment project and cannot be financed by any other reasonable method. The Agency may not construct or develop buildings, with the exception of public buildings and housing, and generally must sell or lease cleared property which it acquires within a redevelopment project for redevelopment in conformity with a particular redevelopment plan, and may further specify a period within which such redevelopment must begin and be completed. Factors Affecting Redevelopment Agencies Generally Other features of the Redevelopment Law that bear on redevelopment agencies include general provisions which require public agencies to award contracts for construction only after competitive bidding. The Redevelopment Law provides that construction in excess of a minimum amount undertaken by the Agency shall be done only after competitive bidding. California statutes also provide for offenses punishable as felonies that involve direct or indirect interest of a public official in a contract made by such official in his official capacity. In addition, the Redevelopment Law generally prohibits any Agency or City official or employee who, in the course of his duties, is required to participate in the formulation or approval of plans or policies, from acquiring any interest in property in the Project Area. Under a State initiative enacted in 1974, public officials are required to make extensive disclosures regarding their financial interests by filing such disclosures as public records. As of the date of this Official Statement, the members of the City Council and the Agency, and other City and Agency officials have made the required filings. California also has strict laws regarding public meetings (known as the Ralph M. Brown Act) that make all Agency and City meetings open to the public, with certain exceptions not applicable here. Redevelopment agencies are required to file a statement of indebtedness with the county auditorcontroller not later than the first day of October, stating the amount of indebtedness of the Agency for that fiscal year. See Financial Statements; Agency Budget; Statement of Indebtedness below. Financial Statements; Agency Budget; Statement of Indebtedness Included in this Official Statement as APPENDIX B are the audited financial statements of the Agency for the year ended June 30, 2006, reproduced from the report thereon rendered by Lance Soll & Lunghard, L.L.P., Certified Public Accountants, independent accountants for the Agency. The Agency has not requested the consent of auditors for inclusion in this Official Statement, and the auditors have not performed any additional review. Prior years audited financial statements can be obtained from the Agency by contacting the Agency Clerk or the Agency s Finance Department, City of Azusa, 213 E. Foothill Boulevard, Azusa, California The Agency Board has adopted Resolution No. 06-R20 on June 19, 2006, approving the fiscal year Agency budget. 25

34 Pursuant to Section of the Redevelopment Law, the Agency must file, not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief financial officer of the Agency for each redevelopment project for which the redevelopment plan provides for the division of taxes pursuant to Section of the Redevelopment Law. The Agency has made such a filing for fiscal year , and has met all previous requirements with respect to the filing of its statement of indebtedness pursuant to Section See LIMITATIONS ON TAX REVENUES Certification of Agency Indebtedness. Regulatory Issues The Agency is in material compliance with the provisions of the California Environmental Quality Act, constituting Division 13 (commencing with Section 21000) of the California Public Resources Code, with respect to the Project Area. Redevelopment Plan THE PROJECT AREA Under the Redevelopment Law, the city council of a city that activates the redevelopment agency is required to adopt, by ordinance, a redevelopment plan for each redevelopment project specifically authorized in the adopted redevelopment plan. A redevelopment plan is a legal document, the content of which is largely prescribed in the Redevelopment Law rather than a plan in the customary sense of the word. The Redevelopment Plan became effective on November 6, 2003 by Ordinance No , and it amended, restated and superseded, in their entirety, the redevelopment plans previously in effect for the Central Business District Redevelopment Project Area and the West End Redevelopment Project Area. The overall objective of the Redevelopment Plan is to eliminate blighted conditions in the Project Area by undertaking all appropriate projects pursuant to the Redevelopment Law. The general objective is to encourage investment in the Redevelopment Project by the private sector, to eliminate blighted conditions and to upgrade the quality of the community. The Redevelopment Plan provides for the acquisition of property, the demolition of buildings and improvements, the relocation of any displaced occupants, and the construction of streets, parking facilities, utilities and other public improvements. The Redevelopment Plan also allows the redevelopment of land by private enterprise, the rehabilitation of structures, the rehabilitation or construction of low and moderate income housing, and participation by owners and the tenants of properties in the Project Area. Pursuant to the Redevelopment Law, the Redevelopment Plan sets forth a number of limitations with respect to each component of the Project Area, including plan expiration dates, time limits to incur debt, time limits on payment of indebtedness with tax increment revenues, dollar caps on bonded indebtedness and tax increment receipt. For a more detailed discussion on these Plan Limitations, see LIMITATIONS ON TAX REVENUES Plan Limitations. History of the Project Area The Redevelopment Plan for the Central Business District Redevelopment Project and the West End Redevelopment Project Merger was approved by the Agency and the City Council on November 7, This Project Area accomplished the merger of the redevelopment plans for the CBD Project (the CBD Plan ) and the West End Project (the West End Plan ). The CBD Plan was adopted by the City Council on September 18, Twelve amendments to the CBD Plan were approved by the City Council pursuant to which new areas have been added and financial and program limitations been amended. Amendment I was adopted on July 2, 1979 by Ordinance No and added approximately 40 acres to the CBD Project. Amendment II was adopted 26

35 on July 20, 1981 by Ordinance No and added approximately 93 acres to the CBD Plan. Amendment III was adopted November 28, 1983, by Ordinance No and added approximately 33 acres to the CBD Plan. Amendments IV and V were adopted on December 17, 1984 by Ordinance Nos and 2250, respectively, adjusting the base year valuation on a 24-acre property previously occupied by Miller Brewing Company. Amendment VI was adopted on November 7, 1988 by Ordinance No and merged the Central Business District Project with the West End Project. Amendment VII was adopted on December 19, 1994 by Ordinance No and conformed the plan s financial limits with the provisions of AB Amendment No. VIII was adopted on October 6, 2003, by Ordinance No , and added approximately 56 acres to the CBD Plan. Amendment IX was adopted on December 1, 2003, and eliminated the time restrictions on incurring loans, advances and indebtedness. Amendment X was adopted on October 4, 2004, by Ordinance No and extended the effective date of the plan and the date to receive tax increment by one year. Amendment XI, adopted on October 2, 2006 pursuant to Ordinance No , allowed the Agency to use eminent domain on non-residential property within the CBD Plan and West End Plan. Amendment XII was adopted on February 5, 2007, by Ordinance No , extended the time to collect tax increment and extended the effective date of the West End Plan. On November 28, 1983 pursuant to Ordinance No. 2196, the City Council adopted the West End Plan. The West End Plan has been amended three times, to merge the project area with the Central Business District Project, to comply with the provisions of AB 1290, and the most recent amendment to add territory and change certain limitations of the Project Area. The fourth and fifth amendment, to the West End Plan eliminated the time limitations on establishing indebtedness and extended the effective date of the plan and the last date to receive tax increment by one year. The CBD Plan and the West End Plan provide primarily to eliminate blighted conditions and to revitalize and encourage development as more fully described below. Since its inception, the Agency has entered into several Disposition and Development Agreements and Owner Participation Agreements governing the development of approximately 100,000 square-feet of office space, 685 units of residential housing, 335,000 square-feet of retail commercial space and 1.1 million square-feet of industrial facilities within the Project Area. The estimated assessed value upon completion added by these developments is approximately $135 million. A portion of the Project Area is located within unincorporated County of Los Angeles ( County ) territory. Pursuant to Section of the Health and Safety Code, by Ordinance No , adopted January 16, 2001, the Board of Supervisors of Los Angeles County authorized the City to redevelop the County area or any appropriate portion thereof, and to prepare this Redevelopment Plan for such redevelopment. Subsequently, by Ordinance No , adopted October 6, 2003, the Agency approved this Redevelopment Plan. Redevelopment Projects The Agency has been actively promoting economic development activities within the Project Area. Bond proceeds will be used to acquire properties, improve infrastructure, and promote economic development through the elimination of blight. Redevelopment projects proposed to be funded through Bond proceeds include, but are not limited to, the following: Downtown North. The Agency is negotiating a Disposition and Development Agreement with Watt Commercial Properties toward creation of a strategic development plan and phased development program for this area, which is generally bounded by 9th Street on the north, the Foothill Blvd. corridor on the south, San Gabriel Ave. on the west, and Dalton Ave. to the east. The project includes the future Downtown Transit District, and construction of retail, mixed use, residential housing and a public library. Target Store. The Agency required one large and two smaller properties bounded by Azusa Avenue, 9th Street, San Gabriel Avenue, and the Metro Gold Line Light Rail right-of-way, 27

36 and entered settlement agreements with all tenants utilizing a $10,218,000 loan from the City repayable from the Certificate proceeds. The site has been selected for use as a future Target Store. Target has provided a letter of intent detailing approved deal points for the proposed project. Negotiation of a Disposition and Development Agreement with Target is ongoing, and the CEQA process has been initiated. Costco East. The Agency has begun the planning phase to establish a 15-acre site occupied by six different businesses for commercial development. This area is located east of Costco on Foothill Boulevard in the West End Project Area. NEC Azusa and Arrow Highway. The Agency is negotiating with a developer to develop this severely blighted 3.56 acre site on Arrow Highway and Azusa with commercial/retail development. Assessed Valuation The total fiscal year assessed value (secured and unsecured) for the Project Area is $862,784,000. Table 1 below shows the base year assessed valuation and tax increment valuation for each component of the Project Area, based on reports provided by the County. Component Area TABLE 1 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Project Base Year and Increment Values Tax Year (000 s omitted) Base Value % of Total Increment Value % of Total Total Assessed Value % of Total AV CBD Original $9, % $69, % $78, % CBD Amendment No , CBD Amendment No. 2 4, , , CBD Amendment No , , CBD Amendment No. 4 2, , , CBD Amendment No. 8 46, , , West End Original 133, , , Total $197, % $665, % $862, % Source: HdL Coren & Cone. The following are the assessed valuations and tax increment revenues for the Project Area from fiscal years through , based on reports provided by the County. 28

37 TABLE 2 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Project Assessed and Tax Increment Values Tax Years through (000 s omitted) CBD $53,615 $59,212 $63,206 $67,346 $78,849 CBD Amendment No. 1 1,257 1,302 1,250 1,040 1,043 CBD Amendment No. 2 35,228 37,194 38,242 39,129 53,526 CBD Amendment No. 3 52,882 57,759 61,480 68,230 76,684 CBD Amendment No. 4 33,426 31,184 42,264 42,907 45,208 CBD Amendment No ,494 49,446 58,692 West End 424, , , , ,782 Total Valuation $600,618 $657,554 $728,707 $784,062 $862,784 Less: base year (2) (150,984) (150,984) (197,178) (197,178) (197,178) Increment Valuation $449,634 $506,569 $531,529 $586,884 $665,605 % increase 17.36% 12.66% 4.93% 10.41% 13.41% (1) Values shown are aggregates of those for the Project Area. (2) Base year value as shown in County of Los Angeles Assessed Values Report, Equalized Tax Roll for Source: HdL Coren & Cone. Land Use in the Project Area The table below shows the assessed valuation for different categories of land uses: TABLE 3 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Projects Assessed Valuation by Land Use Category Tax Year Land Use Category No. Parcels Net Taxable Value % of Total Residential 834 $218,036, % Commercial ,927, Industrial ,934, Recreational 3 358, Institutional 3 758, Government 3 506, Vacant Land 98 29,236, Exempt SUBTOTAL 1,483 $765,759, % Possessory Interest $1,302, % Unsecured 94,467, SBE Non-Unitary 1,254, SUBTOTAL $97,024, % TOTALS 1,483 $862,783, % Source: Fiscal Consultant s Report. The 98 vacant parcels within the Project Area total acres according to Assessor s maps and other County records. Vacant land, therefore, equates to 34% of the total acreage and 6.6% of the total number of parcels within the Project Area. 29

38 Major Taxpayers The following table shows the ten largest taxpayers in the Project Area based on the assessment roll for the tax year: TABLE 4 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Ten Largest Property Taxpayers Tax Year Property Owner Combined Owner Value % of Total Value % of Incremental Value 1. Northrup Grumman Systems Inc. $124,808, % 18.75% 2. PPF Industrial th St. LP 28,689, % 4.31% 3. Costco Wholesale Corporation 17,689, % 2.66% 4. Criterion Catalyst Company LP 17,374, % 2.61% 5. JAR University Commons LLC 16,805, % 2.52% Optical Drive LLC 15,296, % 2.30% 7. Reichold Inc. 13,628, % 2.05% 8. S & S Foods LLC 13,615, % 2.05% 9. Soon Choe Kae 9,762, % 1.47% 10. Ontario Vogel 9,238, % 1.39% Total Property Owner Total Value $266,906,923 Project Area Assessed Value $862,783, % Incremental Value $665,603, % Source: Fiscal Consultant s Report. Bonded Indebtedness and Certain Other Obligations Upon issuance of the Series A Bonds and the Series B Bonds, the Agency will have $39,617,800 * aggregate principal amount of bonds outstanding and payable from Tax Revenues, consisting of the Series A Bonds, the Series B Bonds, the 2003 Bonds and the 2005 Bonds. See APPENDIX A SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA Direct and Overlapping Debt Report. The Project Area Plan consists of the original redevelopment plans of the CBD Project and the West End Project, together with any respective amendments thereto. In adopting and implementing its redevelopment plans and their respective amendments, the Agency entered into various reimbursement agreements with the County Taxing Entities. In connection with the adoption and implementation of second, third and fifth amendments to the CBD Project Plan, the Agency entered into four reimbursement agreements. Under these reimbursement agreements, the Agency has agreed to share tax increment derived from the CBD Plan with affected County Taxing Entities. Two of the reimbursement agreements further provide that the Agency, together with respective County Taxing Entities, will satisfy the Housing Set-Aside Amount from their respective shares of the allocated increments. One reimbursement agreement expressly provides that all of the Housing Set-Aside Amount will be met solely from the Agency s portion of the allocated tax increments. One reimbursement agreement does not address the method to allocate the tax increments and satisfy the Housing Set-Aside Amount. The Agency has annually contributed a sufficient amount of its portion of tax increments to satisfy the Housing Set-Aside Amount with respect to the silent reimbursement agreement. * Preliminary, subject to change. 30

39 The Agency also entered into a reimbursement agreement in connection with the adoption of its West End Plan. The Agency agreed to share the tax increments derived from the West End Plan with the affected County Taxing Entities, as set forth therein. The Agency and the County Taxing Entities have agreed to contribute a pro rata share of their respective share of the allocated tax increments to satisfy the Housing Set-Aside Amount. See THE PROJECT AREA Section Pass-Through Payments. Projected Taxable Valuation and Tax Revenues; Debt Service Coverage Table 5 shows the projected growth of assessed valuation in the Project Area and the resulting net tax increment revenues for fiscal years through , as estimated by the Agency. Receipt of projected net tax increment revenues in the amounts and at the time projected by the Agency depends on the realization of certain assumptions relating to the net tax increment revenues. The projections shown on the following tables are based on a number of assumptions made by the Fiscal Consultant and are subject to various limiting conditions. Although the Agency believes that the assumptions upon which the projected net tax increment revenues are based are reasonable, the Agency provides no assurance that the projected net tax increment revenues will be realized. For example, the projections assume that the total assessed value will grow at the rate of two percent per year. There is no assurance that growth will occur at such rate. In the past, there have been periods during which this growth rate did not occur. To the extent that the assumptions made are not actually realized, the Agency s ability to timely pay principal and interest on the Bonds may be adversely affected. 31

40 TABLE 5 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Projects Projected Tax Increment Revenues (in thousands) Fiscal Years through Taxable Values (1) Real Property (2) $769,746 $799,158 $822,565 $839,016 $855,796 $872,912 $890,970 $908,178 $926,341 $944,868 Personal Property (3) 93,037 9,037 93,037 93,037 93,037 93,037 93,037 93,037 93,037 93,037 Taxable Projected Value $862,784 $892,196 $915,602 $932,053 $948,834 $965,950 $983,408 $1,001,215 $1,019,379 $1,037,906 Taxable Value over Base $197,178 $665,605 $695,017 $718,424 $734,875 $751,655 $768,771 $786,230 $804,037 $822,200 $840,727 Gross Tax Increment Revenue (4) $6,937 $7,166 $7,330 $7,490 $7,661 $7,835 $8,013 $8,195 $8,380 $8,568 Unitary Tax Revenue Gross Revenues $7,020 $7,249 $7,412 $7,573 $7,744 $7,918 $8,096 $8,277 $8,462 $8,651 Less: SB 2557 County Administrative Fee (5) ($88) ($91) ($93) ($95) ($97) ($99) ($101) ($104) ($106) ($108) Housing Set Aside Requirement (6) (1,404) (1,450) (1,482) (1,515) (1,549) (1,584) (1,619) (1,655) (1,692) (1,730) Pass Throughs L.A. County Tax Entities (7) ($2,159) ($2,252) ($2,322) ($2,372) ($2,423) ($2,475) ($2,528) ($2,583) ($2,638) ($2,694) Azusa Unified School District (7) (18) (18) (18) (19) (19) (19) (20) (20) (21) (21) SB 211 Statutory Tax Sharing (7) (168) (198) (220) (237) (255) (273) (292) (311) (330) (350) Tier (14) (30) Tier Tier Tax Revenues $3,184 $3,240 $3,277 $3,335 $3,400 $3,467 $3,535 $3,604 $3,662 $3,717 (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership( See Table 4). Values for in the West End Project are reduced by $5,034,387 for expected losses due to pending assessment appeals. (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after See footnotes on individual Project Area projections for assumed future tax rates. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) See footnotes on individual Project Area projections in Fiscal Consultant s Report. Source: Fiscal Consultant s Report. 32

41 Section Pass-Through Payments As described above, prior to the adoption of AB 1290, the Redevelopment Law authorized a redevelopment agency to enter into pass-through or tax-sharing agreements with taxing entities affected by the adoption of a redevelopment plan. AB 1290 repealed the provisions of the Redevelopment Law which authorized pass-through agreements, and replaced it with a system of statutorily mandated pass-throughs (the Section Payments ). California Health and Safety Code Section and Section were added to the Redevelopment Law by AB Section has been further amended by SB 211, Chapter 741, Statutes 2001 ( SB 211 ). Together, they require that taxing entities receive an additional portion of tax increment revenues otherwise payable to the redevelopment agency, if such taxing entities were affected by (i) the adoption after January 1, 1994, of a new redevelopment plan for a project area or an amendment to an existing redevelopment plan that added territory to a project area or (ii) the adoption after January 1, 1994 of an amendment (to a redevelopment plan that was adopted before January 1, 1994) which extends the time limit on incurring debt with respect to the project area, extends the time limit for the duration and effectiveness of the redevelopment plan, and/or increases the dollar cap on the amount of tax increment revenues allocable to the redevelopment agency for the project area (see LIMITATIONS ON TAX REVENUES Plan Limitations ). Under Section , with certain exceptions, with respect to a redevelopment plan or a territory-adding amendment adopted after January 1, 1994, commencing with the first fiscal year in which the agency receives tax increment revenues for the affected project area (or the affected added territory) and continuing through the last fiscal year in which the agency receives tax increment revenues, the agency must pay to the affected taxing entities an amount equal to 25 percent of the tax increment revenues received by the agency after the amount required to be deposited in the low and moderate income housing fund (the Housing Set-Aside Fund ) has been deducted. See SECURITY FOR THE BONDS Allocation of Taxes and LIMITATIONS ON TAX REVENUES Housing Set-Aside. Commencing with the 11th fiscal year in which the agency receives tax increment revenues for the affected project area (or the affected added territory) and continuing through the last fiscal year in which the agency receives tax increment revenues, the agency shall pay to the affected taxing entities (other than the city that established such redevelopment agency), in addition to the amounts paid pursuant to the preceding sentence and after deducting the amount allocated to the Housing Set-Aside Fund, an amount equal to 21 percent of the portion of tax increment revenues received by the agency, which will be calculated by applying the tax rate against the amount of assessed value by which the current year assessed value exceeds the first adjusted base year assessed value. The first adjusted base year assessed value for the 21 percent additional pass-through is the assessed value of the project area (or the affected added territory) in the 10th fiscal year in which the agency receives tax increment revenues. Additional amounts are payable commencing with the 31st year. For any post-1993 amendment to a redevelopment plan adopted before January 1, 1994 that extends the time limits for incurring debt, extends the duration of the redevelopment plan and/or increases the tax increment cap, the formulas for calculating Section Payments are similar to those described in the preceding paragraph, except that each instance of the first fiscal year the agency receives tax increment revenues shall be substituted with the first year following the adjusted base year as defined in Section (c) (the Adjusted Based Year ). The Adjusted Base Year is the fiscal year that the applicable limit would have taken effect without the amendment. Thus, the 25 percent of tax increment described in the preceding paragraph would be payable commencing the first year following the Adjusted Base Year, which will be calculated by applying the tax rate against the amount of assessed value by which current year assessed value exceeds the Adjusted Base Year assessed value. Similarly, the 21 percent additional pass-through described in the preceding paragraph would be payable commencing the 11th year following the first year after the Adjusted Base Year. The first adjusted base year assessed value for such 21 percent additional pass-through is the assessed value of the project area in the 10th fiscal year counting from the first year after the Adjusted Base Year. 33

42 Of the component territories of the Project Area, only the added territory in 2003 was added after January 1, See BONDOWNERS RISKS Legislation Affecting Redevelopment Agencies SB 211. Therefore, under Section and Section , the Agency is obligated to make Section Payments to affected taxing agencies with respect to the additional territory. The projections of tax increments set forth in Table 5 have assumed Section payment obligations of the Agency. A redevelopment agency s obligations to make Section Payments are not subordinate to the redevelopment agency s obligations with respect to the agency s loans or bonds unless the incurrence of such debt satisfies certain conditions and the affected taxing entity does not object to the subordination on grounds permitted by Section Projected Tax Revenues and Debt Service Coverage Receipt of projected Tax Revenues in the amounts and at the times projected by the Agency depends on the realization of certain assumptions relating to the tax increment revenues. The projections of tax increment revenues and the corresponding Tax Revenues from the component areas of the Redevelopment Projects shown on the following table were based on the assumptions shown below. The Agency believes the assumptions upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see BONDHOLDERS RISKS ). To the extent that the assumptions are not actually realized, the Agency s ability to timely pay principal of and interest on the Bonds may be adversely affected. Following is a discussion of assumptions used in the projection of Tax Revenues. (a) Taxable Values are as reported by Los Angeles County. (b) The secured roll was assumed to increase 2 percent annually for inflation in future years through (c) The values of unsecured personal property and state assessed utility property and the amount of unitary revenues have been maintained throughout the projections at their levels. (d) The applicable tax rate was applied to the taxable property values in the component areas of the Redevelopment Projects to determine tax increment revenues for the current fiscal year. The tax rate applied to projected assessed values was adjusted in subsequent years to eliminate override rates based on the amortization schedule for these override rates. After and for the balance of the projection of tax revenues the tax rate of $1.02 per $100 of taxable assessed value is applied to the taxable property values in the component areas of the Redevelopment Projects. (e) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project Area tax rate and adjusted for indebtedness approved by voters after (f) By the adoption of an amendment to the Redevelopment Plan under the terms of SB 211, the Agency has eliminated the Redevelopment Plan s time limit for incurrence of new debt. See BONDOWNERS RISKS Legislation Affecting Redevelopment Agencies SB 211. By the elimination of this limit, the Agency will be required to make statutory tax-sharing payments as outlined in the Health and Safety Code beginning in the fiscal year following the date of the eliminated time limit (Jan. 1, 2004). Using the assessed values for as a base year and beginning in , Taxing Entities that do not have existing tax-sharing agreements receive their shares of 25% of tax increment revenue net of housing set aside. In addition, beginning in the 11 th year after the initiation of statutory tax-sharing payments, Taxing Entities receive 21% of tax revenue on incremental value above the 10 th year value net of housing set aside. According to Redevelopment Law, the statutory tax-sharing payments outlined above continue only until the termination date of plan effectiveness. Thus there are no statutory tax-sharing obligations during the final ten years that of the Project Areas is able to repay indebtedness. 34

43 (g) Projected Tax Revenues include a deduction for administrative costs charged by Los Angeles County which is estimated at 1.25% of the Gross Revenues. (h) Housing Set-Aside calculated at 20% of Gross Revenue. 35

44 TABLE 6 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Projects Projected Revenue and Non-Housing Debt Service Coverage (1) Fiscal years through (000 s omitted) Series 2007A Subordinate Debt Service Total Senior and Subordinate Debt Service Subordinate Lien Debt Service Coverage Series 2007B Second Subordinate Debt Service (4) Total Non-Housing Debt Service Second Subordinate Lien Debt Service Coverage Year Net Tax Revenues (2) Series 2003 Debt Service (3) Series 2005 Debt Service 2008 $3,240 $599 $349 $1,286 $2, $197 $2, , ,290 2, , , ,291 2, , , ,294 2, , , ,290 2, , , ,285 2, , , ,289 2, , , ,287 2, , , ,288 2, , , ,287 2, , , ,294 2, , , ,288 2, , , ,285 2, , , ,290 2, , , ,288 2, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,124 1,109 2, , , ,128 1,105 2, , , , , , , , , , , , , , , ,725 1, , , NA (1) Excludes Housing Set-Aside revenues and debt service paid from Housing Set-Aside revenues. (2) (3) (4) From Fiscal Consultant s Report % of 2003 Bonds debt service is paid from Non-Housing revenues % of Series B Bonds debt service is paid from Non-Housing revenues. 36

45 TABLE 7 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Projects Projected Housing Debt Service Coverage (1) Fiscal years through (000 s omitted) Series 2003 Housing Debt Service (3) Senior Lien Debt Service Coverage Series 2007B Housing Debt Service (4)* Total Housing Debt Service Second Subordinate Lien debt Service Coverage Housing Set Year Aside (2) 2007 $1,404 $ $0 $229 NA , , , , , , , , , , , , , , , , ,061 0 NA ,106 0 NA ,152 0 NA ,199 0 NA ,247 0 NA ,296 0 NA ,345 0 NA ,396 0 NA ,182 0 NA ,225 0 NA ,273 0 NA ,120 0 NA ,166 0 NA (1) Includes only Housing Set-Aside revenues and debt service paid from Housing Set-Aside revenues. (2) (3) (4) From Fiscal Consultant s Report % of 2003 Bonds debt service is paid from Housing Set-Aside revenues % of Series B Bonds debt service is paid from Housing Set-Aside revenues. BONDOWNERS RISKS Investment in the Bonds involves elements of risk. The following section describes certain specific risk factors affecting the payment and security of the Bonds. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the Bonds and the order of discussion of such risks does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other risk factors not discussed under this caption will not become material in the future. 37

46 Limited Obligations of the Agency The Bonds and the interest thereon are limited obligations of the Agency and do not constitute a general obligation of the Agency. See SECURITY FOR THE BONDS. No Owner of the Bonds may compel exercise of the taxing power of the State of California or any of its political subdivisions or agencies to pay the principal of, premium, if any, or interest due on the Bonds. The Bonds do not evidence a debt of the Agency or the City within the meaning of any constitutional debt limitation provision. Reduction in Taxable Value Tax Revenues allocated to the Agency are determined by the amount of incremental taxable value in the Project Area and the current rate or rates at which property in the Project Area is taxed. The reduction of taxable values of property in the Project Area caused by economic factors beyond the Agency s control, such as a relocation out of the Project Area by one or more major property owners, successful appeals by property owners for a reduction in property s assessed value, blanket reductions in assessed value due to general reductions in property values or the complete or partial destruction of such property caused by, among other eventualities, an earthquake or other natural disaster, could cause a reduction in Tax Revenues securing the Bonds. Such reduction of Tax Revenues could have an adverse impact on the Agency s ability to make timely payments of principal of and interest on the Bonds. In addition, other limitations on the Agency s receipt and use of tax increment revenues may also affect the availability of Tax Revenues. See LIMITATIONS ON TAX REVENUES Housing Set-Aside and -Plan Limitations. Article XIIIA Litigation On April 18, 2003, the Orange County Superior Court entered a final judgment in the Bezaire v. County of Orange case (also known as the Prop. 13 or 2% Case ) holding that the Orange County Assessor (the Assessor ) had violated the 2% maximum annual inflation adjustment limit of Article XIIIA by establishing a 4% value increase in order to recapture two years of inflation adjustments. The State Board of Equalization had approved this methodology for increasing assessed values in similar circumstances, and in 2002, two other local courts (Los Angeles and San Diego) ruled differently than Orange County on the same issue, affirming the practice. In June, 2003, the Orange County Assessor and the Tax Collector in conjunction with the County of Orange, filed an appeal to the Court of Appeal of the State of California, Fourth District, Division Three. On March 26, 2004, the Court of Appeal reversed the lower court, entering judgment in favor of Orange County, finding that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year s assessment. The Court of Appeal ruled that the base on which the inflation factor is figured remains that of the original purchase price (or assessment at time of genuine new construction), not any reduced base resulting from a reassessment in the wake of declining property values. On May 6, 2004, the case was appealed to the California Supreme Court as Case No. S On July 21, 2004, the California Supreme Court denied the petition for review. Reduction in Inflationary Rate As discussed above under Bezaire vs. County of Orange and as described in greater detail below under LIMITATIONS ON TAX REVENUES, Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a two percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. For Fiscal Year , the County Assessor applied the maximum inflationary factor to properties in the Project Area as determined under Article XIIIA of two percent. As reflected in APPENDIX C, the Fiscal Consultant has assumed, for purposes of its report, that assessed values will increase by the full inflationary rate of two percent each year; however, there can be 38

47 no assurance that this will be the case. The Agency is unable to predict if adjustments to the full cash value base of any property in the Project Area, whether an increase or a reduction, will be realized in the future. Article XIIIA of the California Constitution, which significantly affected the rate of property taxation, was adopted pursuant to California s constitutional initiative process. From time to time, other initiative measures could be adopted by California voters. The adoption of any such initiative might alter the calculation of tax increment revenues, reduce the property tax rate, or broaden property tax exemptions. Future legislative reallocation of the one percent basic levy among the affected taxing entities could increase the taxes retained by certain taxing entities with a corresponding reduction in Tax Revenues. See LIMITATIONS ON TAX REVENUES Property Tax Limitations Article XIIIA. Legislation Affecting Redevelopment Agencies AB The California Legislature enacted Assembly Bill 1290 effective January 1, 1994, as amended by Senate Bill 732, effective January 1, 1995 (as amended, AB 1290, ) which contained several significant changes in the Redevelopment Law. Certain of the changes affect the times for incurrence and repayment of loans, advances and indebtedness of redevelopment agencies. As enacted, AB 1290 does not adversely impact the proceedings for the issuance of the Bonds or the payment of debt service on the Bonds. Further, the Legislature enacted Assembly Bill 1342 effective January 1, 1999 ( AB 1342 ), which contains provisions that allowed the Agency to extend certain provisions of the Redevelopment Plans, such as the time limit on the collection of Tax Increment Revenues. The limitations currently contained in the Redevelopment Plans of the Redevelopment Project conform to the requirements of AB See LIMITATIONS ON TAX REVENUES Plan Limitations for a further discussion of AB SB In enacting SB 1045 (see ERAF; State Budget below), the State Legislature amended Section of the Redevelopment Law. Section (e) now provides that the City Council may adopt an ordinance to extend the limits required by AB 1290 by one additional year. The City Council has adopted such an ordinance. SB 211. The California Legislature also enacted SB 211, Chapter 741, Statutes 2001, effective January 1, 2002 ( SB 211 ). SB 211 provides, among other things, that, at anytime after its effective date, the limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994, may be deleted by ordinance of the legislative body. However, such deletion will trigger Statutory Tax Sharing under the Tax Sharing Statutes with those taxing entities that do not have tax sharing agreements. Tax sharing will be calculated based on the increase in assessed valuation after the year in which the limitation would otherwise have become effective. See LIMITATIONS ON TAX REVENUES Plan Limitations describing the current limitation on the Agency s incurring of indebtedness and THE PROJECT AREA Bonded Indebtedness and Certain Other Obligations, describing the formulas for tax sharing. The Agency adopted this provision in December The projections of Tax Revenues herein assume such an ordinance is adopted, with resulting Tax Sharing Statute payments. SB 211 also authorizes the amendment of a redevelopment plan adopted prior to January 1, 1994 to extend for not more than 10 years of the effectiveness of the redevelopment plan and the time to receive tax increment revenues and to pay indebtedness. Any such extension must meet certain specified requirements, including the requirement that the redevelopment agency establish the existence of both physical and economic blight within a specified geographical area of the redevelopment project and that any additional tax increment revenues received by the redevelopment agency because of the extension be used solely within the designated blighted area. SB 211 authorizes any affected taxing entity, the Department of Finance, or the Department of Housing and Community Development to request the Attorney General to participate in the proceedings to effect such extensions. It also authorizes the Attorney General to bring a civil action to challenge the validity of the proposed extensions. 39

48 SB 211 also prescribes additional requirements that a redevelopment agency would have to meet upon extending the time limit on the effectiveness of a redevelopment plan, including requiring an increased percentage of new and substantially rehabilitated dwelling units to be available at affordable housing cost to persons and families of low or moderate income prior to the termination of the effectiveness of the plan. The Agency currently has no expectations of undertaking proceedings to extend the effectiveness of the redevelopment plan or to extend the time to receive tax increment revenues (other than under SB 1045, as described above) and to pay indebtedness. The City Council adopted Ordinance No on December 1, 2003, pursuant to the authorization contained in SB 211 to eliminate the current November 28, 2003 and January 1, 2004 limit on the Agency s authority to incur loans, advances and indebtedness and the Indentures expressly allow such amendment and the resulting Statutory Tax Sharing payments on a basis senior to the Bonds, the 2003 Bonds and the 2005 Bonds. See THE PROJECT AREA Bonded Indebtedness and Certain Other Obligations. The Agency cannot predict what effect subsequent State legislation, if any, will have on the Agency s Tax Increment Revenues and, consequently, on its ability to timely pay principal and interest on the Bonds. SB SB 1096 further amended Section (e) to provide that the City Council may adopt an ordinance to extend the limits required by AB 1290 by an additional year for each year that a payment is made to ERAF by a redevelopment agency. However, SB 1096 includes criteria that must be met for redevelopment plans that have a remaining plan life between 10 and 20 years. The City Council adopted Ordinance pursuant to the authorization contained in SB 1096 to extend the time limit for the effectiveness for the Central Business District Original Area and Amendment Area Nos. 1, 2, 3 and 4 and the West End Project Area and to extend the time to collect tax increment for the CBD Plan and the West End Plan. Santa Ana Unified School District Case The Fourth District of the California Court of Appeal rendered a decision in Santa Ana Unified School District vs. Orange County Development Agency (the Santa Ana USD Case ). The Santa Ana USD Case involves the allocation of tax increment revenues pursuant to Section 33676(a) of the Redevelopment Law as it existed before the passage of AB Generally, before AB 1290, Section 33676(a) provided that, prior to the adoption of a redevelopment plan (or an amendment adding territory to a project area), under certain conditions, any affected taxing agency may elect, and every school and community college district shall elect, to be allocated all or any portion of the tax revenues derived based on an annual adjustment of the base year assessed value of real properties in the project area (or the added territory). The words every school and community college district shall elect were added pursuant to a 1984 amendment. The amount of property taxes that a taxing entity may receive under the former Section 33676(a) is derived by increasing the base year value of taxable real property in the project area (or the added territory) by an inflationary factor of not greater than two percent per year (the 2 Percent Allocation ). In effect, the 2 Percent Allocation reduces the tax increment revenues that a redevelopment agency receives from the project area (or, if applicable, an added area to the project area). In the Santa Ana USD Case, the redevelopment plan at issue was adopted in In 1996, the Santa Ana Unified School District ( Santa Ana USD ) adopted a resolution electing to be paid its share of the 2 Percent Allocation. The Orange County Development Agency took the position that Santa Ana USD was not entitled to the 2 Percent Allocation because the election to receive such allocation should have been made before the adoption of the redevelopment plan for the project area. In turn, Santa Ana USD argued that the mandatory nature of the words shall elect in the statute made the allocation mandatory with respect to a school district. The lower court ruled in favor of Santa Ana USD. In an opinion published June 29, 2001, the Court of Appeal affirmed. As a result, Santa Ana USD received the award it had requested, i.e., its share of the 2 Percent Allocation from 1996, the year Santa Ana USD 40

49 made the Section election. The California Supreme Court denied review of the Santa Ana USD Case on September 19, This case effects Redevelopment Agencies which have amended or added territory between the years 1983 to The Agency has amended the Central Business District Plan and the West End Plan in these years, however, the Agency has determined that this case will not have any impact on the receipt of Tax Revenues by the Agency. Development Risks Generally, the Agency s ability to pay debt service on the Bonds will depend on the economic strength of the Project Area. The general economy of the Project Area will be subject, in part, to the development risks generally associated with real estate development projects. Projected development within the Project Area may be subject to unexpected delays, disruptions and changes. For example, real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market, fluctuations in interest rates, unexpected increases in development costs and by other factors. Further, real estate development operations within the Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in the Project Area is delayed or halted, the economy of the Project Area could be adversely affected, causing a reduction of the Tax Revenues available to pay debt service on the Bonds of each series. Levy and Collection The Agency has no independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Revenues, and accordingly, could have an adverse impact on the ability of the Agency to make debt service payments on the Bonds of each series. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency s ability to make timely debt service payments on the Bonds of each series. The Agency is not a participant in the County s Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (commonly referred to as the Teeter Plan ). The County currently allocates tax increment revenues to the Agency based upon the tax increment actually collected. See LIMITATIONS ON TAX REVENUES County Tax Allocation Procedures Applicable to the Agency. ERAF; State Budget Deficit In connection with its approval of the budget for the , and fiscal years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion or each agency s tax increment, net of amounts due to other taxing agencies, to school districts for deposit in the Education Revenue Augmentation Fund ( ERAF ). The amount required to be paid by a redevelopment agency for each such fiscal year was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. Faced with a projected $23.6 billion budget gap for fiscal year , the State Legislature adopted and sent to the Governor of the State AB 1768, as urgency legislation, requiring redevelopment agencies to pay into ERAF an aggregate amount of $75 million in fiscal year As a result, the Agency paid $127,937 into ERAF in fiscal year as its share of such $75 million. As part of the overall legislation to enact the State budget, the State enacted, as urgency legislation, SB 1045, being Chapter 260 of the Statutes of 2003 ( Chapter 260 ), as part of the State Budget requiring redevelopment agencies to pay into ERAF in fiscal year an aggregate amount of $135 million. Chapter 260 requires payments into ERAF in fiscal year only. Chapter 260 provides that one-half of an agency s ERAF obligation is calculated based on the gross tax increment received by the agency and the other one-half of the agency s ERAF obligation is calculated based on the net tax increment revenues (after any pass-through payments to other taxing entities). The Agency paid into ERAF in Fiscal year the amount of $232,244 as its share of such $135 million. 41

50 The State budget enacted by California Legislature identified $22.1 billion worth of debt inherited from the prior gubernatorial administration and indicated that, absent any changes in policies, State budget deficits would continue, estimated at $14 billion for fiscal year The State budget shifted $1.3 billion of revenues from local government to the State. The shift, as to redevelopment agencies, included the following: (a) redevelopment agencies would contribute $250 million in each of the next two fiscal years to ERAF using the same formula as in current law, (b) county, city, special district and redevelopment agency property tax, sales tax, and vehicle license fee revenue would be permanently protected from State ERAF reallocations in future years through a constitutional amendment to be placed on the November general election ballot by the legislature with the full support and leadership of the Governor, and (c) the second year of local government budget cuts will be repealed if the constitutional amendment does not pass at the November 2004 election. On March 2, 2004, voters in California approved Propositions 57 and 58 which were designed by the Governor to assist with the State budget shortfall. Proposition 57 authorized bond issues of up to $15,000,000 to fund budget deficits and Proposition 58 requires the enactment of a balanced State budget. The Agency was be required to pay an amount equal to $472,091 for fiscal years and $470,964 for fiscal years as its share of such $250 million. Both of these amounts were paid to the County by the deadline. The 2006/07 State Budget does not contain any ERAF transfers, however, future legislation could be enacted and Tax Revenues available for payment of the Bonds may be impaired. The 2006/07 State Budget does not resolve the State s structural deficit between revenues and expenditures. It is therefore anticipated that there will be additional future legislation which addresses this situation. The Agency cannot predict what measures may be proposed or implemented for the current fiscal year or in the future. In connection with the reallocation of $2.6 billion of local agency revenues to school funding, the Legislature and the Governor agreed to place Proposition 1A, entitled Protection of Local Government Revenues, on the November 2, 2004 ballot ( Proposition 1A ), and it was approved by the voters. Proposition 1A amends the California Constitution to, among other things, prohibit the shift of property tax revenues from cities, counties and special districts, except to address a severe state financial hardship (and only then if (x) such amounts were to be repaid with interest within three years, (y) the State had repaid any other borrowed amounts, and (z) such borrowing could not occur more often than twice in ten years). However, Proposition 1A does not specifically protect against reallocation of redevelopment agency funds to other uses within a corresponding city or county. In addition, in connection with the payment by redevelopment agencies (i) SB 1045 allowed the Agency to extend the effective date of the Original Plans, and the date to receive Incremental Tax Revenues, by one year, and (ii) SB 1096 allows the Agency to extend the effective date of the Merged Plan, and the date to receive Incremental Tax Revenues, by two years if the legislative body finds the Agency is in compliance with major housing requirements. The Agency has taken such action allowed by SB 1045 and SB See Financial Limitation; SB 211 below. The State budget for fiscal years and were adopted without any further reallocation of funds. There is no provision for the reallocation of funds in the proposed State budget for fiscal years Information about the State budget is regularly available at various Statemaintained websites. The fiscal year State budget may be found at the website of the Department of Finance, under the heading California Budget. Additionally, an impartial analysis of the budget is posted by the Office of the Legislative Analyst at The information referred to is prepared by the respective State agency maintaining each website and not by the Agency, and the Agency takes no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. 42

51 In addition to potential ERAF provisions, the Agency cannot predict whether the State Legislature will enact any other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools, whether through an arrangement similar to ERAF or by other arrangements, and, if so, the effect on future Tax Revenues. Given the level of the State of California s budget deficit problems, tax increment available for payment of the Bonds may be substantially reduced in the future by actions of the State Legislature. Property Tax Appeals There are seven assessment appeals pending within the Project Area, all of which are within the West End Project Area. Three of the pending assessment appeals have been filed by Costco Wholesale Corporation ( Costco ). Costco is seeking a 50% reduction in its fixture and personal property tax roll value for fiscal years through The requested reductions are equal to $1.66 million for fiscal year , $1.47 million for fiscal year , $1.32 million for fiscal year and $1.29 million for fiscal year Reichold Inc. and S&S foods LLC are each requesting 50% reductions of their assessed value, which would result in a reduction of $13.6 million. All pending assessments appeals appear to be pro-forma requests for reduction in value and not based on economic circumstances. The Project Area s top taxpayer, Northrop Grumman, had assessment appeals on valuations for and which were denied. The table below summarizes the assessed value and reduction in assessments based on appeals for fiscal years through TABLE 8 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AMENDED AND RESTATED CENTRAL BUSINESS DISTRICT AND WEST END REDEVELOPMENT PROJECTS APPEAL REQUESTS Parcel No. Roll Value Requested Reduction Roll Value Requested Reduction Roll Value Requested Reduction Roll Value Requested Reduction (1) $3,318,821 ($1,659,411) (1) - - $2,934,818 ($1,467,409) (1) $2,640,924 ($1,320,461) ,180,000 (670,000) (1) $2,584,648 ($1,292,323) ,765,446 (6,382,722) ,532 (432,066) (1) ,615,812 (6,807,905) TOTALS $3,318,821 ($1,659,411) $2,934,818 ($1,467,409) $4,820,924 ($1,990,461) $29,829,438 ($14,915,016) (1) Unsecured assessed value. Source: HDL Coren & Cone. Within West End, and based upon assessment appeals data through December 2006 and using the historical averages for owners successfully appealing their assessed values, the fiscal consultant s report projects that a total of $5,373,957 in assessed value will be taken from the tax rolls. This projected reduction has been incorporated into the projection of tax revenues. The factors resulting in this projected loss are outlined in Table 9. 43

52 TABLE 9 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AMENDED AND RESTATED CENTRAL BUSINESS DISTRICT AND WEST END REDEVELOPMENT PROJECTS WEST END ASSESSMENT APPEALS SUMMARY Total No. of Appeals No. of Resolved Appeals No. of Successful Appeals Average Reduction in Value No. & Value of Appeals Pending Estimated No. of Appeals to be Allowed Estimated Reduction on Pending Appeals Allowed ( Value Adjustment) % 8 ($40,904,001) 45 $5,373,957 Source: Fiscal Consultant s Report dated June 26, Any reduction of assessed valuations could result in a reduction of the Tax Revenues from those projected herein, which in turn could impair the ability of the Agency to make payments of principal of and/or interest on the Bonds when due. Additional Financing Following the issuance of the Bonds, the Agency may issue one or more additional series of bonds and/or notes in an aggregate principal amount which (when added to the Bonds, the 2005 and the 2003 Bonds) do not exceed the limitations set forth in the Redevelopment Plan. See LIMITATIONS ON TAX REVENUES Plan Limitations. Subject to compliance with the limitations of the Indenture, such obligations may be issued on a parity with or subordinate to the Bonds. See SECURITY FOR THE BONDS Issuance of Parity Bonds and Issuance of Subordinated Debt. Seismic Considerations The City, like most California communities, may be subject to unpredictable seismic activity. There is no evidence that a ground surface rupture will occur in the event of an earthquake, but there is significant potential for destructive ground-shaking during the occurrence of a major seismic event. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such an event. The City is located in a high impact seismic zone. In the event of a severe earthquake, there may be significant damage to both property and infrastructure in the Project Area. As a result, the value of taxable land in the Project Area could be diminished in the aftermath of such an earthquake, through appeals, thereby reducing the amount of Tax Revenues. Hazardous Substances Another environmental condition that may result in the reduction in the assessed value of parcels would be the discovery of a hazardous substance that would limit the beneficial use of a property within the Project Area. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the Project Area be affected by a hazardous substance would be to reduce the marketability and value of the property by the costs of remedying the condition, causing a reduction of the Tax Revenues. 44

53 Enforceability of Remedies The remedies available to the Trustee and the registered owners of the Bonds of each series upon an event of default under the related Indenture or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds of each series will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds of each series is subject to limitations imposed by bankruptcy, moratorium, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. Investment of Funds The Reserve Account established under each Indenture and all other funds held under each Indenture are required to be invested in Permitted Investments as provided under the related Indenture. See APPENDIX E SUMMARY OF LEGAL DOCUMENTS. All investments, including Permitted Investments, authorized by law from time to time for investments by redevelopment agencies contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, decline in market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the related Indenture, or the funds and accounts held by the Agency could have a material adverse effect on the security for the Bonds of such series and/or the financial condition of the Agency. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Series B Bonds, the Agency has covenanted in the Series B Indenture to comply with each applicable requirement of Section 148 and certain other sections of the Internal Revenue Code of 1986, as amended, relative to arbitrage and avoidance of characterization as private activity bonds, among other things. The interest on the Series B Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of Series B Bonds as a result of acts or omissions of the Agency in violation of covenants in the Series B Indenture. Should such an event of taxability occur, the Series B Bonds are not subject to acceleration, redemption or any increase in interest rates and will remain Outstanding until maturity or until redeemed under one of the redemption provisions contained in the Series B Indenture. See TAX MATTERS. Secondary Market There can be no assurance that there will be a secondary market for the Bonds of each series, or if a secondary market exists, that either series of Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, pricing of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could substantially differ from the original purchase price. Property Tax Limitations - Article XIIIA LIMITATIONS ON TAX REVENUES California voters, on June 6, 1978, approved an amendment (commonly referred to as Proposition 13 or the Jarvis-Gann Initiative ) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property to mean the county 45

54 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. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. Article XIIIA further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, In addition, an amendment to Article XIII was adopted in August 1986 by initiative that exempts any bonded indebtedness approved by two-thirds of the votes cast by voters for the acquisition or improvement of real property from the one percent limitation. On December 22, 1978, the California Supreme Court upheld the amendment over challenges on several state and federal constitutional grounds (Amador Valley Joint Union School District v. State Board of Equalization). In the general election held on November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms purchased and change of ownership, for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence s assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in certain other minor or technical ways. See BONDOWNERS RISKS Reduction in Taxable Value; Plan Limitations. Challenges to Article XIIIA California trial and appellate courts have upheld the constitutionality of Article XIIIA s assessment rules in three significant cases. The United States Supreme Court in an appeal to one of these cases upheld the constitutionality of Article XIIIA s tax assessment system. The Agency cannot predict whether there will be any future challenges to California s present system of property tax assessment and cannot evaluate the ultimate effect on the Agency s receipt of Tax Revenues should a future decision hold unconstitutional the method of assessing property. Implementing Legislation Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the taxing area based on their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. 46

55 Beginning in the fiscal year, assessors in California no longer record property values on tax rolls at the assessed value of 25 percent of market value, which was expressed as $4.00 per $100 of assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1.00 per $100 of taxable value. Unless otherwise noted, all taxable property value included in this Official Statement is shown at 100 percent of market value and all tax rates reflect the $1 per $100 of taxable value. Proposition 87 Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay voter approved general obligation bonds, any redevelopment project area which included property affected by the tax rate increase would realize a proportionate increase in tax increment. Proposition 87, approved by the voters of the State on November 8, 1993, requires that all revenues produced by a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity which increases the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment when taxes on property in the project area are increased to repay voter approved general obligation debt. Appropriations Limitations: Article XIIIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. Article XIIIB limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. The base year for establishing such appropriations 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. Effective November 1980, the California Legislature added Section to the Redevelopment Law. Section provides that the allocation of tax increment revenues to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by such agency of proceeds of taxes levied by or on behalf of the agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State of California, including Section of the Redevelopment Law. The constitutionality of Section has been upheld in two California appellate court decisions. On the basis of these court decisions, the Agency does not believe it is subject to Article XIIIB and has not adopted an appropriations limit. Unitary Taxation of Utility Property AB 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with fiscal year , assessed value derived from State-assessed unitary property (consisting mostly of operational property owned by certain railroad and utility companies) is to be allocated county-wide as follows: (i) each tax rate area will receive the same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property is changed from March 1 to January 1. AB 454 (Statutes of 1987, Chapter 921) further modifies Chapter 1457 regarding the distribution of tax revenues derived from property assessed by the State Board of Equalization. Chapter 921 provides for the consolidation of all State-assessed property, except for regulated railroad property, into a single 47

56 tax rate area in each county. Chapter 921 further provides for a new method of establishing tax rates on State-assessed property and distribution of property tax revenues derived from State-assessed property to taxing jurisdictions within each county as follows: for revenues generated from the one percent tax rate, each jurisdiction, including redevelopment project areas, will receive a percentage up to 102 percent of its prior year State-assessed unitary revenues; and if county-wide revenues generated for unitary property are greater than 102 percent of the previous year s unitary revenues, each jurisdiction will receive a percentage share of the excess unitary revenues generated from the application of the debt service tax rate to county wide unitary taxable value, further, each jurisdiction will receive a percentage share of revenues based on the jurisdiction s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is sited. The intent of Chapters 1457 and 921 is to provide redevelopment agencies with their appropriate share of revenues generated from the property assessed by the State Board of Equalization. The County Auditor-Controller remitted unitary revenues to the Agency for the Project Area in the amount of $77,492 for the fiscal year and $76,951 for the fiscal year. Housing Set-Aside The Redevelopment Law requires each redevelopment agency to set-aside 20 percent of all tax increment revenue allocable to the agency (such amounts being referred to herein as the Housing Set-Aside ) derived from redevelopment project areas in the Housing Set-Aside Fund. This low and moderate income housing requirement could be reduced or eliminated if a redevelopment agency finds that: (1) no need exists in the community to improve or increase the supply of low and moderate income housing; and (2) that some stated percentage less than 20 percent of the tax increment is sufficient to meet the housing need. No such findings have been made by the Agency. Generally, Housing Set-Aside amounts are not available for payments of debt service on a redevelopment agency s bonds or other indebtedness. However, to the extent that a portion of the sale proceeds of a bond issue is deposited in the Housing Set-Aside Fund, the agency may pay a proportionate amount of the debt service on such bonds from the Housing Set-Aside amount. The Agency has allocated 39.14% of the proceeds of the 1997 Bonds and 27.66% of the proceeds of the 2003 Bonds. In the past, the Agency has used Housing Set-Aside to pay the allocable portion of debt service on the 1997 Bonds and the Upon defeasance of the 1997 Bonds by the Series B Bonds, the Series B Bonds will be secured by such set aside. The provisions of the Redevelopment Law regarding the funding of low and moderate income housing funds have been frequently amended since their original adoption. In addition, the interpretations of these laws by the California Attorney General and redevelopment agency counsels throughout the State have at times been subject to variation and change. The Agency cannot predict what impact any future amendment to the laws relating to low and moderate income housing funds may have on tax increment revenues to the Agency. Also see APPENDIX C FISCAL CONSULTANT S REPORT. 48

57 Property Tax Collection Procedures Classifications. In California, property that is subject to ad valorem taxes is classified as secured or unsecured. Secured and unsecured property is entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax that becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against the taxes on unsecured property, but may become a lien on certain other property owned by the taxpayer. Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recording in the county recorder s office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of the personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes that are delinquent. Delinquencies. The valuation of property is determined as of January 1 each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1 and become delinquent on the succeeding August 31. Penalties. A 10 percent penalty is added to delinquent taxes that have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of one and one half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10 percent penalty also applies to the delinquent taxes on property on the unsecured roll, and further, an additional penalty of one percent per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. Supplemental Revenue. A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date (March 1 was used as the lien date as of the enactment of Chapter 498; however, as discussed herein, the lien date was changed by legislation enacted in 1995) following the change and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues may increase. The receipt of supplemental tax increment revenues by taxing entities typically follow the change of ownership by a year or more. The Fiscal Consultant has not included such revenues resulting from such supplemental assessment in its projections. 49

58 County Tax Allocation Procedures Applicable to the Agency Tax Increment Revenues and Receipts. According to the County s current practice, the County disburses payments of tax increment collected for the Project Area to the Agency in installments between November and August each year. Generally, each year, the Agency receives 50 percent of the annual tax increment revenues by mid-january and 85 percent by mid-may. County Collection Charge. As permitted by legislation enacted by the State Legislature (SB 2557 and AB 1924), the County retains a collection charge from tax increment revenues disbursed to the Agency in order to recover charges for property tax administration. For fiscal year , the County retained $87,807 from the Agency as administrative and collection charges attributable to the Project Area. Base Year Valuation Adjustments. The Redevelopment Law provides that the base assessment roll utilized for the allocation of tax increment revenues may be reduced by the taxable value, as shown on the base roll, of those properties acquired for public use of tax exempt public entities. The precedent for this action stems from the 1963 case of Redevelopment Agency of the City of Sacramento vs. Malaki, 216 Cal. App. 2d 480, and subsequent, related cases. Certification of Agency Indebtedness A significant provision of the Redevelopment Law, Section 33675, was added by the Legislature in 1976, providing for the filing not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief fiscal officer of the agency for each redevelopment project which receives tax increments. The statement of indebtedness is required to contain the date on which any bonds were delivered, the principal amount, term, purpose and interest rate of such bonds and the outstanding balance and amount due on such bonds. Similar information must be given for each loan, advance or indebtedness that the agency has incurred or entered into to be payable from tax increment. Section also provides that the county auditor is limited in payment of tax increment to the agency to the amounts shown on the agency s statement of indebtedness. Section further provides that the statement of indebtedness is prima facie evidence of the indebtedness of the agency, but that the county auditor may dispute the amount of indebtedness shown on the statement in certain cases. Provision is made for time limits under which the dispute can be made by the county auditor as well as provisions for determination by the Superior Court in a declaratory relief action of the proper disposition of the matter. The issue in any such action will involve only the amount of the indebtedness and not the validity of any contract or debt connection with payments by such public agency pursuant thereto. An exception is made for payments to a public agency in connection with payment by such agency pursuant to a bond issue that shall not be disputed in any action under Section Therefore, the Bonds of each series should be entitled to the protection of that portion of the statute so that they cannot be disputed by the County auditor. The Agency has met all previous requirements with respect to the filing of its statement of indebtedness pursuant to Section To date, the County Auditor has never disputed the amounts reported by the Agency in its Section statement of indebtedness filings. 50

59 Plan Limitations The Redevelopment Law contains certain time limits for the duration and effectiveness of a redevelopment plan. The Redevelopment Law also imposes a limit on the aggregate amount of tax increment revenues which may be allocated to a redevelopment agency pursuant to its redevelopment plan (except for any plan or territory-adding amendment adopted on or after January 1, 1994) and a time limit on the incurrence of indebtedness to finance its redevelopment projects. In the past three decades, the provisions of the Redevelopment Law pertaining to these limits have undergone a number of amendments, including as the result of AB 1290 in 1994 and SB 211 in Generally, under Section of the Redevelopment Law, a redevelopment plan (or an amendment that added territory to a project area) adopted before 1994, is subject to the following limits: (1) the duration and effectiveness of the existing redevelopment plan (or amendment) shall not exceed 40 years from the date of its adoption or January 1, 2009, whichever is later; and (2) a redevelopment agency shall not pay indebtedness with tax increment revenues from the project area (or added territory) beyond 10 years after its redevelopment plan (or amendment) expires, except to fund deferred housing set-aside requirements of the Redevelopment Law and to repay indebtedness incurred prior to January 1, (Before January , Section also required that the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan (or amendment) or January 1, 2004, whichever is later. SB 211 eliminated this requirement.) Before SB 211, Section also permitted an up-to-10 year extension to each of these limits by an amendment to the redevelopment plan upon certain findings by the redevelopment agency. The Agency, in 2003, eliminated the date limitation on the incurrence of additional indebtedness. Under Section of the Redevelopment Law, a redevelopment plan (or an amendment that added territory) adopted on or after January 1, 1994, such as the added territory to the Project Area, must contain the following limitations, except to the extent necessary to comply with certain provisions of the Redevelopment Law pertaining to the Housing Set-Aside: (1) the life of the redevelopment plan (or amendment) shall not exceed 30 years from the date of adoption; (2) the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan (or amendment), unless extended by amendment under certain limited conditions, and (3) a redevelopment agency shall not pay indebtedness with tax increment revenues from the project area (or added territory) beyond 45 years from the adoption of the redevelopment plan (or amendment). The table below shows the Plan Limitations for the plan expiration dates, the time limits to incur debt and the time limits on payment of indebtedness with tax increment revenues for each component of the Project Area as set forth in the Redevelopment Plan: TABLE 10 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Project Redevelopment Plan Time Summary Component of Project Area Plan Expiration Last Date to Repay Debt with Tax Increment Central Business District Original Area September 18, 2021 September 18, 2031 CBD Amendment No. 1 July 2, 2022 July 2, 2032 CBD Amendment No. 2 July 20, 2024 July 20, 2034 CBD Amendment No. 3 November 28, 2026 November 28, 2036 CBD Amendment No. 5 December 17, 2026 December 17, 2036 West End Original Area November 28, 2026 November 28, 2036 CBD Amendment No. 8 November 6, 2034 November 6,

60 The bonded debt limit for the entire Project Area, is $68 million. The tax increment limit for the Project Area, excluding CBD Amendment No. 8, is $114,931,075. The tax increment limit for the Project Area is equivalent to the combined limit for all components of the Project Area. The tax increment revenues allocable to the Agency from the Project Area (exclusive of the Added Territory to the Project Area pursuant to CBD Amendment No. 8 which has no tax increment limit) has a combined tax increment limit of $114.9 million pursuant to the most recent plan amendment. The Agency has been allocated $72,799,781 in tax increment revenue, excluding CBD Amendment No. 8 through August Through August 2006, CBD Amendment No. 8 has been allocated a total of $98,014. The tax increment paid to affected taxing entities pursuant to Sections 33401, 33445, and of the Redevelopment Law and the amount set aside for low and moderate income housing are excluded from this limit. To date, the Agency has received $37,262,042 through August 2006, net of these deductions. The assumptions stated in the tax increment projections show that the Agency will reach its tax increment limits in Fiscal Year The Agency is authorized to receive Tax Revenues until November 2036, however, tax increment projections show the Agency will reach its limit on the amount of tax increment it can receive in Fiscal year The Agency has made a covenant to annually calculate the tax increment received against the remaining tax increment limitation. To the extent that the tax increment remaining to be received against the tax increment limitation is less than 110% of the total debt service on the Series A Bonds, the Series B Bonds and all Senior Lien Bonds, then the Agency will cause bonds to be redeemed, in order of seniority of lien, so that the remaining tax increment limitation shall be above 110% of debt service on the Series A Bonds, the Series B Bonds and the Senior Lien Bonds. See APPENDIX E SUMMARY OF LEGAL DOCUMENTS Covenants of the Agency (22) Annual Accounting of Tax Increment Revenues. The Agency has covenanted under the Indenture to manage its fiscal affairs in a manner which enables it to comply with the Plan Limitations, and not to issue any bonds, notes on other obligations which would cause the Plan Limitations to be exceeded or violated. TAX MATTERS Best Best & Krieger LLP, Riverside, California, as Bond Counsel, will render an opinion which states that the Indentures are a valid and binding obligation of the Agency and enforceable in accordance with its terms. The legal opinion of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors rights and limitations on remedies against public entities such as the Agency, and to the exercise of judicial discretion in accordance with general principles of equity. See APPENDIX E for the proposed form of Bond Counsel s opinion. Bond Counsel further opines, based upon an analysis of existing statutes, regulations, rulings and court decisions, interest on the Series B Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the 1986 Code ). Bond Counsel is further of the opinion that interest on the Series B Bonds is not treated as an item of tax preference for purposes of the individual and corporate alternative minimum taxes. Interest on the Series B Bonds, however, is included in the adjusted current earnings of certain corporations, and the alternative minimum taxable income of such corporations must be increased by 75 percent of the excess of the adjusted current earnings of such corporations over the alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses) of such corporations. The 1986 Code and other applicable tax law impose various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on or with respect to obligations such as the Series B Bonds. The Agency has covenanted to comply with certain restrictions designed to ensure that interest with respect to the Series B Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series B Bonds becoming subject to federal income taxation retroactive to the date of issuance of the Series B 52

61 Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of delivery of the Series B Bonds may affect the tax status of interest on the Series B Bonds. The receipt of interest on the Series B Bonds may otherwise affect an Owner s income tax liability. The nature and extent of these other tax consequences will depend upon the Owner s particular tax status and the Owner s other items of income and deduction. Bond Counsel expresses no opinion regarding such consequences. Purchasers of the Series B Bonds, particularly purchasers that are corporations (including S corporations, and United States branches of foreign corporations), property and casualty insurance companies, banks, thrifts or other financial institutions, recipients of Social Security or Railroad Retirement benefits, or taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors concerning their tax consequences of purchasing and holding the Series B Bonds. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of other similar bonds). It is possible that subsequent to the issuance of the Bonds there might be federal, state or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state or local tax treatment of the Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Bonds such changes or interpretations will not occur. From time to time, there are legislative proposals in Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Series B Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to Series B Bonds issued prior to enactment. Each purchaser of the Series B Bonds should consult his or her tax advisor regarding any pending or proposed federal legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. Certain requirements and procedures contained or referred to in the Indenture and other relevant documents may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Series B Bond or interest with respect thereto if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than Bond Counsel. In the opinion of Bond Counsel, under existing law, interest on the Series A Bonds and the Series B Bonds are exempt from California personal income tax. In the opinion of Bond Counsel, under existing law, interest on the Series A Bonds is included as gross income for federal income tax purposes. Although Bond Counsel will render an opinion that interest on the Series B Bonds is excluded from federal gross income and that interest on the Series A Bonds and Series B Bonds is exempt from California personal income tax, the accrual or receipt of interest on the Series A Bonds and Series B Bonds may otherwise affect an Owner s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the Owner s particular tax status and the Owner s other items of income or deduction. Bond Counsel express no opinion regarding any such other tax consequences. Defeasance of any Series A Bond may result in a reissuance thereof, in which event a holder will recognize taxable gain or loss equal to the difference between the amount realized from the sale, 53

62 exchange or retirement (less any accrued qualified stated interest which will be taxable as such) and the holder s adjusted tax basis in the Series A Bond. To ensure compliance with the requirements imposed by the Internal Revenue Service, purchasers and Owners of the Series A Bonds should be aware that any federal income tax advice contained in this Official Statement (including the Appendices) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code, promoting, marketing or recommending to another party any transaction or matter addressed herein. The advice was written to support the promotion or marketing of the Series A Bonds. A complete copy of the proposed form of opinion of Bond Counsel with respect to the Series A Bonds and Series B Bonds is set forth in APPENDIX D hereto. FINANCIAL ADVISOR C.M. de Crinis & Co. has acted as financial advisor to the Agency concerning the Bonds. As financial advisor, C.M. de Crinis & Co. will receive compensation contingent upon the sale and delivery of the Bonds. RATINGS ON THE SERIES A BONDS Standard & Poor s ( S&P ) and Moody s Investors Service ( Moody s ) have assigned a rating of AAA and Aaa, respectively, to the Series A Bonds, conditioned on the issuance by the Bond Insurer of the Bond Insurance Policy at the time of delivery of the Series A Bonds. Such ratings reflect only the views of such organization and any desired explanation of the significance of such ratings may be obtained from S&P and Moody s. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series A Bonds. The Series B Bonds are not rated by any rating agency and are not insured by any municipal bond insurance company. UNDERWRITING De La Rosa & Co. (the Underwriter ) is offering the Bonds at the prices set forth on the inside cover page hereof. The Bonds are issued for sale to the Azusa Public Financing Authority which will concurrently sell the Bonds to the Underwriter. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has purchased the Series A Bonds at a price equal to $15,514, which amount represents the principal amount of the Series A Bonds, less an Underwriter s discount of $106, and less an original issue discount of $158, The Underwriter has purchased the Series B Bonds at a price equal to $4,718, which amount represents the principal amount of the Series B Bonds, less an Underwriter s discount of $57, and less an original issue discount of $13, NO LITIGATION There is no litigation pending or, to the Agency s knowledge, threatened to restrain or enjoin the issuance, execution or delivery of the Bonds, to contest the validity of the Bonds, the Indentures, or any proceedings of the Agency with respect thereto. In the opinion of the Agency and its counsel, except as otherwise described herein, there are no lawsuits or claims pending against the Agency which will 54

63 materially affect the Agency s finances as to impair the ability to pay principal of and interest on the Bonds when due. LEGAL MATTERS The legality of the issuance of the Bonds is subject to the approval of Best Best & Krieger LLP, Riverside, California, Bond Counsel. Bond Counsel s opinions with respect to the Bonds of each series will be substantially in the forms set forth in APPENDIX E of this Official Statement. Fees payable to Bond Counsel are contingent upon successful sale and delivery of the Bonds. VERIFICATION OF MATHEMATICAL COMPUTATIONS Barthe & Wahrman P.A. CPAs, a firm of independent public accountants, will deliver to the Agency, on or before the date of delivery of the 2007 Bonds, its verification report indicating that it has verified the mathematical accuracy of (a) compilation proposed on behalf of the Agency related to the sufficiency of amounts on deposit and expected investment earnings thereon with respect to the Escrow Fund and (b) the mathematical compilation of yield used by Bond Counsel to support its opinion that interest on the Series B Bonds will be excluded from gross income for federal income tax purposes. CONTINUING DISCLOSURE Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the Rule ), the Agency has undertaken for the benefit of holders of the Bonds to provide certain financial information and operating data relating to the Agency by not later than nine months after the end of each Fiscal Year commencing with the report for the fiscal year (the Annual Information ), and to provide notices of the occurrence of certain enumerated events, if deemed by the Agency to be material. The Annual Information will be filed by the Agency, with each Nationally Recognized Municipal Securities Information Repository (the NRMSIRS ) and with the State Information Depository (the State Depository ), if any. Notices of material events will be filed by or on behalf of the Agency with the NRMSIRS or the Municipal Securities Rulemaking Board (the MSRB ) and with the State Depository, if any. The nature of the information to be provided in the Annual Information and the notices of material events is set forth under the caption APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE. The Agency is obligated to prepare annual continuing disclosure reports with respect to the Bonds. The Agency has prepared such annual reports, but has not filed those reports with the NRMSIRS as required. The Agency has complied, however, with its most recent year s annual report. MISCELLANEOUS All of the preceding summaries of the Indenture, the Redevelopment Law, other applicable legislation, the Redevelopment Plan for the Project Area, agreements and other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Agency for further information in connection therewith. 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. 55

64 The execution and delivery of this Official Statement by its Executive Director has been duly authorized by the Agency. REDEVELOPMENT AGENCY OF THE CITY OF AZUSA By: /s/ Francis M. Delach Executive Director 56

65 APPENDIX A SUPPLEMENTAL INFORMATION ON THE CITY OF AZUSA General The City is a municipal corporation existing under the laws of the State of California. The City owns and operates an electric public utility for its citizens, which provides electric service to virtually all of the electric customers within the City limits, encompassing approximately 9 square miles. The City also owns and operates a water system. Its service territory includes the City and adjoining portions of surrounding cities and unincorporated areas of Los Angeles County. The City is located in the greater metropolitan Los Angeles area, approximately 24 miles east of downtown Los Angeles. The economy represents a diverse blend of industrial, commercial, agricultural and residential development. The City was incorporated as a general law city in 1898, and is administered by a Council- Administrator form of government. The four City Council members are elected at large for four-year terms. Elections are staggered at two-year intervals. The office of Mayor is elected at-large for a twoyear term. The election coincides with those of the Council members. Population The following chart indicates the growth in the population of the City since City of Azusa Population Fiscal Year Population Employment , , , , , , , , , , , , , ,302 Source: U.S. Department of Census and State of California Department of Finance. alone. No annual information is regularly compiled on employment and unemployment for the City Employment in Los Angeles County was 4,456,300 in 2002 and 4,627,100 as of December 1, 2006, representing a 3.83% increase over approximately a five-year period. The County unemployment A-1

66 rate decreased from 6.6% in 2002 to 4.5% in Statewide unemployment rates were 6.8% in 2002 and 4.8% in Los Angeles County Long Beach Metropolitan Statistic Area Employment Unemployment and Labor Force (Averages for each of the Calendar Years ) Civilian Labor Force (1) 4,773,000 4,748,700 4,801,600 4,872,200 4,847,00 Employment 4,456,300 4,421,600 4,509,000 4,606,100 4,627,10 Unemployment 316, , , , ,900 Unemployment Rate State Unemployment 6.6% 6.8% 6.9% 6.7% 6.1% 5.9% 5.5% 5.1% 4.5% 4.8% (1) As of December 1. Source: State of California, Employment Development Department. Major Private Employers Industry in the City is diversified. Some of the leading industries include education institutions, light manufacturing, retail services and aerospace industries. The major employers within the City and the approximate number of employees of each as of June 30, 2006, are shown below. City of Azusa Major Employers (As of June 30, 2006) Company Number of Employees Business Line Azusa Unified School District 1,600 Education Northrop-Grumman 1,100 Manufacturer Azusa Pacific University 900 Education City of Azusa 522 Government Costco 311 General Consumer Goods Berger Bros. 300 Manufacturer Pacific Precision Metals 250 Manufacturer Tru Wood Products 160 Manufacturer Wynn Oil Company 150 Manufacturer Rain Bird 132 Manufacturer California Amforge 106 Manufacturer Vulcan 100 Manufacturer Naked Juice 75 Manufacturer Morris National Candy 70 Manufacturer Physician s Formula 70 Manufacturer Trek Industries 63 Manufacturer Heppner Hardwood 37 Manufacturer Source: City of Azusa Comprehensive Annual Financial Report for Fiscal Year A-2

67 Building Permit Activity The following table shows the value of building permits issued in the City between fiscal year and fiscal year City of Azusa Building Permit Valuation (Fiscal Years through ) Total Valuation $58,437 $93,986 $21,551 $15,692 $22,620 New Dwelling Units Source: City of Azusa. Taxable Sales Taxable sales in the City increased approximately 26% from 2001 to The following table indicates taxable transactions in the City by type of business during this period. City of Azusa Taxable Transactions by Type of Business (Calendar Years 2001 through 2005) (in Thousands of Dollars) (1) Apparel Stores $2,175 $3,141 $4,000 $4,159 $4,384 General Merchandise 108,346 N/A N/A N/A N/A Food Stores 15,640 15,327 15,001 14,954 14,886 Eating & Drinking Places 29,428 30,521 31,623 35,095 36,705 Home Furnishings/Appliances 2,939 3,487 3,648 4,006 4,330 Bldg. Mat. & Farm Impl. 11,819 12,685 16,736 22,358 24,085 Auto Dealers and Supplies 20,932 21,183 18,744 17,454 19,738 Service Stations 22,619 20,266 32,241 47,970 54,554 Other Retail Stores 18, , , , ,880 Retail Stores Total (1) $232,467 $244,656 $264,669 $297,121 $319,562 All Other Outlets $102,317 $94,503 $95,096 $102,317 $96,385 Total (1) $334,784 $339,159 $359,765 $399,438 $415,947 (1) Totals may not add due to rounding. Source: California State Board of Equalization. A-3

68 Personal Income Per Capita personal income information for Los Angeles County, the State of California and the United States is summarized in the following table. Personal Income Los Angeles County State of California and United States Calendar Years 2001 through 2005 Year Los Angeles County State of California United States 2001 $30,478 $32,859 $38, ,789 32,769 38, ,416 33,469 38, ,008 35,380 39, ,426 36,936 Source: Bureau of Economic Analysis, U.S. Department of Commerce. History and Development of Community Blessed with a spectacular natural setting beneath the San Gabriel Mountains, the City is a community with a strong sense of family and history. Founded over one hundred years ago in 1887 and incorporated December 29, 1898, its name traces to a native village that existed long before Spanish explorers arrived in Called the El Susa Rancho during California s Mexican era, the City boomed in population after the coming of the railroad. The area grew after 1854 when gold was discovered in the San Gabriel Canyon. By 1860 the town had over 2,000 inhabitants and the United States government bought much of the land from founder Henry Dalton for homesteading. After acquiring the highly prized orchard community of Azusa Rancho from Dalton in 1880, Jonathan D. Slauson, a Los Angeles banker laid out the City in Oranges and lemons soon gave way to homes and industry affording new generations of families and entrepreneurs to pursue the American dream of owning a home, starting a business and creating a brighter future for their children. Today with a population of 48,300 residents, the City boasts a vibrant industrial base and diverse neighborhoods. With active citizens charting a new vision, the City is becoming a model of an older suburban community undergoing exciting renewal to continue to be the Gateway to the American Dream. A-4

69 Direct and Overlapping Debt Report Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by the California Municipal Statistics, Inc. The Debt Report is included for general information purposes only. The City makes no representations as to its completeness or accuracy Assessed Valuation: $862,783,592 Base Year Valuation: 197,178,277 Incremental Valuation: $665,605,315 City of Azusa Direct and Overlapping Bonded Debt (as of June 1, 2007) DIRECT DEBT: % Applicable Debt 6/1/07 Tax Allocation Bonds Refunding, 1997 Series A 100. % $ 4,935,000 Tax Allocation Bonds Refunding, 2003 Series A ,145,000 Tax Allocation Bonds, 2005 Series A 100 9,022,800 TOTAL DIRECT DEBT $24,102,800 (1) Ratio to Incremental Valuation: 3.62% OVERLAPPING TAX AND ASSESSMENT DEBT: Los Angeles County Flood Control District 0.020% $ 22,712 Metropolitan Water District ,956 Citrus Community College District ,682,558 Azusa Unified School District ,110,974 Duarte Unified School District ,895 Los Angeles County Regional Park and Open Space Assessment District ,939 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $8,119,034 OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.024% $ 260,364 Los Angeles County Pension Obligations ,900 Los Angeles County Superintendent of Schools Certificates of Participation ,756 Los Angeles County Sanitation District No. 22 Authority ,527 Azusa Unified School District Certificates of Participation ,158,545 City of Azusa General Fund Obligations ,496 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $5,101,588 COMBINED TOTAL DEBT $37,323,422 (2) (1) Excludes tax allocation bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Combined Total Direct Overlapping Tax and Assessment Debt % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/06: $0 Source: California Municipal Statistics, Inc. A-5

70 Assessed Valuation and Tax Collections Property taxes attach as an enforceable lien on property as of March 1, each year. Taxes are levied on July 1, and are payable in two installments no later than December 10, and April 10, respectively, of each year. The County of Los Angeles bills and collects the property taxes and remits them to the City in installments during the year. City property tax revenues are recognized when received in cash except at year-end when they are accrued pursuant to the modified accrual basis of accounting. The following table shows the assessed property valuations within the City for fiscal years ending June 30, 2003 through Assessed valuations include homeowners and business inventory exemption, the taxes on which have been paid by the State. Figures in the final column below consist of total assessed valuations less redevelopment project area incremental assessed valuations, the taxes on which are payable to the Azusa Redevelopment Agency. City of Azusa/Azusa Redevelopment Agency Assessed Property Valuations (Fiscal Years ended June 30, 2003 through 2006) City Redevelopment Agency Fiscal Year Ended June 30 Secured Unsecured Taxable Assessed Value (1) Secured Unsecured Taxable Assessed Value (1) Total Direct Tax Rate 2003 $1,271,756,979 $74,591,008 $1,346,347,987 $534,845,416 $77,598,421 $612,443, % ,416,059,948 79,782,839 1,495,842, ,085,088 78,901, ,986, % ,496,197,287 68,669,721 1,564,867, ,568,717 85,621, ,190, % ,718,308,956 64,069,228 1,782,378, ,055,664 92,540, ,596, % Source: City of Azusa Comprehensive Annual Financial Report for Fiscal Year A-6

71 Property Tax Collections The following table shows the City s property tax collections and adjustments for the fiscal years indicated. Fiscal Year Ended June 30 Taxes Levied for the Fiscal Year City of Azusa Property Tax Collections (Fiscal Years ended June 30, 2003 through 2006) Amount Collected within the Fiscal Year of Levy Collections in Subsequent Years Total Collections to Date Percent of Levy to Date Percent of Levy 2003 $2,013,405 $1,895, % $13,400 $1,908, % ,133,628 2,112, % (17,965) 2,094, % ,335,339 2,246, % 37,397 2,283, % ,729,217 2,531, % 91,595 2,622, % Source: City of Azusa Comprehensive Annual Financial report for Fiscal Year Ten Largest Secured Taxpayers The following table shows the ten largest secured taxpayers in the Project Area for the fiscal year Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area Ten Largest Secured Taxpayers (Fiscal Year Ended ) (In Thousands) Percentage of Total City Taxable Assessed Value Taxable Assessed Taxpayer Value Northrop Grumman Systems Corporation $1,040, % PPF Industrial th Street 270, SC Azusa Industrial Center Corporation Costco Wholesale Corporation 140, Criterion Catalyst Company Limited Partnership 139, Reichhold Inc. 118, Exchange El Segundo Azusa Colony Park LLC 105, S & S Foods LLC 101, Soon Choe Kae 88, Ontario Vogel 88, Coastal Pacific Glen LLC 86, Totals $2,179, % Source: City of Azusa Comprehensive Annual Financial Report for Fiscal Year A-7

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115 APPENDIX C FISCAL CONSULTANT S REPORT C-1

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117 Appendix C REDEVELOPMENT AGENCY OF THE CITY OF AZUSA AMENDED AND RESTATED MERGED CENTRAL BUSINESS DISTRICT AND WEST END REDEVELOPMENT PROJECT AREA PROJECTED TAXABLE VALUES AND ANTICIPATED TAX INCREMENT REVENUES June 26, 2007 I. Introduction The Redevelopment Agency of the City of Azusa (the Agency ) will issue its Amended and Restated Merged Central Business District and West End Redevelopment Project Area Taxable Tax Allocation Bonds (Subordinate Lien) 2007 Series A (the Series A Bonds ) and the Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Second Subordinate Lien) 2007 Series B Bonds (the Series B Bonds, collectively with the Series A Bonds, the Bonds ) under two separate Indentures, by and between the Agency and Wells Fargo Bank, National Association, as trustee. The Bonds will be issued as two separate series of bonds and are each payable from and secured by certain tax increment revenues eligible for allocation to the Agency in connection with the Agency s Amended and Restated Central Business District and West End Redevelopment Project Area (the Project Area ) as provided for in the Redevelopment Plan and certain funds and accounts held under the Indentures. The Bonds are being issued for sale to the Azusa Public Financing Authority, which is concurrently selling the Bonds to the Underwriter. Proceeds of the Series A Bonds will be used to (i) provide funds to finance redevelopment projects, (ii) satisfy the Reserve Requirement for the Series A Bonds, and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Series A Bonds. Proceeds of the Series B Bonds will be used to (i) refund on a current basis the $6,470,000 Redevelopment Agency of the City of Azusa Merged Project Area Tax Allocation Refunding Bonds 1997 Series A (the 1997 Bonds ), (ii) satisfy the Reserve Requirement for the Series B Bonds, and (iii) pay costs incurred in connection with the issuance, sale and ^delivery of the Series B Bonds. The California Community Redevelopment Law (the Law) provides for the creation of redevelopment agencies by cities and counties for the purpose of the elimination of blight. The Law, together with Article 16, Section 16 of the California Constitution, authorizes redevelopment agencies to receive that portion of property tax revenue generated by project area taxable values that are in excess of the Base Year value. The Base Year value is defined as the amount of the taxable values within the project area boundaries on the last equalized tax roll prior to adoption of the project area. The amount of current year taxable value that is in excess of the Base Year value is referred to as incremental taxable value. Tax revenues generated from the incremental taxable value are, for purposes of this report, referred to as Gross Tax Revenues. The Law provides that the tax increment revenues may be pledged by the redevelopment agency to the repayment of agency indebtedness. In this report, Gross Tax Revenues including Unitary Tax Revenue (see Section IV, Allocation of State Assessed Unitary Taxes) are referred to as Gross Revenues. For purposes of this report, Tax Revenues are defined as Gross Revenues less the Housing Set-Aside Requirement (see Section V, Low and Moderate Income Housing Set-Aside), SB 2557 County Administrative fees (see Section IV, County

118 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 2 Collection Charges), tax sharing payments and any pledges of Gross Revenues that have a lien that is superior to that of the debt service payments on the Bonds. The purpose of this fiscal consultant report (the Report) is to examine the current fiscal year and project for nine fiscal years the amount of tax increment revenues anticipated to be received by the Agency from the Project Area. As a result of our research, we project that the Tax Revenues that will be pledged to the payment of debt service on the Bonds will be as shown in Table A below (000 s omitted): Fiscal Year Table A Merged Project Area Tax Revenues CBD Amend. 1 Amend. 2 Amend. 3 Amend. 4 Amend. 8 West End Merged $588 $ 7 $188 $183 $155 $ 75 $1,986 $3, ,977 3, ,988 3, ,019 3, ,056 3, ,094 3, ,132 3, ,171 3, ,202 3, ,234 3,717 The taxable values of property and the resulting Tax Revenues for the Merged Project Area and its component project areas summarized above are reflected on Tables 1 and 2 of the projection (attached). The projection is based on assumptions determined by our review of the taxable value history of the Merged Project Area and the property tax assessment and property tax apportionment procedures of the Los Angeles County Auditor-Controller (the Auditor-Controller ) and the Los Angeles County Assessor (the Assessor ). The projection illustrates the entire amount of Tax Revenues projected as being available from the Merged Project Area. It is assumed that the Agency will continue to have sufficient debt to capture all of the available Tax Revenues. Future year assessed values and Tax Revenues are projections based on the assumptions described in this Report and are not guaranteed as to accuracy. This Report is not to be construed as a representation of such by HdL Coren & Cone. II. The Project Area The City Council of the City of Azusa (the City ) adopted the redevelopment plan establishing the CBD Project by Ordinance No on September 18, The CBD Project has been amended eight times since its adoption and five of these amendments added territory. The West End Project was adopted by Ordinance No on November 28, The Merged Project Area is approximately 1,397 acres in size and consists of numerous non-contiguous areas within the City. Approximately 1,077 acres of the Merged Project Area exists within the West End Project. The Merged Project Area accounts for approximately 24 percent of the total acreage within the City. C - 2

119 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 3 The CBD Project and its Amendment Areas 1 through 4 and Amendment 8 include the main business corridor along Azusa Boulevard from Baseline Avenue on the South to 9 th Street on the north and contain selected non-contiguous areas to the north, south and east. The West End Project abuts the City s western border from Gladstone Avenue on the south to Sierra Madre Boulevard on the north and extends almost to San Gabriel Canyon Road on the east. The West End Project encompasses much of the property within the city that is either developed as or zoned for industrial use. The adoption dates and adoptive ordinance information for the various component project areas are listed below. Table B Project Area Adoption Dates Component Project Area Adoptive Ordinance No. Adoption Date CBD Project Ordinance No /18/1978 Amendment 1 Ordinance No /2/1979 Amendment 2 Ordinance No /20/1981 Amendment 3 Ordinance No /28/1983 Amendment 4 Ordinance No /17/1984 Amendment 8 Ordinance No /6/2003 West End Project Ordinance No /28/1983 A. Land Use Table C represents the breakdown of land use in the Project Area by the number of parcels and by taxable assessed value for fiscal year Unsecured and SBE non-unitary values are connected with parcels that are already accounted for in other categories. Values shown in Table C are the net taxable values for properties within the various land use categories. This information is based on County land use designations as provided by the County. Table C Land Use Summary Category No. Parcels Net Taxable Value % of Total Residential 834 $218,036, % Commercial ,927, % Industrial ,934, % Recreational 3 358, % Institutional 3 758, % Government 3 506, % Vacant Land 98 29,236, % Exempt % Subtotal 1,483 $765,759, % Possessory Interest 1,302, % Unsecured 94,467, % SBE Non-Unitary 1,254, % Subtotal $97,024, % Totals: 1,483 $862,783, % The 98 vacant parcels within the Project Area total acres according to Assessor s maps and other County records. Vacant land, therefore, equates to 34% of the total acreage and 6.6% of the total C - 3

120 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 4 number of parcels within the Project Area. Of the 98 vacant parcels, five of them are within Amendment 2 and these parcels total 18.9 acres. Forty vacant parcels totaling 5.74 acres are within CBD and 47 parcels totaling acres are within West End. Within Amendment 8 there are six vacant parcels totaling 3.1 acres. B. Redevelopment Plan Limits Chapter 942, Statutes of 1993 (See Section VI B below), as codified in Section of the Law, limits the life of redevelopment plans adopted prior to January 1, 1994 to 40 years from the date of adoption or January 1, 2009, whichever is later. It also limits the period within which a redevelopment project area may receive tax increment to the life of the redevelopment plan plus ten years beyond the termination of redevelopment activities except to accommodate certain specific low and moderateincome housing obligations or to pay debt service on bonds, indebtedness or other financial obligations authorized prior to January 1, Such redevelopment plans are further required to include a limitation on the number of tax increment dollars that may be allocated to the redevelopment agency; a time limit on the establishing of indebtedness to be repaid with tax increment; and a limit on the amount of bonded indebtedness to be repaid with tax increment that can be outstanding at one time. These limits can be extended only by an amendment of the redevelopment plan. For redevelopment plans adopted prior to 1994, Chapter 942 stipulates that the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan or January 1, 2004, whichever is later. Chapter 741, Statutes of 2001, was adopted under SB 211 and amends several sections of the Law that control time limitations for redevelopment project areas. Limitations, that under prior legislation could not be amended or had different amendment procedures, in accordance with this section, may be modified through project area amendments as set forth in this section of the Law (see Section VI, Legislation). As provided within Senate Bill 1045, the Agency amended the component redevelopment plans using a simplified amendment process and extended for one year the dates of plan expiration and last date to repay debt using tax increment for each of the component portions of the Project Area (see Section VI). The Agency adopted such an amendment on October 4, The one year extension of the effective life of the Project Area and the period within which the Agency may repay debt from tax increment revenues were adopted as Ordinance No and are reflected in the dates shown in Table D. As provided within Senate Bill 1096, the Agency amended the component redevelopment plans using a simplified amendment process and extended for one year the dates of plan expiration and last date to repay debt using tax increment for each of the component portions of the Project Area (see Section VI). The Agency adopted such an amendment on February 5, The two one year extensions of the effective life of several of the component portions of the Project Area and the period within which the Agency may repay debt from tax increment revenues in these component areas were adopted as Ordinance No and are reflected in the dates shown in Table D. All of the component sub-areas of the Project Area were adopted prior to January 1, 1994 except Amendment 8. The redevelopment plan limits currently governing the component sub-area redevelopment plans are summarized in Table D. The Project Area limit on receipt of tax increment revenue is defined as the total amount of tax increment revenue allocated to the Agency less the amount required to be set-aside by the Housing Set-Aside Requirement (see Section V) and less the C - 4

121 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 5 amounts that are passed through to taxing entities to alleviate financial burdens caused by the Agency pursuant to Section of the Law (see Section VII A) and apply to all component sub-areas except Amendment 8. The limit on the amount of bonded indebtedness that may be outstanding at any one time is a combined limit that is applicable to all component sub-areas. Component Sub-Area Last Date to Incur Indebtedness Table D Project Area Component Sub-Area Plan Limits Termination of Project Activities Last Date to Repay Debt with Tax Revenue Tax Increment Limit Limit on Outstanding Bond Debt Original None 9/18/2021 9/18/2031 $114,931,075 $68 million Amendment 1 None 7/2/2022 7/2/2032 Amendment 2 None 7/20/2024 7/20/2034 Amendment 3 None 11/28/ /28/2036 Amendment 4 None 12/17/ /17/2036 West End None 11/28/ /28/2036 Amendment 8 11/06/ /6/ /6/2049 None According to the records of the Los Angeles County Auditor-Controller and the Agency, the Agency has been allocated a total of $72,799,751 in tax increment revenue through August, 2006 within the Project Area excluding Amendment 8. Through August, 2005 Amendment 8 has been allocated a total of $98,014. The Project Area tax increment limits state that the Project Area is limited to receiving a total of $114,931,075 after deducting the amounts set aside for Low and Moderate Income Housing and the tax sharing amounts paid to taxing entities. The statutes authorizing payments to the Education Revenue Augmentation Fund provided that the amounts paid shall not be counted against the Agency s tax increment limits (See Section IV). The amount of tax increment received by the Agency from the Project Area, excluding Amendment 8, net of these reductions is $37,262,042 through August, Based on the assumptions used for the projection, the Project Area will likely reach its tax increment limits during fiscal year If the growth of Project Area revenues exceeds the assumptions used for the projection, the tax increment limit may be reach sooner. The revenues from Amendment 8 are not included in the calculation of the tax increment limit for the other portions of the Project Area. III. Project Area Assessed Values A. Assessed Values Taxable values are prepared and reported by the County Auditor-Controller each fiscal year and represent the aggregation of all locally assessed properties that are part of the Project Area. The assessments are assigned to Tax Rate Areas (TRA) that are coterminous with the boundaries of the Project Area. The historic reported taxable values for the Project Area were reviewed in order to ascertain the rate of taxable property valuation growth over the ten most recent fiscal years beginning with Between and , the taxable value within the Project Area increased by $186,837,326 (39.69%). During this period secured values increased by $187,417,802 (47.7%) and unsecured values decreased by $580,476 (-0.75%). Except for very modest reductions in and , values have increased in each year at a pace far in excess of inflation. With the adoption of Amendment 8 and the addition of this territory, the base year value for the Project Area was increased. Amendment 8 has been part of the Project Area beginning with fiscal year From C - 5

122 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 6 through the assessed value of the Project Area has increased by $134,076,219 (18.4%). During this period, secured values have risen by $123,991,872 (19.24%) and unsecured values have risen by $10,084,347 (11.95%). Since there have been only two years in which there was any reduction in assessed value. These were and In these fiscal years there were declines in total value of $1,874,326 (-0.4%) and $4,746,783 (-1.01%) respectively. Incremental values were reduced by 0.59% for and by 1.49% for The reductions in value for were entirely within the Project Area s unsecured values and for the reductions in value were entirely within the secured roll values. These losses of value appear to reflect the general decline of California real estate markets during this period. Incremental values have increased in every year beginning with and the growth in incremental value has exceeded 10% annually in every year except when growth in incremental value was 9.58%. In fiscal year the Project Area experienced a sizeable decline in secured values and a sizable increase in unsecured value. The two changes resulted in an overall increase in value of 10.1% from the prior year. This adjustment was reversed for by a large increase in secured value and a large decline in unsecured value. These value fluctuations are related to shifts in value for the Northrop Grumman properties. The values that were on the secured roll were shifted to the unsecured roll as the property transferred ownership from Aerojet General Corporation to Northrop Grumman. The value was shifted back to the secured roll for Values have grown steadily in both categories since B. Top Ten Taxable Property Owners A review of the top ten taxpayers in the Project Area for fiscal year was conducted. Within the Project Area, the aggregate total taxable value for the ten largest taxpayers totaled $266,906,923. This amount is 40.10% of the $665,605,315 Project Area incremental value. The top taxpayer in the Project Area is Northrop Grumman Systems Corp., which controls five secured parcels with a value of $124,808,056. This taxpayer s property is used for manufacturing and warehousing facilities. The value of the Northrop Grumman property is 18.75% of the Project Area total incremental value and 14.47% of the total Project Area assessed value. The second largest taxpayer in the Project Area is PPF Industrial th Street LP that controls a total of $28,689,029 in secured assessed value on four industrial properties. This amount is 4.31% of the Project Area s incremental value and 3.33% of its total value. Three of the top ten taxpayers have assessment appeals pending before the Assessment Appeals Board of Los Angeles County. Costco Wholesale Corporation is seeking a 50% reduction in their fixture and personal property tax roll value for the , , and fiscal years. The requested reductions are $1.66 million for , $1.47 million for , $1.32 million for and $1.29 million for Reichold Inc. is requesting a 50% reduction of their assessed value. The requested reductions total $6.8 million. S & S Foods LLC is similarly requesting a 50% reduction of their unsecured fixture and personal property values that, if allowed, would result in a reduction in value of $6.8 million. All of these pending assessment appeals appear to be pro-forma requests for reduction in value and not based economic circumstances. Table E illustrates the percentage of incremental value for the top ten taxpayers in the Project Area and their relative importance to the Project Area s incremental value. C - 6

123 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 7 Table E Top Ten Property Owners Property Owner Combined Owner Value % of Total Value % of Incremental Value Northrop Grumman Systems Inc. $124,808, % 18.75% PPF Industrial th St. LP 28,689, % 4.31% Costco Wholesale Corporation 17,689, % 2.66% Criterion Catalyst Company LP 17,374, % 2.61% JAR University Commons LLC 16,804, % 2.52% 1303 Optical Drive LLC 15,296, % 2.30% Reichold Inc. 13,628, % 2.05% S & S Foods LLC 13,615, % 2.05% Soon Choe Kae 9,762, % 1.47% Ontario Vogel 9,238, % 1.39% Top Property Owner Total Value $266,906,923 Project Area Assessed Value Incremental Value $862,783,592 $665,605, % 40.10% IV. Tax Allocation and Disbursement A. Property Taxes The taxable values of property are established each year on the property tax lien date. Prior to 1997 the lien date was March 1 for locally assessed property and January 1 for State assessed utility property. Beginning with 1997, the lien date became January 1 for locally assessed property also. Real Property reflects the reported assessed values for secured and unsecured land and improvements. Pursuant to Article XIIIA of the State Constitution the value of locally assessed Real Property may only be increased by up to two percent annually to reflect inflation. In most cases Real Property values are permitted to increase to full market value as a result of a change of ownership or new construction. Utility property assessed by the State Board of Equalization may be revalued annually and such assessments are not subject to the inflation limitations of Article XIIIA. The taxable value of Personal Property is also established on the lien dates and is not subject to the annual inflationary adjustment that is applied to locally assessed Real Property. Secured property includes property on which any property tax levied by a county becomes a lien on that property. Unsecured property typically includes value for tenant improvements, fixtures, inventory and personal property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other secured property owned by the taxpayer. The taxes levied on unsecured property are levied at the previous year's secured property tax rate. C - 7

124 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 8 B. Supplemental Assessments and Redemption Revenues Chapter 498 of the Statutes of 1983 provides for the reassessment of property upon a change of ownership or completion of new construction. Such reassessment is referred to as the Supplemental Assessment and is determined by applying the current year's tax rate to the amount of increase in a property's value and prorating the resulting property taxes to reflect the portion of the tax year remaining as determined by the date of the change in ownership or completion of new construction. Supplemental Assessments become a lien against Real Property. Since revenues derived from Supplemental Assessments have been allocated to redevelopment agencies and taxing entities in the same manner as regularly collected property taxes. The receipt of Supplemental Tax Revenues by taxing entities typically follows the change of ownership by a year or more. We have not included revenues resulting from Supplemental Assessments in the projections. When property taxes are not paid in a timely manner, the County Auditor Controller seeks to collect those unpaid taxes in accordance with State law. As these unpaid taxes are collected, the recovered amounts along with penalties and interest are placed in a common countywide pool and distributed among the various taxing entities, cities and redevelopment project areas in proportion to the amount of delinquent taxes that have been collected. Thus, if the County collects 10% of the amount of delinquent taxes that are outstanding, all taxing entities are allocated 10% of the amount of outstanding delinquent amounts for that taxing entity. The amount of outstanding delinquent taxes is continually adjusted for the amount of new delinquencies and for the amounts that are repaid from redemptions. We have not included Redemption Revenues in the projections. Table F illustrates the amounts of Supplemental and Redemption Revenues that have been received by the Agency for the Project Area component sub-areas during the previous two fiscal years. Amendment 8 has received no revenue as yet and has been excluded from this table. Table F Supplemental and Redemption Revenue History Component Sub- Areas CBD Amendment 1 Amendment 2 Amendment 3 Amendment 4 West End Amendment 8 Supplemental Redemption Supplemental Redemption Supplemental Redemption Supplemental Redemption Supplemental Redemption Supplemental Redemption Supplemental Redemption $ 34,681 29,626 $ 2,042 3,447 $ 17,699 52,080 $ 45,962 14,280 $ 55,869 3,910 $175, ,707 $ 0 0 $ 52,959 27,928 $ 389 1,343 $ 68,874 61,015 $ 69,435 22,868 $ 0 1,634 $124, ,544 $ 38,267 0 Totals Supplemental Redemption $332, ,050 $354, ,334 C - 8

125 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 9 C. Tax Rates Tax rates will vary from area to area within the State, as well as within a community and a project area. The tax rate for any particular parcel is based upon the jurisdictions levying the tax rate for the area where the parcel is located. The tax rate consists of the general levy rate of $1.00 per $100 of taxable values and the over-ride tax rate. The over-ride rate is that portion of the tax rate that exceeds the general levy tax rate and is levied to pay voter approved indebtedness or contractual obligations that existed prior to the enactment of Proposition XIII. A Constitutional amendment approved in June 1983 allows the levy of over-ride tax rates to repay indebtedness for the acquisition and improvement of real property, upon approval by a two-thirds vote. A subsequent amendment of the Constitution prohibits the allocation to redevelopment agencies of tax revenues derived from over-ride tax rates levied for repayment of indebtedness approved by the voters after December 31, The over-ride tax rates typically decline each year as a result of (1) increasing property values (which would reduce the over-ride rate that must be levied to meet debt service) and (2) the eventual retirement of debt over time. The Project Area contains a total of 30 Tax Rate Areas (TRAs) of which 4 contain neither taxable value nor have been assigned base year value. A Tax Rate Area is a geographic area within which the taxes on all property are levied by a certain set of taxing entities. These taxing entities each receive a prorated share of the general levy and those taxing entities with voter approved over-ride tax rates receive the revenue resulting from that tax rate. The tax increment projections are based on the levied tax rates for Within the various TRAs there are five different tax rates, however, the components of these tax rates that differentiate them from one another are debt service overrides that were approved by voters after January 1, 1989 and do not, therefore, generate revenue to the Agency. Table G illustrates the different tax rates that are applicable to the TRAs within the Project Area, the number of TRAs to which each tax rate is applied and the incremental value attributable to each tax rate. C - 9

126 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 10 Table G Project Area Tax Rates for Tax Rate 1 Tax Rate 2 Tax Rate 3 Tax Rate 4 Tax Rate 5 No. of Applicable TRAs Incremental Value (000 s omitted) $579,326 $14,183 $72,085 $12 ($1) General Levy Los Angeles County County Flood Control San Gabriel Valley Muni. Water Azusa Unified School District Metropolitan Water District RDA Tax Rate Azusa Unified School District Citrus Community College District Duarte Unified School District Total Tax Rate: D. Allocation of Taxes Taxes paid by property owners are due in two equal installments. Installments of taxes levied upon secured property become delinquent on December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31. The County disburses Tax Increment Revenue to all redevelopment agencies from November through August with approximately 35 percent of secured revenues apportioned by the end of December and a total of 75% of the secured revenues by the end of the following April. Unsecured revenues are disbursed in November, March and August of each fiscal year. The November payment consists of an 80% advance on the total unsecured levy. E. Annual Tax Receipts to Tax Levy The Agency received a total of $6,809,050 in tax increment revenue from the Project Area for fiscal year This total is inclusive of revenues from supplemental assessments, homeowner s exemptions, public utilities and prior year collections and net of County withholdings for refunds. The County administration fee of $89,583 was deducted from the Agency s tax revenues. The Agency received a total of $6,352,305 in tax increment revenue for fiscal year , inclusive of revenues from supplemental assessments, homeowner s exemptions, public utilities and prior year collections and net of County withholdings for refunds. The County administration fee of $94,002 was deducted from the Agency s tax revenues. The County of Los Angeles apportions tax revenues to redevelopment agencies based upon the amount of the tax levy that is received from the taxpayers. Secured collection rates for the Project Area have been consistently high. The following table illustrates the tax revenue collections for the previous two years. Amendment 8 is omitted because it has no collection history to report. C - 10

127 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 11 Table H Property Tax Collections History Fiscal Year CBD Amend. 1 Amend. 2 Amend. 3 Amend. 4 Amend. 8 West End Adjusted Tax Levy $613,806 $11,122 $350,746 $626,047 $418,626 $3,944,922 Current Yr. Apportion. $596,356 $11,122 $305,774 $623,830 $418,621 $3,914,067 Current Yr. Collect. % 97.16% % 87.18% 99.65% % 99.22% Prior Yr. Collection $63,728 $5,488 $37,426 $59,628 $59,777 $256,488 Total Apportionment $660,084 $16,610 $343,200 $683,457 $478,398 $4,170,555 Total Collection % % % 97.85% % % % Fiscal Year CBD Amend. 1 Amend. 2 Amend. 3 Amend. 4 Amend. 8 West End Adjusted Tax Levy $643,983 $8,607 $350,941 $671,836 $427,409 $66,823 $3,955,428 Current Yr. Apportion. $622,183 $8,607 $349,162 $669,538 $427,403 $58,340 $4,018,646 Current Yr. Collect. % 96.61% % 99.49% 99.66% % 87.30% % Prior Yr. Collection $86,240 $1,968 $139,881 $107,507 $11,962 $39,675 $267,939 Total Apportionment $708,423 $10,575 $489,043 $777,045 $439,365 $98,014 $4,286,585 Total Collection % % % % % % % % Source: Los Angeles County Auditor-Controller s Office, Disbursement Tax Division CRA Remittance Advice. F. Assessment Appeals Assessment appeals data from Los Angeles County has been reviewed to determine the potential impact that pending appeals may have on the projected Tax Revenues. We have determined that there are pending assessment appeals within West End and no pending assessment appeals within CBD or Amendments 1, 2, 3, 4 or 8. In order to estimate the potential reduction in assessed value that may occur as a result of the pending appeals within West End, we have reviewed the historical averages for the number of appeals allowed and the amount of assessed value removed. We have then applied those averages to the currently pending appeals and estimated the number of pending appeals that may be allowed and the amount of assessed value that may be removed as a result of these pending appeals. Three of the pending assessment appeals have been filed by Costco Wholesale Corporation. Costco Wholesale Corporation is seeking a 50% reduction in their fixture and personal property tax roll value for the , , and fiscal years. The requested reductions are $1.66 million for , $1.47 million for , $1.32 million for and $1.29 million for Reichold Inc. is requesting a 50% reduction of their assessed value. The requested reductions total $6.8 million. S & S Foods LLC is similarly requesting a 50% reduction of their unsecured fixture and personal property values that, if allowed, would result in a reduction in value of $6.8 million. All of these pending assessment appeals appear to be pro-forma requests for reduction in value and not based economic circumstances. The Project Area s top taxpayer, Northrop Grumman, had assessment appeals on valuations for and denied. They have no appeals pending on any of their properties for any subsequent years. Within West End and based on assessment appeals data through March, 2007 and using the historical averages for owners successfully appealing their assessed values we project that a total of $5,373,957 in assessed value will be taken from the tax rolls. This projected reduction has been incorporated into the projection of tax revenues. The factors resulting in this projected loss are outlined in Table I. C - 11

128 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 12 Table I West End Assessment Appeals Summary No. of Successful Average No. & Value of Estimated No. of Appeals Reduction Appeals Pending Appeals Allowed No. of Total No. of Appeals Resolved Appeals % 8 ($40,904,001) 5 $5,373,957 Estimated Reduction on Pending Appeals Allowed ( Value Adjustment) G. County Collection Charges Chapter 466 allows counties to recover charges for property tax administration in an amount equal to their property tax administration costs, as adjusted annually. For fiscal year , the County collection charges are $87,807. This amount is estimated to be 1.25% of the anticipated Gross Revenue for For the purposes of this report and the projection of tax revenue, it is assumed that the charge as a percentage of Gross Revenue will remain at 1.25%. We have assumed that the County will continue to charge the Agency for property tax administration and that such charge will increase proportionally with any increases in revenue. H. Allocation of State Assessed Unitary Taxes Legislation enacted in 1986 (Chapter 1457) and 1987 (Chapter 921) provided for a modification of the distribution of tax revenues derived from utility property assessed by the State Board of Equalization (SBE), other than railroads. Prior to the fiscal year, property assessed by the SBE was assessed statewide and was allocated according to the location of individual components of a utility in a tax rate area. Commencing in , tax revenues derived from unitary property and assessed by the SBE are accumulated in a single Tax Rate Area for the County. It is then distributed to each taxing entity in the County in the following manner: (1) each taxing entity will receive the same amount as in the previous year plus an increase for inflation of up to two percent; (2) if utility tax revenues are insufficient to provide the same amount as in the previous year, each taxing entity's share would be reduced pro-rata county wide; and (3) any increase in revenue above two percent would be allocated in the same proportion as the taxing entity's local secured taxable values are to the local secured taxable values of the County. To administer the allocation of unitary tax revenues to redevelopment agencies, the County no longer includes the taxable value of utilities as part of the reported taxable values of the project area, therefore, the base year of project areas have been reduced by the amount of utility value that existed originally in the base year. The Auditor Controller allocated a total of $77,492 of unitary tax revenue to the Project Area for For purposes of this projection, we have assumed that this amount of unitary revenue will continue to be allocated to the Project Area in the same amount for the life of the projection. The amount of unitary revenue allocated to each of the component sub-areas for is shown in Table J below. Table J Unitary Revenue CBD Amend. 1 Amend. 2 Amend. 3 Amend. 4 West End Combined $53,261 $20 $364 $1,217 $6,010 $21,645 $82,517 No unitary revenue has been allocated to Amendment 8 for or and this is anticipated to continue. No unitary revenue has been anticipated in the projection as coming from Amendment 8. C - 12

129 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 13 V. Low and Moderate Income Housing Set-Aside Sections and of the Law require redevelopment agencies to set aside not less than 20 percent of all tax increment revenues from project areas adopted after December 31, 1976 into a low and moderate income housing fund (the Housing Set-Aside Requirement). An agency can reduce the Housing Set-Aside Requirement if the agency annually makes certain findings, consistent with the General Plan Housing Element. These findings are that: (1) no need exists in the community to improve or increase the supply of low and moderate income housing; or, (2) some stated percentage less than 20 percent of the tax increment is sufficient to meet the housing need. In order to make findings (1) or (2), the Agency's finding must be consistent with the Housing Element of the community's General Plan, including its share of the regional housing needs of very low income households and persons and families of low or moderate income. The Agency has not made such findings in the past and has fully funded the Housing Set-Aside Requirement. Accordingly, there is no funding deficit. We have assumed in the projection that the Agency will continue to meet the Housing Set-Aside Requirement. VI. Legislation SB 211 was signed into law as Chapter 741, Statutes of This legislation has two main impacts on the limits contained in an agency s redevelopment plan. First, the City may eliminate the time limit to establish indebtedness in project areas adopted prior to January 1, 1994 by ordinance. When a plan is so amended, existing tax sharing agreements will continue unaffected and certain statutory tax sharing for entities without tax sharing agreements will commence in the fiscal year following the year when the time limit is exceeded. (See Section VII A below). Second, a City Council may extend the time limit for plan effectiveness and repayment of debt for up to ten years if it can make certain specified findings. These changes could potentially impact time limits in the Project Area Redevelopment Plan by eliminating or extending these limits. Project areas that have been adopted after January 1, 1994 may only extend the limitation on incurring new debt by making specific findings. On December 1, 2003, the Agency adopted Ordinance No and eliminated the limit on incurrence of indebtedness for those component project areas that were formed prior to January 1, This amendment did not affect the Amendment 8 because it has no such limit. In order to address State Budget deficits, the Legislature enacted SB 614, SB 844 and SB 1135 that required payments from redevelopment agencies for the , and fiscal years into a countywide Education Revenue Augmentation Fund (the ERAF). The Agency could have used any funds legally available and not legally obligated for other uses, including reserve funds, bond proceeds, earned income, and proceeds of land sales, but not moneys in the Low and Moderate Income Housing Fund (the Housing Fund) to satisfy this obligation. An agency could have reduced its payment due to existing indebtedness, contractual obligations and 90 percent of administrative costs (collectively, Existing Obligations). If an agency could not make the required payment due to Existing Obligations, it could, after making certain findings, borrow up to 50 percent of its ERAF obligation from the Housing Fund and repay the borrowed amount by June, 2003, or the agency was required to obtain a loan from the city/county in order to pay the difference between what the agency pays and the total amount due. For agencies that did not borrow to meet any shortfall of the required payment, the county auditor-controller was required to deduct any amount due from the C - 13

130 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 14 city/county's allocation of property taxes. The obligation applied to the agency and not to specific project areas. According to the Agency, the obligations referred to above were satisfied. From through , state budgets were adopted with no additional shifting of tax increment from redevelopment agencies. The State Budget for fiscal year required a shift of $75 million of tax increment statewide from redevelopment agencies to ERAF to meet the current state budget shortfall. AB 1768 (Chapter 1127, Statutes of 2002) was enacted by the Legislature and signed by the Governor and based upon the methodology provided in the budget the shift requirement for the Agency was $127,937. This requirement was for fiscal year only. This amount did not impact the Agency s ability to fulfill its loan payment obligations. This shift of revenue is an obligation of the Agency and not of any particular project area. The Agency was permitted to satisfy this obligation with any legally available funds. The Agency made the required payment to the County by the deadline of May 10, As part of the State s budget legislation, SB 1045 (Chapter 260, Statutes of 2003) requires redevelopment agencies statewide to contribute $135 million to local County Education Revenue Augmentation Funds (ERAF) which reduces the amount of State funding for schools. This transfer of funds was limited to fiscal year Based on the estimates of the California Department of Finance, the amount of revenue that was to be transferred by the Agency to Los Angeles County for was $232,244. The Agency made this payment to the County by the May 10, 2004 deadline. Under the Law as amended by SB 1045, the Agency was authorized to use a simplified methodology to amend the Project Area redevelopment plans to extend by one year the effectiveness of the plan and the time during which the Agency may repay debt with tax increment revenues. In addition, the amount of this payment and the ERAF payments made in prior years may be deducted from the amount of the Project Areas cumulative tax increment revenues. The Agency adopted Ordinance on October 4, By its approval of this ordinance, the Agency extended by one year the effective life of the redevelopment plans and the period within which the Agency may repay indebtedness from tax increment revenues. The limits shown in Table D reflect this extension and they have been incorporated into the projection of tax revenue. The State s budget was approved by the legislature and signed by the Governor. Senate Bill 1096 is a trailer bill that deals with local government. Based on SB 1096, redevelopment agencies will lose $250 million to ERAF in each of the next two fiscal years using the same formula as was used for Annual payments will continue to be due on May 10 of each fiscal year. As in previous years, payments may be made from any available funds other than the Housing Fund. If an agency is unable to make a payment, it may borrow up to 50 percent of the current year housing set-aside amount, however, the borrowed amount must be repaid to the Housing Fund within 10 years of the last ERAF payment (May 10, 2006). The Agency s obligation for was $472,091 and the obligation for was $470,964. Both of these amounts were paid to the County by the deadline. For redevelopment plans with less than ten years of effectiveness remaining from June 30, 2005, the plans may be extended by one year for each year that an ERAF payment is made. For redevelopment plans with 10 to 20 years of effectiveness remaining after June 30, 2005, the plans may be extended by C - 14

131 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 15 one year for each year that an ERAF payment is made if the City Council finds that the Agency is in compliance with specified state housing requirements. These requirements are that the Agency is setting aside 20 percent of gross tax increment revenue; housing implementation plans are in place; replacement housing and inclusionary housing requirements are being met; and, no excess surplus exists. If a redevelopment plan has more than 20 years of effectiveness remaining after June 30, 2005 it may not be extended. By adoption of Ordinance No on February 5, 2007 and pursuant to the terms of SB 1096 the City Council extended the limit on redevelopment plan activities and repayment of indebtedness by two years within CBD, Amendment 1, Amendment 2, Amendment 3 and West End. The limit on redevelopment plan activities and repayment of indebtedness was extended by one year within Amendment 4. The Agency cannot predict whether the State Legislature will enact any other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools, whether through an arrangement similar to ERAF or by other arrangements, and, if so, the effect on future Tax Revenues. VII. Tax Sharing Agreements and Other Obligations A. Tax Sharing Agreements The Agency has entered into no tax sharing agreements with regards to CBD and Amendment 1. Within Amendment 2 the Agency has entered into an agreement with Los Angeles County wherein it agreed to share a stipulated 40 percent portion of annual general levy tax increment revenue with the County General Fund and the County Flood Control District. These payments are calculated by the County and retained by the Auditor-Controller from Agency revenues. Within Amendment 3, the Agency has agreed to share with the County General Fund and the County Flood Control District a stipulated 55.1 percent portion of the project areas annual general levy tax increment revenue. Within Amendment 3 the Agency has additionally agreed to provide the Consolidated Fire Protection District with a 17.9 percent stipulated share of annual general levy tax increment revenue. The Consolidated Fire Protection District is not a taxing entity within tax rate areas of Amendment 3 in that it does not receive a share of the general levy revenue nor does it levy an override tax rate. This circumstance has been acknowledged by the County and the Consolidated Fire Protection District is no longer considered in connection with this agreement. These payments to the General Fund and Flood Control calculated by the County and retained by the Auditor-Controller from Agency revenues. Within Amendment 4, the Agency has entered into an agreement with Los Angeles County to share a stipulated 52 percent portion of the general levy tax increment net of housing set-aside with the County General Fund and the Flood Control District. In addition, the Agency has entered into an agreement with the Azusa Unified School District wherein the District receives 5.11 percent of general levy tax increment revenue net of housing set-aside. These payments were deferred through and interest accrued on the deferred payments from through The deferred amounts and accrued interest were paid by the Agency in fiscal year and is current with all subsequent payments. C - 15

132 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 16 Within West End the Agency entered into an agreement with the County that requires the Agency to share with the County General Fund and Flood Control a stipulated 52 percent of general levy tax increment net of housing set-aside within that portion of the Agency s tax revenue derived from parcels that are outside of an area designated as Parcel A. From tax revenues derived from parcels within the area designated as Parcel A, the County General Fund and Flood Control receive 15 percent of general levy revenue net of housing set-aside. B. Statutory Tax Sharing Payments In accordance with the requirements of Chapter 942, CBD, Amendments 1, 2, 3 and 4 and West End were amended to include a termination date for the Agency s ability to incur indebtedness. For project areas adopted before January 1, 1994, this termination date was defined in Chapter 942 as being the later of 20 years from the date of plan adoption or January 1, In each case this termination date was set as January 1, As provided by SB 211 (see Section II B) this limitation was amended out of the redevelopment plan for each of these component sub-areas by adoption of Ordinance No on December 1, By the elimination of this time limit, the Agency is required to make statutory tax sharing payments as outlined in Section of the Law to all taxing entities that have not already entered into tax sharing agreements with the Agency. For each of the component sub-areas listed above, beginning in and using the project area assessed values for as an adjusted base year value, taxing entities that do not have existing tax sharing agreements will receive their proportionate shares of 25 percent of tax revenue net of housing set-aside. In addition, beginning in the eleventh year after the initiation of these statutory payments and using the assessed values of year ten as an additional adjusted base year value, taxing entities with no existing tax sharing agreements will receive 21 percent of tax revenue net of housing set-aside. A third tier of statutory tax sharing is outlined in the Law but each of the affected component sub-areas will have expired before this third tier can be initiated. According to the Law, the statutory tax sharing payments will continue to be required until the termination date of the component sub-area. As a result, there is no statutory tax sharing obligation during the final ten years that the sub-area is able to repay indebtedness with tax increment revenue. Existing tax sharing agreements are not affected by this limitation. The City of Azusa as a taxing entity is entitled to receive its proportionate share of only the first tier of statutory tax sharing payment in each of the component sub-areas. Amendment 8 was adopted after January 1, As a result, tax revenues derived from this component sub-area are subject to statutory tax sharing payments. All taxing entities, including the City of Azusa, are entitled to receive their proportionate share of 25 percent of tax increment revenue net of housing set-aside. Beginning in the eleventh fiscal year following after the initial year that the Agency receives tax increment revenue within Amendment 8; and using the assessed values of year ten as a base year value to determine incremental value and revenue, taxing entities are entitled to receive 21 percent of this second tier of revenue net of housing set-aside. Beginning in the thirty-first fiscal year following after the initial year that the Agency receives tax increment revenue within Amendment 8; and using the assessed values of the thirtieth year as a base year value to determine incremental value and revenue, taxing entities are entitled to receive 14 percent of this second tier of revenue net of housing set-aside. The City of Azusa as a taxing entity is C - 16

133 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 17 entitled to receive its proportionate share of the first tier of statutory tax sharing payment in each of the component sub-areas. The City may not receive any portion of the second and third tiers of tax sharing. C. Court Decisions Santa Ana Decision The State Court of Appeals upheld a Superior Court decision which held the Santa Ana School District had the right to receive payments from the Orange County Redevelopment Agency pursuant to a resolution adopted by the School District in 1999 under former Section 33676(a) of the Law (Santa Ana Unified School District v. Orange County Redevelopment Agency; App. 4 Dist Cal. Rptr.2d 770, 90 Cal. App 4th 404, review denied). Former Section 33676(a)(2) provided that, unless a negotiated tax sharing agreement had been entered into, upon passage of a resolution prior to adoption of a redevelopment plan, affected taxing agencies and every school and community college district could elect to be allocated increases in the assessed value of taxable property in the project area based on inflation growth (the 2% Property Tax Increase). Former Section 33676(a)(2) was repealed as part of major revisions made to the Law pursuant to the Reform Act of 1993 (AB 1290). The changes to the Law contained in AB1290 were effective as of January 1, The Court of Appeals affirmed the lower court ruling that due to an amendment to former Section 33676(a) that was adopted in 1984 and became effective on January 1, 1985, school and community college districts were to automatically receive the 2% Property Tax Increase even without adopting the appropriate resolution prior to the adoption of a redevelopment plan. All component sub-areas were adopted either before Section 33676(a)(2) was adopted or after it was repealed. This decision does not, therefore, impact the Project Area. VIII. Development Activities From January 1, 2006 lien date for the tax roll through December 31, 2006, 89 properties within the Project Area transferred ownership. The sales prices on these transfers were $19.15 million greater than the enrolled values on these properties. As a result, in the projection of tax revenue, this increased value is reflected in the projected values for From January 1, 2007 lien date for the tax roll through June 1, 2007, 39 properties within the Project Area transferred ownership. The sales prices on these transfers were $7.3 million greater than the enrolled values on these properties. As a result, in the projection of tax revenue, this increased value as adjusted for inflationary increases is reflected in the projected values for IX. Trended Taxable Value Growth Growth in real property land and improvement values have been limited to an assumed rate of growth of real property taxable values of two percent annually as allowed under Article XIIIA of the state Constitution. A two percent growth rate has been assumed because it is the maximum inflationary growth rate permitted by law and this rate of growth has been achieved in all but five years since The years in which less than two percent growth was realized were (1.0%), (1.19%), (1.11%) and (1.85%) and (1.867%). If in future years the growth of taxable C - 17

134 Redevelopment Agency of the City of Azusa Fiscal Consultant s Report June 26, 2007, Page 18 value in the project area is less than two percent, the resultant Tax Increment Revenues would be reduced. HdL Coren & Cone make no representation that taxable values will actually grow at two percent. Future values will also be affected by changes of ownership and new construction not reflected in our projections. In addition, the values of property previously reduced in value due to assessment appeals based on reduced market values could increase more than two percent when real estate values increase more than two percent (see Section IV A above). Seismic activity and environmental conditions such as hazardous substances that are not anticipated in this report might also impact property taxes and Tax Increment Revenue. HdL Coren & Cone makes no representation that taxable values will actually grow at the rate projected. Anticipated revenues could be adjusted as a result of unidentified assessment appeal refunds, other Assessor corrections discussed previously, or unanticipated increases or decreases in property tax values. Estimated valuations from developments included in this analysis are based upon our understanding of the general practices of the Los Angeles County Assessor and Auditor-Controller s Office. General assessment practices are subject to policy changes, legislative changes, and the individual appraiser's judgment. While we believe our estimates to be reasonable, taxable values resulting from actual appraisals may vary from the amounts assumed in the projections. FCR 2007 ds 2 C - 18

135 Azusa Redevelopment Agency Merged Redevelopment Project Area Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 769, , , , , , , , , ,868 Personal Property (3) 93,037 93,037 93,037 93,037 93,037 93,037 93,037 93,037 93,037 93,037 Total Projected Value 862, , , , , , ,408 1,001,215 1,019,379 1,037,906 Taxable Value over Base 197, , , , , , , , , , ,727 Gross Tax Increment Revenue (4) 6,937 7,166 7,330 7,490 7,661 7,835 8,013 8,195 8,380 8,568 Unitary Tax Revenue Gross Revenues 7,019 7,249 7,412 7,573 7,744 7,918 8,096 8,277 8,462 8,651 LESS: SB 2557 Admin. Fee (5) (88) (91) (93) (95) (97) (99) (101) (104) (106) (108) Housing Set Aside Requirement (6) (1,404) (1,450) (1,482) (1,515) (1,549) (1,584) (1,619) (1,655) (1,692) (1,730) Pass Throughs L.A. County Tax Entities (7) (2,159) (2,252) (2,322) (2,372) (2,423) (2,475) (2,528) (2,583) (2,638) (2,694) Azusa Unified School Dist. (7) (18) (18) (18) (19) (19) (19) (20) (20) (21) (21) AB 1290 Statutory Tax Sharing Payments (7) Tier 1 (168) (198) (220) (237) (255) (273) (292) (311) (330) (350) Tier (14) (30) Tier Tax Revenues 3,183 3,240 3,277 3,335 3,400 3,467 3,535 3,604 3,662 3,717 (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). Values for in the West End Project are reduced by $5,034,387 for expected losses due to pending assessment appeals. (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after See footnotes on individual Project Area projections for assumed future tax rates. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) See footnotes on individual Project Area projections. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

136 Azusa Redevelopment Agency Merged Redevelopment Project Area Projection of Tax Increment Revenue (000s Omitted) Table 2 26-Jun-07 Taxable Value Azusa Unified Total Over Base Gross Tax Housing SB 2557 County School District Statutory Tax Sharing Net Tax Taxable Value Various Revenue Set-Aside Charge Tax Sharing Tax Sharing Tier 1 Tier 2 Tier 3 Revenues , ,605 7,019 (1,404) (88) (2,159) (18) (168) 0 0 3, , ,017 7,249 (1,450) (91) (2,252) (18) (198) 0 0 3, , ,424 7,412 (1,482) (93) (2,322) (18) (220) 0 0 3, , ,875 7,573 (1,515) (95) (2,372) (19) (237) 0 0 3, , ,655 7,744 (1,549) (97) (2,423) (19) (255) 0 0 3, , ,771 7,918 (1,584) (99) (2,475) (19) (273) 0 0 3, , ,230 8,096 (1,619) (101) (2,528) (20) (292) 0 0 3, ,001, ,037 8,277 (1,655) (104) (2,583) (20) (311) 0 0 3, ,019, ,200 8,462 (1,692) (106) (2,638) (21) (330) (14) 0 3, ,037, ,727 8,651 (1,730) (108) (2,694) (21) (350) (30) 0 3, ,056, ,625 8,843 (1,769) (111) (2,751) (21) (370) (47) 0 3, ,076, ,900 9,040 (1,808) (113) (2,810) (22) (391) (65) 0 3, ,095, ,561 9,240 (1,848) (116) (2,870) (22) (412) (82) 0 3, ,115, ,615 9,444 (1,889) (118) (2,931) (23) (433) (100) 0 3, ,136, ,070 9,652 (1,930) (121) (2,993) (23) (455) (119) 0 4, ,157, ,934 9,865 (1,973) (123) (3,056) (24) (423) (124) 0 4, ,178, ,216 10,082 (2,016) (126) (3,121) (24) (443) (141) 0 4, ,200,101 1,002,923 10,303 (2,061) (129) (3,187) (24) (464) (158) 0 4, ,222,242 1,025,064 10,528 (2,106) (132) (3,254) (25) (436) (162) 0 4, ,244,826 1,047,648 10,760 (2,152) (135) (3,323) (25) (456) (179) 0 4, ,267,862 1,070,684 10,995 (2,199) (138) (3,393) (26) (87) (31) 0 5, ,291,359 1,094,180 11,234 (2,247) (141) (3,464) (26) (90) (34) 0 5, ,315,325 1,118,147 11,478 (2,296) (144) (3,537) (27) (94) (38) 0 5, ,339,771 1,142,593 11,727 (2,345) (147) (3,611) (27) (97) (41) 0 5, ,364,706 1,167,527 11,981 (2,396) (150) (3,687) (28) (101) (44) 0 5, ,255,393 1,067,897 10,911 (2,182) (137) (3,764) (29) (105) (47) 0 4, ,276,273 1,088,977 11,124 (2,225) (139) (3,843) (29) (109) (50) 0 4, ,300,033 1,112,737 11,366 (2,273) (142) (3,923) (30) (113) (54) 0 4, ,220,068 1,037,510 10,599 (2,120) (133) (3,607) (30) (117) (57) 0 4, ,242,709 1,060,150 10,830 (2,166) (135) (3,683) (31) (121) (61) (3) 4, ,559 62, (125) (8) (125) (64) (7) ,709 64, (130) (8) (130) (68) (11) ,902 66, (134) (9) (134) (71) (14) ,140 68, (139) (9) (139) (75) (18) ,422 71, (143) (9) (143) (79) (22) ,749 73, (148) (9) (148) (83) (26) ,123 75, (153) (10) (153) (87) (30) ,545 78, (157) (10) (157) (91) (34) ,015 80, (162) (10) (162) (95) (38) ,534 83, (167) (11) (167) (99) (42) ,104 85, (173) (11) (173) (104) (47) ,725 88, (178) (11) (178) (108) (51) ,399 91, (183) (12) (183) (113) (56) ,364 (59,673) (3,735) (91,253) (708) (9,945) (2,814) (400) 129,834 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

137 Azusa Redevelopment Agency Merged Redevelopment Project Area Summary of Projected Tax Revenue (000s Omitted) Table 2a 26-Jun-07 Central Business Central Business Central Business Central Business Central Business Central Business West End Merged District District District District District District Redevelopment Redevelopment Original Amendment 1 Amendment 2 Amendment 3 Amendment 4 Amendment 8 Project Project ,986 3, ,977 3, ,988 3, ,019 3, ,056 3, ,094 3, ,132 3, ,171 3, ,202 3, ,234 3, ,266 3, ,298 3, ,332 3, ,366 3, ,400 4, ,436 4, ,472 4, ,509 4, ,546 4, ,585 4, ,069 5, ,135 5, ,202 5, , ,270 5, , ,340 5, ,411 4, ,484 4, ,558 4, ,633 4, ,711 4, , ,694 7,383 5,833 9,896 78, ,834 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

138 Azusa Redevelopment Agency Tax Increment Limit 114,931,075 Gross Revenue Allocated 72,799,751 Merged Redevelopment Project Area Less Housing Set-Aside (14,559,950) Summary of Projected Tax Revenue and TI Limits (1) Less Tax Sharing (19,071,900) (000s Omitted) Preliminary Less ERAF Payments (1,905,859) Table 2b Tax Increment (per Redevelopment Plan Definition) 37,262,042 Central Business Central Business Central Business Central Business Central Business West End Merged Cumulative District District District District District Redevelopment Redevelopment Tax Increment (1) Original Amendment 1 Amendment 2 Amendment 3 Amendment 4 Project Project (1) 37, ,041 3,194 40, ,032 3,239 43, ,044 3,269 46, ,076 3,322 50, ,114 3,382 53, ,153 3,443 57, ,193 3,506 60, ,234 3,569 64, ,266 3,620 67, ,299 3,672 71, ,332 3,725 75, ,366 3,779 78, ,401 3,834 82, ,437 3,890 86, ,473 3,947 90, ,510 4,074 94, ,547 4,138 98, ,586 4, , ,625 4, , ,665 4, , ,151 5, , ,219 5, , , ,288 5, , , ,358 5, , , ,430 5, , ,503 4, , ,577 4, , ,653 4, , ,731 4, , ,810 4, ,675 Based upon the growth assumptions in the projection, the Merged Project Area tax increment limit of $114,931,075 is expected to be exceeded during fiscal year (1) For purposes of the tax increment limitation, revenues from Amendment 8 are not considered. Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

139 Azusa Redevelopment Agency Merged Redevelopment Project Area 06/26/07 Historical Assessed Values Table 3 Base Year Adjusted Secured (1) Base Year Land 39,709, ,383, ,500, ,624, ,475, ,787, ,141, ,637,146 61,654, ,652, ,153, ,549,522 Improvements 60,531, ,151, ,405, ,306, ,869, ,913, ,024, ,374,185 83,662, ,439, ,173, ,410,619 Personal Property 22,250,796 34,977,522 38,252,416 29,281,865 38,088,015 5,201,382 44,013,572 74,403,988 22,257,096 75,769,058 50,950,214 41,332,109 Exemptions (453,428) (1,617,366) (1,442,141) (1,468,859) (1,206,755) (1,180,813) (6,894,962) (7,101,970) (453,428) (8,537,269) (9,780,610) (9,976,211) Total Secured 122,038, ,895, ,716, ,743, ,226, ,721, ,284, ,313, ,120, ,324, ,496, ,316,039 Unsecured Land Improvements 14,215,980 40,955,786 36,176,800 38,542,855 28,339,417 57,311,270 32,308,451 33,785,927 14,618,246 39,582,201 44,447,537 42,762,226 Personal Property 14,730,183 36,864,894 31,948,954 36,808,933 37,758,588 67,059,855 44,035,051 43,464,277 15,439,308 44,811,005 47,117,384 51,705,327 Exemptions (10,000) (10,000) 0 (10,000) 0 0 Total Unsecured 28,946,163 77,820,680 68,125,754 75,351,788 66,098, ,371,125 76,333,502 77,240,204 30,057,554 84,383,206 91,564,921 94,467,553 GRAND TOTAL 150,984, ,716, ,841, ,095, ,324, ,092, ,618, ,553, ,178, ,707, ,061, ,783,592 Incremental Value: 319,731, ,857, ,110, ,340, ,108, ,634, ,569, ,529, ,883, ,605, % -1.49% 10.29% 10.94% 17.36% 12.66% 4.93% 10.41% 13.41% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

140 Azusa Redevelopment Agency Merged Redevelopment Project Area New Development 06/26/07 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 89 LS $42,794,500 ($23,642,177) $19, , Transferred Parcels (1/1/2007 through 6/1/2007) 39 LS $15,997,500 ($8,719,971) $7, , Total Real Property Value $58,792,000 ($32,362,148) 26, ,152 7, Total Real Property inc. Inflation 2% per year $0 $19,152 $7,423 $0 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

141 Azusa Redevelopment Agency Merged Redevelopment Project Area 06/26/07 TOP TEN TAXABLE PROPERTY OWNERS For Fiscal Year Table 5 Secured Unsecured Total % of % of % of Value Parcels Sec. AV Value Parcels Unsec. AV Value Total Value Use Code Project Area 1. Northrup Grumman Systems Corp. $124,808, % $ % $124,808, % Industrial/Commercial West End Project Area 2. PPF Industrial th Street LP $28,689, % $ % $28,689, % Industrial CBD Amendment 4 3. Costco Wholesale Corporation $17,689, % $ % $17,689, % Commercial West End Project Area [Pending appeals on parcels] 4. Criterion Catalyst Company LP $17,374, % $ % $17,374, % Industrial West End Project Area 5. JAR University Commons LLC $16,804, % $ % $16,804, % Commercial CBD Amendment Optical Drive LLC $15,296, % $ % $15,296, % Industrial/Mineral Processing West End Project Area 7. Reichold Inc. $13,628, % $ % $13,628, % Residential West End Project Area [Pending appeals on parcels] 8. S & S Foods LLC $ % $13,615, % $13,615, % Residential West End Project Area [Pending appeals on parcels] 9. Kae Soon Choe $9,762, % $ % $9,762, % Industrial Warehousing CBD Amendment Vogel Ontario $9,238, % $ % $9,238, % Heavy Manufacturing CBD Amendment 4 $253,291, $13,615,812 1 $266,906,923 Project Area Totals: $768,316, % $94,467, % $862,783, % Project Area Incremental Value: $601,195, % $64,409, % $665,605, % Tax Allocation Bonds/Azusa 2007/TAB Projection 2

142 Azusa Redevelopment Agency Central Business District Project Area Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 74,076 79,837 82,423 84,071 85,753 87,468 89,217 91,001 92,821 94,678 Personal Property (3) 4,774 4,774 4,774 4,774 4,774 4,774 4,774 4,774 4,774 4,774 Total Projected Value 78,849 84,611 87,197 88,845 90,526 92,242 93,991 95,775 97,595 99,452 Taxable Value over Base 9,683 69,167 74,928 77,514 79,162 80,844 82,559 84,308 86,092 87,912 89,769 Gross Tax Increment Revenue (4) Unitary Tax Revenue Gross Revenues LESS: SB 2557 Admin. Fee (5) (10) (10) (11) (11) (11) (11) (11) (12) (12) (12) Housing Set Aside Requirement (6) (155) (165) (169) (172) (176) (179) (183) (186) (190) (194) L.A. County Tax Entities (7) SB 211 Statutory Tax Sharing Payments (8) Tier 1 Payments (21) (27) (30) (31) (33) (35) (37) (39) (40) (42) Tier 2 Payments (2) (3) Tax Revenues (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness. approved by voters after The assumed future tax rates decline to $1.020 per $100 of taxable value over 2 years and remain at that rate thereafter. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) L.A. County Taxing Entities (includes County General Fund and Flood Control Distict) entered into a tax sharing agreement with the Agency that included the Central Business District Project Area and all amendment areas except Amendment 8. Payments are made only from Amendment Areas 2, 3 and 4. The existence of this agreement requires that the County Taxing Entities receive no share of the statutory payments. (8) The Agency has eliminated the Plan's time limit for incurrance of new indebtedness. The Agency is required to make statutory tax sharing payments as outlined in Section of the Law. Beginning in and using the assessed values for as an adjusted base year Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of Housing Set-Aside. Beginning in the 11th year after the initiation of statutory tax sharing payments, eligible Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. These payments continue only until the termination date of the redevelopment plan. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

143 Azusa Redevelopment Agency Central Business District Project Area 06/26/07 Projection of Tax Increment Revenue (000s Omitted) Table 2 Taxable Value Total Over Base Gross Tax Housing SB 2557 Statutory Tax Sharing Tax Taxable Value 9,683 Revenue Set-Aside Charge Tier 1 Tier 2 Revenues ,849 69, (155) (10) (21) ,611 74, (165) (10) (27) ,197 77, (169) (11) (30) ,845 79, (172) (11) (31) ,526 80, (176) (11) (33) ,242 82, (179) (11) (35) ,991 84, (183) (11) (37) ,775 86, (186) (12) (39) ,595 87, (190) (12) (40) (2) ,452 89, (194) (12) (42) (3) ,345 91, (198) (12) (44) (5) ,277 93,594 1,008 (202) (13) (46) (7) ,247 95,564 1,028 (206) (13) (48) (8) ,256 97,573 1,049 (210) (13) (50) (10) ,306 99,623 1,069 (214) (13) (52) (12) , ,714 1,091 (218) (14) , ,846 1,112 (222) (14) , ,021 1,135 (227) (14) , ,240 1,157 (231) (15) , ,503 1,180 (236) (15) , ,811 1,204 (241) (15) , ,165 1,228 (246) (15) , ,567 1,252 (250) (16) , ,016 1,277 (255) (16) 1, , ,515 1,303 (261) (16) 1,026 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2 25,925 (5,185) (325) (577) (47) 19,791

144 Azusa Redevelopment Agency Central Business District Project Area 06/26/07 Historical Assessed Values Table 3 Base Year Secured (1) Land 4,561,302 16,915,828 17,601,769 18,226,322 19,424,422 22,997,081 25,327,649 27,130,756 29,512,508 31,766,625 37,598,601 Improvements 3,911,769 22,005,914 22,109,735 22,379,041 23,267,983 24,237,642 26,204,762 29,587,575 31,342,433 32,708,118 35,707,774 Personal Property 57, , ,615 36, , , , , , , ,659 Exemptions (280,260) (642,312) (447,588) (455,879) (642,186) (682,371) (696,015) (779,046) (771,106) (998,151) (1,018,108) Total Secured 8,250,578 38,476,661 39,524,531 40,185,682 42,200,191 46,706,339 50,984,564 56,069,288 60,223,265 63,605,212 72,703,926 Unsecured Land Improvements 211, , ,364 1,330, , , ,282 1,242,940 1,138,968 1,330,086 1,787,332 Personal Property 1,220,396 1,297,330 1,428,780 2,222,509 1,455,036 1,563,470 1,695,024 1,899,426 1,843,776 2,410,222 4,358,096 Exemptions Total Unsecured 1,432,244 1,885,222 2,272,144 3,553,149 2,406,653 2,525,900 2,630,306 3,142,366 2,982,744 3,740,308 6,145,428 GRAND TOTAL 9,682,822 40,361,883 41,796,675 43,738,831 44,606,844 49,232,239 53,614,870 59,211,654 63,206,009 67,345,520 78,849,354 Incremental Value: 30,679,061 32,113,853 34,056,009 34,924,022 39,549,417 43,932,048 49,528,832 53,523,187 57,662,698 69,166, % 6.05% 2.55% 13.24% 11.08% 12.74% 8.06% 7.73% 19.95% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

145 Azusa Redevelopment Agency Central Business District Project Area New Development 01/00/00 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 19 LS $7,239,000 ($2,958,874) $4, , Transferred Parcels (1/1/2007 through 6/1/2007) 4 LS $1,995,000 ($1,025,542) $ Total Real Property Value $9,234,000 ($3,984,416) 5, , Total Real Property inc. Inflation 2% per year $0 $4,280 $989 $0 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

146 Azusa Redevelopment Agency Central Business District - Amendment 1 Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 1,026 1,490 1,520 1,551 1,582 1,613 1,646 1,679 1,712 1,746 Personal Property (3) Total Projected Value 1,043 1,508 1,538 1,568 1,599 1,631 1,663 1,696 1,729 1,764 Taxable Value over Base ,308 1,338 1,369 1,400 1,431 1,463 1,496 1,530 1,564 Gross Tax Increment Revenue (4) Unitary Tax Revenue Gross Revenues LESS: SB 2557 Admin. Fee (5) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Housing Set Aside Requirement (6) (2) (3) (3) (3) (3) (3) (3) (3) (3) (3) L.A. County Tax Entities (7) SB 211 Statutory Tax Sharing Payments (8) Tier 1 Payments 0 (0) (0) (0) (0) (0) (0) (0) (0) (0) Tier 2 Payments Tax Revenues (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness. approved by voters after The assumed future tax rates decline to $1.020 per $100 of taxable value over 2 years and remain at that rate thereafter. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) L.A. County Taxing Entities (includes County General Fund and Flood Control Distict) entered into a tax sharing agreement with the Agency that included the Central Business District Project Area and all amendment areas except Amendment 8. Payments are made only from Amendment Areas 2, 3 and 4. The existence of this agreement requires that the County Taxing Entities receive no share of the statutory payments. (8) The Agency has eliminated the Plan's time limit for incurrance of new indebtedness. The Agency is required to make statutory tax sharing payments as outlined in Section of the Law. Beginning in and using the assessed values for as an adjusted base year Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of Housing Set-Aside. Beginning in the 11th year after the initiation of statutory tax sharing payments, eligible Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. These payments continue only until the termination date of the redevelopment plan. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

147 Azusa Redevelopment Agency Central Business District - Amendment 1 06/26/07 Projection of Tax Increment Revenue (000s Omitted) Table 2 Taxable Value Total Over Base Gross Tax Housing SB 2557 Statutory Tax Sharing Tax Taxable Value 199 Revenue Set-Aside Charge Tier 1 Tier 2 Revenues , (2) (0) ,508 1, (3) (0) (0) ,538 1, (3) (0) (0) ,568 1, (3) (0) (0) ,599 1, (3) (0) (0) ,631 1, (3) (0) (0) ,663 1, (3) (0) (0) ,696 1, (3) (0) (0) ,729 1, (3) (0) (0) ,764 1, (3) (0) (0) ,799 1, (3) (0) (0) ,834 1, (3) (0) (1) (0) ,871 1, (3) (0) (1) (0) ,908 1, (3) (0) (1) (0) ,945 1, (4) (0) (1) (0) ,984 1, (4) (0) (1) (0) ,023 1, (4) (0) ,063 1, (4) (0) ,104 1, (4) (0) ,146 1, (4) (0) ,189 1, (4) (0) ,232 2, (5) (0) ,276 2, (5) (0) ,322 2, (5) (0) ,368 2, (5) (0) ,415 2, (5) (0) 19 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection (93) (6) (6) (0) 359

148 Azusa Redevelopment Agency Central Business District - Amendment 1 06/26/07 Historical Assessed Values Table 3 Base Year Secured (1) Land 116, , , , , , , , , , ,396 Improvements 67, , , , , , , , , , ,402 Personal Property ,217 62, , , , Exemptions Total Secured 184, , , , ,185 1,199,782 1,245,147 1,219, ,118 1,005,685 1,025,798 Unsecured Land Improvements 400 3, , Personal Property 14,580 23,762 17,544 15, ,568 11,733 82, ,847 34,256 17,279 Exemptions Total Unsecured 14,980 27,278 18,447 15, ,568 11,733 82, ,621 34,256 17,279 GRAND TOTAL 199, , , , ,185 1,215,350 1,256,880 1,302,042 1,249,739 1,039,941 1,043,077 Incremental Value: 249, , , ,785 1,015,950 1,057,480 1,102,642 1,050, , , % -3.99% % % 4.09% 4.27% -4.74% % 0.37% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

149 Azusa Redevelopment Agency Central Business District - Amendment 1 New Development 06/26/07 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 1 LS $1,315,500 ($871,335) $ Transferred Parcels (1/1/2007 through 6/1/2007) 0 LS $0 $0 $ $1,315,500 ($871,335) Total Real Property inc. Inflation 2% per year $0 $444 $0 $0 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

150 Azusa Redevelopment Agency Central Business District - Amendment 2 Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 53,307 58,679 62,137 63,380 64,648 65,941 67,260 68,605 69,977 71,376 Personal Property (3) Total Projected Value 53,526 58,898 62,356 63,599 64,867 66,160 67,479 68,824 70,196 71,595 Taxable Value over Base 4,738 48,789 54,161 57,619 58,862 60,129 61,422 62,741 64,086 65,458 66,858 Gross Tax Increment Revenue (4) Unitary Tax Revenue Gross Revenues LESS: SB 2557 Admin. Fee (5) (6) (7) (7) (8) (8) (8) (8) (8) (8) (9) Housing Set Aside Requirement (6) (102) (112) (117) (120) (123) (125) (128) (131) (133) (136) Pass Throughs L.A. County Tax Entities (7) (195) (217) (231) (236) (241) (246) (251) (256) (262) (268) SB 211 Statutory Tax Sharing Payments (8) Tier 1 Payments (17) (22) (25) (27) (28) (29) (31) (32) (33) (35) Tier 2 Payments (1) (2) Tax Revenues (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after The assumed future tax rates decline to $ per $100 of taxable value over 2 years. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) L.A. County Taxing Entities (includes County General Fund and Flood Control Distict) entered into a tax sharing agreement with the Agency that included the Central Business District Project Area and all amendment areas except Amendment 8. Payments are made only from Amendment Areas 2, 3 and 4. The existence of this agreement requires that the County Taxing Entities receive no share of the statutory payments. (8) The Agency has eliminated the Plan's time limit for incurrance of new indebtedness. The Agency is required to make statutory tax sharing payments as outlined in Section of the Law. Beginning in and using the assessed values for as an adjusted base year Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of Housing Set-Aside. Beginning in the 11th year after the initiation of statutory tax sharing payments, eligible Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. These payments continue only until the termination date of the redevelopment plan. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

151 Azusa Redevelopment Agency Central Business District - Amendment 2 06/26/07 Projection of Tax Increment Revenue (000s Omitted) Table 2 Taxable Value Total Over Base Gross Tax Housing SB 2557 County Statutory Tax Sharing Tax Taxable Value 4,738 Revenue Set-Aside Charge Tax Sharing Tier 1 Tier 2 Revenues ,526 48, (102) (6) (195) (17) ,898 54, (112) (7) (217) (22) ,356 57, (117) (7) (231) (25) ,599 58, (120) (8) (236) (27) ,867 60, (123) (8) (241) (28) ,160 61, (125) (8) (246) (29) ,479 62, (128) (8) (251) (31) ,824 64, (131) (8) (256) (32) ,196 65, (133) (8) (262) (33) (1) ,595 66, (136) (9) (268) (35) (2) ,023 68, (139) (9) (273) (36) (4) ,479 69, (142) (9) (279) (38) (5) ,964 71, (145) (9) (285) (39) (6) ,479 72, (148) (9) (291) (41) (7) ,024 74, (151) (9) (297) (42) (9) ,600 75, (155) (10) (304) (44) (10) ,208 77, (158) (10) (310) (45) (11) ,848 79, (161) (10) (317) (47) (13) ,520 80, (165) (10) (323) ,226 82, (168) (11) (330) ,967 84, (172) (11) (337) ,741 86, (175) (11) (344) ,552 87, (179) (11) (351) ,399 89, (183) (11) (359) ,282 91, (187) (12) (366) ,203 93, (191) (12) (374) ,163 95, (194) (12) (382) ,162 97, (198) (12) (390) ,192 (4,238) (266) (8,315) (612) (68) 7,694 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

152 Azusa Redevelopment Agency Central Business District - Amendment 2 06/26/07 Historical Assessed Values Table 3 Base Year Secured (1) Land 2,728,950 7,231,536 6,304,721 6,329,101 6,713,449 6,915,059 19,492,395 20,345,075 21,269,981 22,557,933 33,318,613 Improvements 1,385,360 15,877,723 14,118,686 14,023,136 14,356,690 17,870,125 21,230,547 22,476,668 24,036,230 24,684,381 28,333,628 Personal Property 2,240 85,600 85,600 85, , , , , , , ,000 Exemptions 0 (513,903) (524,180) (533,892) (564,569) 0 (5,690,537) (5,804,346) (7,237,904) (8,243,636) (8,408,505) Total Secured 4,116,550 22,680,956 19,984,827 19,903,945 20,611,170 24,887,784 35,136,705 37,123,083 38,170,327 39,167,436 53,397,736 Unsecured Land Improvements 403, , ,661 79,629 62,710 83,877 34,136 31,502 27,814 24,126 63,455 Personal Property 217, , , ,627 51, ,824 57,265 39,327 44,085 27,157 64,973 Exemptions Total Unsecured 621, , , , , ,701 91,401 70,829 71,899 51, ,428 GRAND TOTAL 4,737,590 22,929,323 20,245,832 20,122,201 20,725,252 25,354,485 35,228,106 37,193,912 38,242,226 39,218,719 53,526,164 Incremental Value: 18,191,733 15,508,242 15,384,611 15,987,662 20,616,895 30,490,516 32,456,322 33,504,636 34,481,129 48,788, % -0.80% 3.92% 28.96% 47.89% 6.45% 3.23% 2.91% 41.49% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

153 Azusa Redevelopment Agency Central Business District - Amendment 2 New Development 06/26/07 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 21 LS $7,164,000 ($2,857,933) $4, , Transferred Parcels (1/1/2007 through 6/1/2007) 20 LS $5,890,500 ($3,650,852) $2, , $13,054,500 ($6,508,785) 6, ,306 2, Total Real Property inc. Inflation 2% per year $0 $4,306 $2,284 $0 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

154 Azusa Redevelopment Agency Central Business District - Amendment 3 Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 76,656 82,515 86,120 87,842 89,599 91,391 93,219 95,083 96,985 98,924 Personal Property (3) Total Projected Value 76,684 82,542 86,147 87,869 89,626 91,418 93,246 95,110 97,012 98,952 Taxable Value over Base ,045 81,903 85,508 87,230 88,987 90,779 92,607 94,471 96,373 98,313 Gross Tax Increment Revenue (4) ,000 Unitary Tax Revenue Gross Revenues ,002 LESS: SB 2557 Admin. Fee (5) (10) (11) (11) (11) (11) (12) (12) (12) (12) (13) Housing Set Aside Requirement (6) (158) (169) (174) (178) (181) (185) (189) (193) (196) (200) Pass Throughs L.A. County Tax Entities (7) (420) (452) (472) (481) (491) (501) (511) (521) (532) (542) SB 211 Statutory Tax Sharing Payments (8) Tier 1 Payments (21) (27) (28) (30) (32) (34) (35) (37) (39) (41) Tier 2 Payments (2) (3) Tax Revenues (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after The assumed future tax rates decline to $ per $100 of taxable value over 2 years. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) L.A. County Tax Entities (General Fund and Flood Control) receive a stipulated 55.1% share of general levy tax increment revenue. (8) The Agency has eliminated the Plan's time limit for incurrance of new indebtedness. The Agency is required to make statutory tax sharing payments as outlined in Section of the Law. Beginning in and using the assessed values for as an adjusted base year Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of Housing Set-Aside. Beginning in the 11th year after the initiation of statutory tax sharing payments, eligible Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. These payments continue only until the termination date of the redevelopment plan. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

155 Azusa Redevelopment Agency Central Business District - Amendment 3 06/26/07 Projection of Tax Increment Revenue (000s Omitted) Table 2 Taxable Value Total Over Base Gross Tax Housing SB 2557 County Statutory Tax Sharing Tax Taxable Value 639 Revenue Set-Aside Charge Tax Sharing Tier 1 Tier 2 Revenues ,684 76, (158) (10) (420) (21) ,542 81, (169) (11) (452) (27) ,147 85, (174) (11) (472) (28) ,869 87, (178) (11) (481) (30) ,626 88, (181) (11) (491) (32) ,418 90, (185) (12) (501) (34) ,246 92, (189) (12) (511) (35) ,110 94, (193) (12) (521) (37) ,012 96, (196) (12) (532) (39) (2) ,952 98,313 1,002 (200) (13) (542) (41) (3) , ,291 1,022 (204) (13) (553) (43) (5) , ,309 1,042 (208) (13) (564) (45) (7) , ,368 1,063 (213) (13) (576) (47) (8) , ,467 1,085 (217) (14) (587) (49) (10) , ,609 1,106 (221) (14) (599) (51) (12) , ,793 1,129 (226) (14) (611) (54) (14) , ,021 1,151 (230) (14) (623) (56) (16) , ,294 1,174 (235) (15) (636) (58) (17) , ,612 1,198 (240) (15) (649) (60) (19) , ,977 1,222 (244) (15) (662) (63) (21) , ,388 1,247 (249) (16) (675) , ,848 1,272 (254) (16) (689) , ,358 1,297 (259) (16) (702) , ,917 1,323 (265) (17) (717) , ,528 1,350 (270) (17) (731) , ,190 1,377 (275) (17) (746) , ,906 1,405 (281) (18) (761) , ,677 1,433 (287) (18) (776) , ,503 1,462 (292) (18) (791) , ,385 1,491 (298) (19) (807) ,966 (6,793) (426) (18,378) (852) (134) 7,383 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

156 Azusa Redevelopment Agency Central Business District - Amendment 3 06/26/07 Historical Assessed Values Table 3 Base Year Secured (1) Land 243,209 15,664,815 14,551,760 14,268,247 14,786,004 16,657,357 18,980,967 22,376,552 25,345,616 31,150,995 38,797,332 Improvements 302,688 30,987,552 30,476,025 30,399,967 30,619,975 32,558,131 33,839,509 35,327,314 36,068,769 37,014,995 37,858,903 Personal Property 70, Exemptions Total Secured 616,604 46,652,367 45,027,785 44,668,214 45,405,979 49,215,488 52,820,476 57,703,866 61,414,385 68,165,990 76,656,235 Unsecured Land Improvements Personal Property 21,804 82,557 84, ,549 86, ,937 61,884 55,230 65,510 64,475 27,281 Exemptions Total Unsecured 22,113 82,557 84, ,549 86, ,937 61,884 55,230 65,510 64,475 27,281 GRAND TOTAL 638,717 46,734,924 45,112,779 44,776,763 45,492,251 49,758,425 52,882,360 57,759,096 61,479,895 68,230,465 76,683,516 Incremental Value: 46,096,207 44,474,062 44,138,046 44,853,534 49,119,708 52,243,643 57,120,379 60,841,178 67,591,748 76,044, % -0.76% 1.62% 9.51% 6.36% 9.33% 6.51% 11.10% 12.51% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

157 Azusa Redevelopment Agency Central Business District - Amendment 3 New Development 06/26/07 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 24 LS $9,088,500 ($4,763,117) $4, , Transferred Parcels (1/1/2007 through 6/1/2007) 10 LS $3,642,000 ($1,725,851) $1, , $12,730,500 ($6,488,968) 6, ,325 1, Total Real Property inc. Inflation 2% per year $0 $4,325 $1,954 $0 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

158 Azusa Redevelopment Agency Central Business District - Amendment 4 Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 41,530 42,361 43,208 44,072 44,954 45,853 46,770 47,705 48,659 49,633 Personal Property (3) 3,678 3,678 3,678 3,678 3,678 3,678 3,678 3,678 3,678 3,678 Total Projected Value 45,208 46,039 46,886 47,750 48,631 49,531 50,448 51,383 52,337 53,310 Taxable Value over Base 2,676 42,532 43,362 44,210 45,074 45,955 46,854 47,771 48,707 49,661 50,634 Gross Tax Increment Revenue (4) Unitary Tax Revenue Gross Revenues LESS: SB 2557 Admin. Fee (5) (6) (6) (6) (6) (6) (6) (6) (6) (6) (6) Housing Set Aside Requirement (6) (90) (91) (92) (93) (95) (97) (99) (101) (103) (104) Pass Throughs Azusa Unified School District (7) (18) (18) (18) (19) (19) (19) (20) (20) (21) (21) L.A. County Tax Entities (8) (179) (183) (186) (190) (194) (197) (201) (205) (209) (213) SB 211 Statutory Tax Sharing Payments (9) Tier 1 Payments (2) (2) (3) (3) (4) (4) (5) (6) (6) (7) Tier 2 Payments (1) Tax Revenues (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after The assumed future tax rates decline to $1.020 per $100 of taxable value over 2 years. (5) L.A. County Administration fee is actual for and estimated at 1.24% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) Azusa Unified School District receives 5.11% of general levy tax increment net of housing set aside. The Agency was permitted to defer tax sharing payments through with interest accruing from through All deferred amounts have been repaid and there are no outstanding amounts owed to the District. (8) County Taxing Entities (County General Fund and Flood Control District) receive 52% of general levy tax increment net of housing set aside. (9) The Agency has eliminated the Plan's time limit for incurrance of new indebtedness. The Agency is required to make statutory tax sharing payments as outlined in Section of the Law. Beginning in and using the assessed values for as an adjusted base year Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of Housing Set-Aside. Beginning in the 11th year after the initiation of statutory tax sharing payments, eligible Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. These payments continue only until the termination date of the redevelopment plan. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

159 Azusa Redevelopment Agency Central Business District - Amendment 4 06/26/07 Projection of Tax Increment Revenue (000s Omitted) Table 2 Taxable Value Total Over Base Gross Tax Housing SB 2557 County Azusa USD Statutory Tax Sharing Tax Taxable Value 2,676 Revenue Set-Aside Charge Tax Sharing Tax Sharing Tier 1 Tier 2 Revenues ,208 42, (90) (6) (179) (18) (2) ,039 43, (91) (6) (183) (18) (2) ,886 44, (92) (6) (186) (18) (3) ,750 45, (93) (6) (190) (19) (3) ,631 45, (95) (6) (194) (19) (4) ,531 46, (97) (6) (197) (19) (4) ,448 47, (99) (6) (201) (20) (5) ,383 48, (101) (6) (205) (20) (6) ,337 49, (103) (6) (209) (21) (6) ,310 50, (104) (6) (213) (21) (7) (1) ,303 51, (107) (7) (217) (21) (7) (1) ,315 52, (109) (7) (221) (22) (8) (2) ,348 53, (111) (7) (226) (22) (9) (2) ,402 54, (113) (7) (230) (23) (9) (3) ,476 55, (115) (7) (235) (23) (10) (3) ,572 56, (117) (7) (239) (24) (11) (4) ,690 58, (120) (7) (244) (24) (11) (4) ,830 59, (122) (8) (249) (24) (12) (5) ,993 60, (124) (8) (253) (25) (13) (5) ,179 61, (127) (8) (258) (25) (13) (6) ,390 62, (129) (8) (263) (26) ,624 63, (132) (8) (269) (26) ,883 65, (134) (8) (274) (27) ,167 66, (137) (8) (279) (27) ,477 67, (140) (9) (285) (28) ,813 69, (142) (9) (290) (29) ,175 70, (145) (9) (296) (29) ,565 71, (148) (9) (302) (30) ,983 73, (151) (9) (307) (30) ,429 74, (154) (9) (313) (31) ,688 (3,538) (218) (7,209) (708) (146) (35) 5,833 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

160 Azusa Redevelopment Agency Central Business District - Amendment 4 06/26/07 Historical Assessed Values Table 3 Base Year Secured (1) Land 1,966,764 8,977,780 9,119,335 9,253,107 9,400,167 9,770,167 10,317,067 10,473,126 13,321,697 13,537,852 13,758,330 Improvements 708,427 14,568,050 14,760,370 14,975,116 15,175,576 16,100,045 17,360,704 17,573,434 24,795,867 25,157,302 25,525,965 Personal Property Exemptions Total Secured 2,675,191 23,545,830 23,879,705 24,228,223 24,575,743 25,870,212 27,677,771 28,046,560 38,117,564 38,695,154 39,284,295 Unsecured Land Improvements 0 1,777,242 1,839,188 1,700,726 1,653,023 1,862,197 2,299,782 1,729,846 1,600,634 1,759,103 2,245,965 Personal Property 1,040 2,145,429 2,180,216 2,148,179 2,001,278 2,653,686 3,448,512 1,407,571 2,546,123 2,452,623 3,677,747 Exemptions Total Unsecured 1,040 3,922,671 4,019,404 3,848,905 3,654,301 4,515,883 5,748,294 3,137,417 4,146,757 4,211,726 5,923,712 GRAND TOTAL 2,676,231 27,468,501 27,899,109 28,077,128 28,230,044 30,386,095 33,426,065 31,183,977 42,264,321 42,906,880 45,208,007 Incremental Value: 24,792,270 25,222,878 25,400,897 25,553,813 27,709,864 30,749,834 28,507,746 39,588,090 40,230,649 42,531, % 0.71% 0.60% 8.44% 10.97% -7.29% 38.87% 1.62% 5.72% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

161 Azusa Redevelopment Agency Central Business District - Amendment 4 New Development 06/26/07 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 0 $0.00 $0 $0 $ Transferred Parcels (1/1/2007 through 6/1/2007) 0 $0.00 $0 $0 $ $0 $ Total Real Property inc. Inflation 2% per year $0 $0 $0 $0 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

162 Azusa Redevelopment Agency Central Business District - Amendment 8 Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 57,648 60,151 61,754 62,989 64,249 65,534 66,844 68,181 69,545 70,936 Personal Property (3) 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 Total Projected Value 58,692 61,194 62,798 64,033 65,293 66,578 67,888 69,225 70,589 71,980 Taxable Value over Base 46,194 12,498 15,000 16,604 17,839 19,099 20,384 21,694 23,031 24,395 25,786 Gross Tax Increment Revenue (4) Unitary Tax Revenue Gross Revenues LESS: SB 2557 Admin. Fee (5) (2) (2) (2) (2) (2) (3) (3) (3) (3) (3) Housing Set Aside Requirement (6) (26) (30) (33) (36) (38) (41) (44) (46) (49) (52) AB 1290 Statutory Tax Sharing Payments (7) Tier 1 (26) (30) (33) (36) (38) (41) (44) (46) (49) (52) Tier (2) Tier Tax Revenues (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after The assumed future tax rates decline to $ per $100 of taxable value over 2 years. (5) L.A. County Administration fee is actual for and estimated at 1.27% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) All Taxing Entities receive their shares of 25% of total tax increment revenue net of housing set aside. In addition, after year 10, Taxing Entities receive 21% of tax revenue on incremental value above the year 10 value net of housing set aside. After year 30, Taxing Entities also receive 14% of tax revenue on incremental value above the year 30 value net of housing set aside. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. It may not receive any portion of Tier 2 and Tier 3 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

163 Azusa Redevelopment Agency Central Business District - Amendment 8 Projection of Tax Increment Revenue (000s Omitted) Table 2 26-Jun-07 Taxable Value Total Over Base Gross Tax Housing SB 2557 Statutory Tax Sharing Net Tax Taxable Value 46,194 Revenue Set-Aside Charge Tier 1 Tier 2 Tier 3 Revenues ,692 12, (26) (2) (26) ,194 15, (30) (2) (30) ,798 16, (33) (2) (33) ,033 17, (36) (2) (36) ,293 19, (38) (2) (38) ,578 20, (41) (3) (41) ,888 21, (44) (3) (44) ,225 23, (46) (3) (46) ,589 24, (49) (3) (49) ,980 25, (52) (3) (52) (2) ,398 27, (55) (3) (55) (5) ,845 28, (58) (4) (58) (7) ,321 30, (61) (4) (61) (10) ,827 31, (64) (4) (64) (12) ,363 33, (67) (4) (67) (15) ,929 34, (70) (4) (70) (17) ,527 36, (73) (5) (73) (20) ,156 37, (76) (5) (76) (23) ,819 39, (80) (5) (80) (26) ,514 41, (83) (5) (83) (29) ,244 43, (87) (5) (87) (31) ,008 44, (90) (6) (90) (34) ,807 46, (94) (6) (94) (38) ,642 48, (97) (6) (97) (41) ,514 50, (101) (6) (101) (44) ,424 52, (105) (7) (105) (47) ,371 54, (109) (7) (109) (50) ,358 56, (113) (7) (113) (54) ,384 58, (117) (7) (117) (57) ,451 60, (121) (8) (121) (61) (3) ,559 62, (125) (8) (125) (64) (7) ,709 64, (130) (8) (130) (68) (11) ,902 66, (134) (9) (134) (71) (14) ,140 68, (139) (9) (139) (75) (18) ,422 71, (143) (9) (143) (79) (22) ,749 73, (148) (9) (148) (83) (26) ,123 75, (153) (10) (153) (87) (30) ,545 78, (157) (10) (157) (91) (34) ,015 80, (162) (10) (162) (95) (38) ,534 83, (167) (11) (167) (99) (42) ,104 85, (173) (11) (173) (104) (47) ,725 88, (178) (11) (178) (108) (51) ,399 91, (183) (12) (183) (113) (56) ,528 (4,106) (261) (4,106) (1,760) (400) 9,896 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

164 Azusa Redevelopment Agency Central Business District - Amendment 8 Historical Assessed Values 06/26/07 Table 3 Base Year Secured (1) Land 21,944,661 12,163,649 27,795,625 33,739,586 Improvements 23,131,548 14,323,968 21,121,078 23,548,554 Personal Property 6,300 6,300 55,600 55,600 Exemptions Total Secured 45,082,509 26,493,917 48,972,303 57,343,740 Unsecured Land Improvements 402, , ,598 Personal Property 709, , ,170 Exemptions Total Unsecured 1,111, ,856 1,347,768 GRAND TOTAL 46,193,900 26,493,917 49,446,159 58,691,508 Incremental Value: (19,699,983) 3,252,259 12,497,608 (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

165 Azusa Redevelopment Agency Central Business District - Amendment 8 New Development 06/26/07 Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transferred Parcels (1/1/2006 through 12/31/2006) 10 LS $6,538,000 ($5,188,120) $1, , Transferred Parcels (1/1/2007 through 6/1/2007) 1 LS $645,000 ($252,489) $ $7,183,000 ($5,440,609) 1, , Total Real Property inc. Inflation 2% per year $0 $1,350 $400 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

166 Azusa Redevelopment Agency West End Redevelopment Project Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 06/26/07 Table 1 Taxable Values (1) Real Property (2) 465, , , , , , , , , ,575 Personal Property (3) 83,279 83,279 83,279 83,279 83,279 83,279 83,279 83,279 83,279 83,279 Total Projected Value 548, , , , , , , , , ,854 Taxable Value over Base 133, , , , , , , , , , ,804 Gross Tax Increment Revenue (4) 4,336 4,380 4,449 4,542 4,643 4,746 4,852 4,959 5,068 5,180 Unitary Tax Revenue Gross Revenues 4,358 4,402 4,471 4,564 4,665 4,768 4,873 4,980 5,090 5,201 LESS: SB 2557 Admin. Fee (5) (54) (55) (56) (57) (58) (60) (61) (62) (64) (65) Housing Set Aside Requirement (6) (872) (880) (894) (913) (933) (954) (975) (996) (1,018) (1,040) Pass Throughs County Tax Entities (Exclusive of Parcel A) (7) (1,203) (1,230) (1,257) (1,285) (1,314) (1,343) (1,373) (1,404) (1,435) (1,467) County Tax Entities (Parcel A) (7) (162) (171) (176) (180) (184) (188) (192) (196) (200) (204) SB 211 Statutory Tax Sharing Payments (8) Tier 1 Payments (81) (89) (100) (109) (120) (130) (140) (151) (162) (173) Tier 2 Payments (9) (19) Tax Revenues 1,986 1,977 1,988 2,019 2,056 2,094 2,132 2,171 2,202 2,234 (1) Taxable values as reported by Los Angeles County. (2) Real property consists of land and improvements. Increased for inflation at 2% annually and for transfers of ownership (See Table 4). Values for are reduced by $5,034,387 for expected losses due to pending assessment appeals. (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after The assumed future tax rates decline to $1.020 per $100 of taxable value over 2 years. (5) L.A. County Administration fee is actual for and estimated at 1.25% of Gross Revenue thereafter. (6) Housing Set Aside calculated at 20% of Gross Revenue. (7) L.A. County Tax Entities (County General Fund and Flood Control District) receive 52% of general levy tax increment net of housing set aside within the portion of the Project Area not designated as Parcel A. Within the area designated as Parcel A, the County Taxing Entities receive 15% of general levy tax increment net of housing set aside. (8) The Agency has eliminated the Plan's time limit for incurrance of new indebtedness. The Agency is required to make statutory tax sharing payments as outlined in Section of the Law. Beginning in and using the assessed values for as an adjusted base year Taxing Entities that do not have existing tax sharing agreements receive their shares of 25% of tax increment revenue net of Housing Set-Aside. Beginning in the 11th year after the initiation of statutory tax sharing payments, eligible Taxing Entities receive 21% of tax revenue on incremental value above the 10th year value net of housing set aside. A third tier of tax sharing is not initiated before the plan's effectiveness expires. These payments continue only until the termination date of the redevelopment plan. The City is considered a taxing entity and may elect to receive its share of the Tier 1 payments. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

167 Azusa Redevelopment Agency West End Redevelopment Project 06/26/07 Projection of Tax Increment Revenue (000s Omitted) Table 2 Taxable Value Total Over Base Gross Tax Housing SB 2557 County Statutory Tax Sharing Tax Taxable Value 133,050 Revenue Set-Aside Charge Tax Sharing Tier 1 Tier 2 Revenues , ,732 4,358 (872) (54) (1,365) (81) 0 1, , ,354 4,402 (880) (55) (1,401) (89) 0 1, , ,632 4,471 (894) (56) (1,434) (100) 0 1, , ,340 4,564 (913) (57) (1,466) (109) 0 2, , ,242 4,665 (933) (58) (1,498) (120) 0 2, , ,342 4,768 (954) (60) (1,531) (130) 0 2, , ,644 4,873 (975) (61) (1,565) (140) 0 2, , ,153 4,980 (996) (62) (1,600) (151) 0 2, , ,871 5,090 (1,018) (64) (1,635) (162) (9) 2, , ,804 5,201 (1,040) (65) (1,671) (173) (19) 2, , ,955 5,315 (1,063) (66) (1,708) (184) (28) 2, , ,330 5,431 (1,086) (68) (1,745) (196) (38) 2, , ,932 5,549 (1,110) (69) (1,783) (208) (48) 2, , ,766 5,670 (1,134) (71) (1,822) (220) (58) 2, , ,837 5,793 (1,159) (72) (1,862) (232) (68) 2, , ,149 5,919 (1,184) (74) (1,902) (244) (79) 2, , ,707 6,047 (1,209) (76) (1,944) (257) (89) 2, , ,517 6,178 (1,236) (77) (1,986) (270) (100) 2, , ,583 6,311 (1,262) (79) (2,029) (283) (111) 2, , ,910 6,447 (1,289) (81) (2,072) (297) (123) 2, , ,503 6,585 (1,317) (82) (2,117) 3, , ,369 6,727 (1,345) (84) (2,163) 3, , ,512 6,871 (1,374) (86) (2,209) 3, , ,937 7,018 (1,404) (88) (2,257) 3, , ,651 7,168 (1,434) (90) (2,305) 3, , ,660 7,321 (1,464) (92) (2,354) 3, , ,968 7,478 (1,496) (94) (2,405) 3, , ,583 7,637 (1,527) (95) (2,456) 3, , ,510 7,799 (1,560) (98) (2,508) 3, , ,756 7,965 (1,593) (100) (2,562) 3,711 Footnotes: see Table 1 Tax Allocation Bonds/Azusa 2007/TAB Projection 2 178,602 (35,720) (2,233) (57,352) (3,647) (769) 78,880

168 Azusa Redevelopment Agency West End Redevelopment Project 06/25/07 Historical Assessed Values Table 3 Base Year Secured (1) Land 30,092,579 93,427,970 90,754,237 87,375, ,949, ,965, ,531, ,809, ,527, ,967, ,952,664 Improvements 54,155, ,456, ,715, ,299, ,264, ,496, ,757, ,806, ,580, ,858, ,794,393 Personal Property 22,120,082 34,694,691 37,826,984 29,097,349 37,832,443 4,878,909 43,640,294 74,054,150 75,521,308 50,597,236 40,706,850 Exemptions (173,168) (461,151) (470,373) (479,088) 0 (498,442) (508,410) (518,578) (528,259) (538,823) (549,598) Total Secured 106,194, ,118, ,825, ,293, ,046, ,842, ,420, ,151, ,101, ,885, ,904,309 Unsecured Land Improvements 13,599,643 38,476,641 33,386,684 35,431,860 25,672,067 54,402,766 29,039,251 30,781,639 36,533,011 41,139,372 38,305,876 Personal Property 13,255,103 33,177,944 28,083,076 32,175,088 34,164,630 61,901,370 38,760,633 39,979,881 40,146,664 41,849,645 42,571,781 Exemptions (10,000) (10,000) (10,000) 0 0 Total Unsecured 26,854,746 71,654,585 61,469,760 67,606,948 59,836, ,304,136 67,789,884 70,751,520 76,669,675 82,989,017 80,877,657 GRAND TOTAL 133,049, ,772, ,295, ,900, ,882, ,146, ,210, ,902, ,771, ,874, ,781,966 Incremental Value: 199,723, ,246, ,850, ,833, ,096, ,160, ,853, ,721, ,824, ,732, % -3.19% 15.47% 9.50% 18.79% 16.04% 7.36% 5.54% 8.60% (1) Secured values include state assessed non-unitary utility property. Tax Allocation Bonds/Azusa 2007/TAB Projection 2

169 Azusa Redevelopment Agency West End Redevelopment Project New Development Table 4 000's omitted SqFt/ Total Less Total Value Real Property Value Units Value Value Existing Added Start Complete $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ $0.00 $0 $0 $ Transfers of Ownership - Non-Parcel A (1/1/2006 through 12/31/2006) 0 L.S. $0 $0 $ Transfers of Ownership - Parcel A (1/1/2006 through 12/31/2006) 14 L.S. $11,449,500 ($7,002,798) $4, , Transfers of Ownership - Non-Parcel A (1/1/2007 through 6/1/2007) 1 L.S. $1,125,000 ($870,000) $ Transfers of Ownership - Parcel A (1/1/2007 through 6/1/2007) 3 L.S. $2,700,000 ($1,195,237) $1, , $15,274,500 ($9,068,035) 6, ,447 1, Total Real Property inc. Inflation 2% per year $0 $4,447 $1,795 $0 $0 $0 Tax Allocation Bonds/Azusa 2007/TAB Projection 2

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171 APPENDIX D-1 SERIES A BONDS FORM OF BOND COUNSEL OPINION July 31, 2007 Redevelopment Agency of the City of Azusa 213 East Foothill Boulevard Azusa, California, Re: $15,780,000 Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area Taxable Tax Allocation Bonds (Subordinate Lien), 2007 Series A Members of the Redevelopment Agency: We have acted as bond counsel in connection with the issuance by the Redevelopment Agency of the City of Azusa (the Agency ) of its $15,780,000 aggregate principal amount Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Projects Taxable Tax Allocation Bonds (Subordinate Lien), 2007 Series A (the Series A Bonds ). The Series A Bonds are issued pursuant to (i) the provisions of the Community Redevelopment Law, being Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code of the State of California (the Law ), (ii) Resolution No. 07-R20 adopted by the Agency on July 2, 2007 (the Resolution ) and (iii) a Trust Indenture (the Series A Indenture ) dated July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association. We have examined the Law, the Resolution, the Series A Indenture and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Agency contained in the Series A Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify such facts by independent investigation. Based upon our examination, we are of the opinion, as of the date hereof, that: 1. The Agency is a duly organized and validly existing public body, corporate and politic. 2. The Series A Bonds constitute valid, legal and binding special obligations of the Agency enforceable in accordance with their terms. 3. The Series A Indenture has been duly approved by the Agency and constitutes valid, legal and binding obligations of the Agency enforceable in accordance with its terms. The Series A Indenture creates a valid liens on funds pledged by the Series A Indenture for the security of the Bonds, comprised of Subordinate Tax Revenues (as defined in the Series A Indenture) and certain amounts in the funds and accounts for the Series A Bonds. D-1-1

172 4. Interest on the Series A Bonds is exempt from personal income taxation imposed by the State of California. The opinions expressed herein may be affected by actions which may be taken (or not taken) or events which may occur (or not occur) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur or are not taken or do not occur. The rights of the owners of the Series A Bonds and the enforceability of the Series A Bonds and the Series A Indenture may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Each taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. Respectfully submitted, D-1-2

173 APPENDIX D-2 SERIES B BONDS FORM OF BOND COUNSEL OPINION July 31, 2007 Redevelopment Agency of the City of Azusa 213 East Foothill Boulevard Azusa, California, Re: $4,790,000 Redevelopment Agency of the City of Azusa Amended and Restated Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Second Subordinate Lien), 2007 Series B Members of the Redevelopment Agency: We have acted as bond counsel in connection with the issuance by the Redevelopment Agency of the City of Azusa (the Agency ) of its $4,790,000 aggregate principal amount Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Projects Tax Allocation Bonds, 2007 Series B (the Series B Bonds ). The Series B Bonds are issued pursuant to the provisions of (i) the Community Redevelopment Law, being Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code of the State of California (the Law ), (ii) Resolution No. 07-R20 adopted by the Agency on July 2, 2007 (the Resolution ) and (iii) a Trust Indenture (the Series B Indenture ) dated July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association. We have examined the Law, the Resolution, the Series B Indenture and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Agency contained in the Series B Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify such facts by independent investigation. Based upon our examination, we are of the opinion, as of the date hereof, that: 1. The Agency is a duly organized and validly existing public body, corporate and politic. 2. The Series B Bonds constitute valid, legal and binding special obligations of the Agency enforceable in accordance with their terms. 3. The Series B Indenture has been duly approved by the Agency and constitutes valid, legal and binding obligations of the Agency enforceable in accordance with its terms. The Series B Indenture creates a valid lien on funds pledged by the Series B Indenture for the security of the Series B Bonds, comprised of Second Subordinate Tax Revenues (as defined in the Series B Indenture) and certain amounts in the funds and accounts for the Series B Bonds. 4. The Internal Revenue Code of 1986, as amended (the Code ), sets forth certain investment, rebate and related requirements which must be met subsequent to the issuance and delivery of D-2-1

174 the Series B Bonds for the interest on the Series B Bonds to be and remain excluded from gross income for purposes of federal income taxation. Noncompliance with such requirements could cause the interest on the Series B Bonds to be subject to federal income taxation retroactive to the date of issue of the Series B Bonds. Pursuant to the Series B Indenture, the Agency has covenanted to comply with the requirements of the Code. We are of the opinion that, assuming compliance with the aforementioned covenant, the interest on the Series B Bonds is excluded from gross income for purposes of federal income taxation under existing statutes, regulations, rulings and court decisions. We are further of the opinion that interest on the Series B Bonds is not a specific preference item for purposes of the alternative minimum tax provisions of the Code. However, interest on the Series B Bonds received by corporations will be included in corporate adjusted current earnings, a portion of which may increase the alternative minimum taxable income of such corporations. Although the interest on the Series B Bonds is excluded from gross income for federal tax purposes, the accrual or receipt of interest on the Series B Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend on the recipient s particular tax status or other items of income or deduction. We express no opinion regarding any such consequences. 5. Interest on the Series B Bonds is exempt from personal income taxation imposed by the State of California. The opinions expressed herein may be affected by actions which may be taken (or not taken) or events which may occur (or not occur) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur or are not taken or do not occur. The rights of the owners of the Series B Bonds and the enforceability of the Series B Bonds and the Series B Indenture may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. Respectfully submitted, D-2-2

175 APPENDIX E-1 SERIES A BONDS SUMMARY OF LEGAL DOCUMENTS The following is a summary of certain provisions of the Series A Indenture and does not purport to be complete. Reference is hereby made to the Series A Indenture which is available from the Agency upon request. Any capitalized term not otherwise defined in this summary is as defined in the Series A Indenture. DEFINITIONS 2007 Reserve Requirement means one hundred and twenty five percent (125%) of the average Annual Debt Service on the Series A Bonds. Agency means the Redevelopment Agency of the City of Azusa, a public body, corporate and politic, established under the Law. Annual Debt Service means, for each Fiscal Year, the sum of (a) the interest payable on the Outstanding Bonds in such Fiscal Year, assuming that the Outstanding Serial Bonds are retired as scheduled and that the Outstanding Term Bonds are redeemed from sinking fund payments as scheduled and (b) the principal amount of the Outstanding Serial Bonds payable by their terms in such Fiscal Year and the principal amount of the Outstanding Term Bonds scheduled to be paid or redeemed from sinking fund payments in such Fiscal Year, excluding the redemption premiums, if any, thereon. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Bonds, determined among the maturities of such Parity Bonds in such manner as may be determined by the Agency in the Supplemental Indenture under which such Parity Bonds are issued, to the extent the proceeds thereof are then deposited in an escrow fund from which amounts may not be released to the Agency except in accordance with the provisions of Section 3.03 of the Series A Indenture relating to Parity Bonds. Bond Counsel means any attorney or firm of attorneys nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities and selected by the Agency. Bond Fund means the fund by that name established pursuant to Section 5.03 of the Series A Indenture. Bond Year means, with respect to the Series A Bonds, the twelve-month period extending from August 2 in any year to the following August 1, both dates inclusive; provided, however, that the first Bond Year shall begin on the Closing Date and end on August 1, 2008, and with respect to any Parity Bonds shall have the meaning ascribed in any Supplemental Indenture relating thereto. Book-Entry Depository shall mean DTC or any successor as Book-Entry Depository for Series A Bonds, appointed pursuant to Section 2.12 of the Series A Indenture. Business Day means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York, Los Angeles, California, and the city in which the Corporate Trust Office is located, are authorized or obligated by law to be closed. Chair means the chairperson of the Agency appointed pursuant to Section of the Health and Safety Code of the State of California, or other duly appointed officer of the Agency authorized by the Agency by resolution or by law to perform the functions of the chairperson in the event of the chairperson's absence or disqualification. City means the City of Azusa, California. E-1-1

176 Closing Date means any date upon which there is a physical delivery of any series of Series A Bonds in exchange for an amount representing the purchase price of Series A Bonds by the original purchaser. Code means the Internal Revenue Code of 1986, as amended. Any reference to a provision of the Code shall be deemed to include the applicable Tax Regulations promulgated with respect to such provision. Continuing Disclosure Agreement means the agreement of that name between the Agency and the dissemination agent named therein, dated the Closing Date and any amendments or supplements thereto. Corporate Trust Office means the corporate trust office of the Trustee at 707 Wilshire Boulevard, Los Angeles, California 90017, Attn: Corporate Trust Services or such other address as it shall designate in writing to the Agency and the Owners. Costs of Issuance means items of expense payable or reimbursable directly or indirectly by the Agency and related to the authorization, sale and issuance of Series A Bonds, which items of expense shall include, but not be limited to, printing costs, costs of reproducing and binding documents, closing costs, filing and recording fees, initial fees and charges of the Trustee including its first annual administration fee, expenses incurred by the Agency in connection with the issuance of Series A Bonds, underwriter's discount, original issue discount, legal fees and charges, including bond counsel and financial consultants fees, costs of cash flow verifications, premiums for any municipal bond insurance policy that may be purchased and for any reserve account surety bond the Agency may purchase, rating agency fees, charges for execution, transportation and safekeeping of Series A Bonds and other costs, charges and fees in connection with the original issuance of Series A Bonds. Costs of Issuance Fund means the fund by that name established by Section 3.02 of the Series A Indenture. County means Los Angeles County, California. County Assessor means the person who holds the office in the County in which the Agency is located designated as the County Assessor, or one of his duly appointed deputies, or any person or persons performing substantially the same duties in the event said office is ever abolished or changed. County Auditor-Controller means the person who holds the office in the County in which the Agency is located designated as the County Auditor-Controller, or one of his duly appointed deputies, or any person or persons performing substantially the same duties in the event said office is ever abolished or changed. Defeasance Obligations mean any of the following: 1. Cash. 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series B SLGS ). 3. With the prior written consent of the Insurer, direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 4. With the prior written consent of the Insurer, Resolution Funding Corp. (REFCORP), only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. E-1-2

177 5. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. Farmers Home Administration (FmHA). Certificates of beneficial ownership b. General Services Administration Participation certificates c. U.S. Maritime Administration Guaranteed Title XI financing DTC shall mean The Depository Trust Company, New York, New York, and its successors and assigns. Executive Director means the executive director of the Agency appointed pursuant to the Law, or other duly appointed officer of the Agency authorized by the Agency by resolution or by law to perform the functions of the executive director including, without limitation, any deputy executive director of the Agency. Event of Default means any of the events described in Section 9.01 of the Series A Indenture. Fiscal Year means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both inclusive, or any other twelve-month period hereafter selected and designated by the Agency as its official fiscal year period. Independent Certified Public Accountant means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State of California, appointed by the Agency, and who, or each of whom: 1. is in fact independent and not under domination of the Agency; 2. does not have any substantial interest, direct or indirect, with the Agency; and 3. is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. Independent Financial Consultant means any financial consultant or firm of such consultants appointed by the Agency, and who, or each of whom: (1) is in fact independent and not under domination of the Agency; (2) does not have any substantial interest, direct or indirect, with the Agency; and (3) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. E-1-3

178 Information Services means Financial Information, Incorporated's Daily Called Bond Service, 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor, Mergent/MIS, Center Drive, Suite 150, Charlotte, NC 28217, Attention: Called Bonds Department; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; or in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds, or no such services, as the Agency may indicate in a certificate of the Agency delivered to the Trustee. Insurer means Ambac Assurance Corporation, a Wisconsin domiciled stock insurance company, as issuer of the Policy. Interest Account means the Account by that name established pursuant to Section 5.03 of the Series A Indenture. Interest Payment Date means February 1 and August 1 in any year in which Bonds are Outstanding, commencing February 1, Law means the Community Redevelopment Law of the State of California, constituting Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code of the State of California, and the acts amendatory thereof and supplemental thereto. Maximum Annual Debt Service means, as of the date of any calculation, the largest Annual Debt Service with respect to Series A Bonds during the current or any future Fiscal Year. Moody's means Moody's Investors Service, its successors and assigns. Outstanding, when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 8.04 of the Series A Indenture) all Bonds except (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds paid or deemed to have been paid within the meaning of Section of the Series A Indenture (regardless of whether all Bonds shall have been so paid or so deemed to have been paid); and (3) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant to the Indenture or any Supplemental Indenture. Owner or Bondowner means the person or persons whose name appears on the registration books maintained by the Trustee as the registered owner of a Series A Bond or Series A Bonds. Parity Bonds means any bonds, notes, loans, advances, or indebtedness issued or incurred by the Agency on a parity with the Series A Bonds in accordance with the provisions of Sections 3.03 and 3.04 of the Series A Indenture. Participant means those broker-dealers, banks and other financial institutions from time to time for which DTC holds Series A Bonds as securities depository. Permitted Investments means: (i) Certificates or interest-bearing notes or obligations of the United States, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest; E-1-4

179 (ii) Investments in any of the following obligations provided such obligations are backed by the full faith and credit of the United States (a) direct obligations or fully guaranteed certificates of beneficial interest of the Export-Import Bank of the United States, (b) debentures of the Federal Housing Administration, (c) guaranteed mortgage backed bonds of the Government National Mortgage Association, (d) certificates of beneficial interest of the Farmers Home Administration, (e) obligations of the Federal Financing Bank or (f) project notes and local authority bonds of the Department of Housing and Urban Development; (iii) Investments in (a) senior obligations of the Federal Home Loan Bank System, (b) participation certificates or senior debt obligations of the Federal Home Loan Mortgage Corporation, (c) mortgage-backed securities and senior debt obligations (excluding stripped mortgage securities that are valued greater than par on the portion of unpaid principal) of the Federal National Mortgage Association or (d) senior debt obligations of the Student Loan Marketing Association; (iv) Repurchase agreements with primary dealers and/or banks rated, at all times, AA and AA2 or better by S&P and Moody's, respectively, collateralized with the obligations described in (i) or (ii) above, held by a third party custodian, at the levels set forth below, which repurchase agreements have been approved by the Insurer; (v) S.E.C. registered money market mutual funds conforming to Rule 2a-7 of the Investment Company Act of 1940 that invest primarily in direct obligations issued by the U.S. Treasury and repurchase agreements backed by those obligations, including funds for which the Trustee or an affiliate of the Trustee acts as an advisor, and rated in the highest category by S&P and Moody's; (vi) Certificates of deposit of any bank (including the Trustee), trust company or savings and loan association whose short term obligations are rated, at all times, A-1 or better by S&P and P-1 by Moody's provided that such certificates of deposit are fully secured by the obligations described in (i) or (ii) above, at the levels set forth below, the Trustee has a perfected first security interest in the obligations securing the certificates and the Trustee holds (or shall have the option to appoint a bank, trust company or savings and loan association as its agent to hold) the obligations securing the certificates; (vii) Certificates of deposit of any bank (including the Trustee), trust company or savings and loan association which certificates are fully insured by the Federal Deposit Insurance Corporation; S&P; (viii) Commercial paper rated, at all times, P-1 or better by Moody's and A-1+ by (ix) Obligations of, or obligations fully guaranteed by, any state of the United States of America or any political subdivision thereof which obligations, at all times, are rated by S&P and Moody's in the highest rating categories (without regard to any refinement or graduation of rating category by numerical modifier or otherwise) and without regard to credit enhancement assigned by such rating agencies to obligations of that nature. (x) The Local Agency Investment Fund in the State Treasury of the State of California as permitted by the State Treasurer pursuant to Section of the California Government Code or any similar pooled investment fund administered by the State, to the extent such investment is held in the name and to the credit of the Trustee. (xi) (xii) Investment agreements approved in writing by the Insurer. Other forms of investments approving in writing by the Insurer. E-1-5

180 Collateral Levels for United States Government Securities: 1 Year or less Remaining Maturity 5 Years 10 Years or less or less 15 Years or less 30 Years or less Frequency of Valuation Daily Weekly Monthly Quarterly Further Requirements: (1) On each valuation date the market value of the collateral will be an amount equal to the requisite collateral percentage of the obligation (including unpaid accrued interest) that is being secured. (2) In the event the collateral level is below its collateral percentage on a valuation date, such percentage shall be restored within the following restoration periods: One business day for daily valuations, two business days for weekly valuations, and one month for monthly and quarterly valuations. The use of different restoration periods affect the requisite collateral percentage. (3) The Trustee shall terminate the repurchase agreement upon a failure to maintain the requisite collateral percentage after the restoration period and, if not paid by the counterparty in federal funds against transfer of the repo securities, liquidate the collateral. Policy means the Financial Guaranty Insurance Policy issued by the Insurer and insuring the payment when due of the principal of and interest on the Series A Bonds. Principal Account means the Account by that name established pursuant to Section 5.03 of the Series A Indenture. Principal Payment Date means August 1 in each year in which any of the Series A Bonds mature or are subject to mandatory sinking fund redemption by their respective terms; and with respect to any Parity Bond means the stated maturity date of such Parity Bond. Purchase Price, for the purpose of computation of the Yield of Series A Bonds, has the same meaning as the term issue price in Section 1273(b) and 1274 of the Code, and, in general, means the initial offering price to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of Series A Bonds are sold or, if Series A Bonds are privately placed, the price paid by the original purchaser thereof or the acquisition cost of such original purchaser. The term Purchase Price, for the purpose of computation of the Yield of Permitted Investments, means the fair market value of the Permitted Investments on the date of use of Bond proceeds for acquisition thereof, or if later, on the date that any Permitted Investment becomes a Nonpurpose Investment, as defined in the Code, of Series A Bonds. Rebate Account means the Account by that name established and held by the Trustee pursuant to Section 7.10 of the Series A Indenture. Record Date means, with respect to any Interest Payment Date, the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. Redemption Fund means the fund by that name established by Section 5.04 of the Series A Indenture. Redevelopment Consultant means any consultant or firm of consultants appointed by the Agency and judged by the Agency to have experience in matters relating to the collection of Tax E-1-6

181 Revenues or otherwise with respect to financing in redevelopment project areas, and who, or each of whom: (1) is in fact independent and not under domination of the Agency; (2) does not have any substantial interest, direct or indirect, with the Agency; and (3) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. Redevelopment Fund means the fund by that name held by the Agency. Redevelopment Plan or Plan means the Redevelopment Plan for the Amended and Restated Merged Central Business District and West End Redevelopment Project Area approved and adopted by Ordinance No , adopted by the City Council of the City of Azusa on October 6, 2003 thereafter and hereafter amended. Redevelopment Project or Project means the undertaking of the Agency pursuant to the Redevelopment Plan, as amended, and the Law for the redevelopment of the Redevelopment Project Area. Redevelopment Project Area or Project Area means the Redevelopment Project Area described in the Redevelopment Plan. Registration Books means the records maintained by the Trustee pursuant to Section 2.07 of the Series A Indenture for the registration and transfer of ownership of Series A Bonds. Report means a Report in writing signed by an Independent Certified Public Accountant, Independent Financial Consultant or Redevelopment Consultant and including: (1) a statement that the person or firm making or giving such Report has read the pertinent provisions of the Series A Indenture to which such Report relates; (2) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (3) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. Representation Letter shall mean the letter of representations from the Agency to, or other instrument or agreement of the Agency with, a Book-Entry Depository in which the Agency, among other things, makes certain representations to such Book-Entry Depository with respect to Series A Bonds, the payment thereof and delivery of notices with respect thereto. Reserve Account means the account by that name established pursuant to Section 5.03 of the Series A Indenture, within which Reserve Account there may be created separate subaccounts with respect to each series of Series A Bonds. Reserve Account Surety Bond shall mean the surety bond issued by the Insurer guaranteeing certain payments into the Reserve Account with respect to Series A Bonds as provided therein and subject to the limitations set forth therein. Reserve Requirement means, with respect to Parity Bonds, as of the date of calculation an amount equal to the lesser of (i) 10% of the initial outstanding principal amount of the Parity Bonds E-1-7

182 excluding from said principal amount in the case of any Parity Bonds an amount equal to the amount then on deposit in any escrow fund created with respect to such Parity Bonds created pursuant to Section 3.03 of the Series A Indenture; (ii) Maximum Annual Debt Service on the Parity Bonds; or (iii) 125% of average Annual Debt Service on the Parity Bonds. S&P shall mean Standard & Poor's Rating Service, a division of McGraw-Hill Companies, Inc., its successors and assigns. Securities Depositories means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax (516) or 4190; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Agency may designate in a Written Request of the Agency delivered to the Trustee. Owner or Bondowner means the person or persons whose name appears on the registration books maintained by the Trustee as the registered owner of a Series A Bond or Series A Bonds. Senior Lien Bonds means the Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Projects, Tax Allocation Refunding Bonds, 2003 Series A, and the Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds, 2005 Series A. Serial Bonds means with respect to the Series A Bonds, all of the Series A Bonds other than the Series A Bonds which are Term Bonds, and with respect to Parity Bonds, means all of Series A Bonds of such series of Parity Bonds of such series which are not Term Bonds. Special Fund means the fund by that name established by Section 5.02 of the Series A Indenture. State means the State of California. Subordinate Tax Revenues means Tax Revenues less the amounts necessary to pay debt service on the Senior Lien Bonds. Supplemental Indenture means an agreement, resolution or other instrument then in full force and effect which has been duly adopted by the Agency, amendatory of or supplemental to the Series A Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Series A Indenture. Tax Regulations means temporary and permanent regulations promulgated under Section 103 and related provisions of the Code. Tax Revenue Certificate means a written certificate of an Independent Financial Consultant identifying the amount of Subordinate Tax Revenues shown on the records of the County Assessor to be received by the Agency in either the current Bond Year or any future Bond Year. Tax Revenues means moneys paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth in the Series A Indenture, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such from such taxes. Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section of the Law E-1-8

183 prior to the date of the Series A Indenture, except agreements which are subordinate in payment by their respective terms, (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section of the law, and (iii) that portion of Tax Revenues required by Section of the Law to be used by the Agency for increasing and improving the supply of low and moderate income housing. Term Bonds means, with respect to the Series A Bonds, the Series A Bonds originally issued the Series A Indenture maturing on August 1, 2017, August 1, 2022 and August 1, 2035; and with respect to any Parity Bonds, means such Parity Bonds which are payable on or before their specified Principal Payment Dates from sinking account payments established for that purpose and calculated to retire such Parity Bonds on or before their respective Principal Payment Dates. Treasurer means the treasurer of the Agency appointed pursuant to the Law, or other duly appointed officer of the Agency authorized by the Agency by resolution delivered to the Trustee or by law to perform the functions of the treasurer including, without limitation, the Deputy Treasurer of the Agency. Trustee means the Trustee appointed by the Agency and acting as an independent trustee with the duties and powers in the Series A Indenture provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in Section 7.01 of the Series A Indenture. The initial Trustee under the Series A Indenture is Wells Fargo Bank, National Association. Written Request of the Agency means an instrument in writing signed by any of the Chairman, the Executive Director, the Assistant Executive Director, the Chief Financial Officer, Treasurer or by any other officer of the Agency duly authorized by the Agency for that purpose. Yield means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Permitted Investments which require payments in a form not characterized as principal and interest) on a Permitted Investment or on any series of Parity Bonds produces an amount equal to the Purchase Price of such Permitted Investment or any series of Parity Bonds, as the case may be, all computed as prescribed in the applicable Tax Regulations. Tax Revenues; Funds and Accounts; Surplus SERIES A INDENTURE Costs of Issuance Fund. The Series A Indenture establishes a separate fund to be known as the Costs of Issuance Fund, which shall be held by the Trustee in trust. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Agency stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. On the date six months following the Closing Date, or upon the earlier Written Request of the Agency stating that all known Costs of Issuance have been paid, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Agency to be applied for lawful redevelopment purposes. Pledge of Tax Revenues. The Series A Bonds shall be secured by a pledge (which pledge shall be effected in the manner and to the extent hereinafter provided) of and first lien on all of the Subordinate Tax Revenues (except as otherwise provided in Section 5.02 of the Series A Indenture), and, by a pledge of all of the moneys in the Special Fund, the Bond Fund, the Interest Account, the Principal Account, the Reserve Account and the Redemption Fund and investment earnings thereon except as provided in Section 7.10 of the Series A Indenture. The Subordinate Tax Revenues shall be allocated solely to the payment of the principal and interest, and redemption premium, if any, of Series A Bonds and to the Reserve Account for the purposes set forth in Section 5.03 of the Series A Indenture; except that the E-1-9

184 Subordinate Tax Revenues may be apportioned in such amounts for such other purposes as are expressly permitted by Section 5.02 of the Series A Indenture. The pledge and allocation of Subordinate Tax Revenues is for the exclusive benefit of the Series A Bonds and shall be irrevocable until all of the Series A Bonds have been paid and retired or until moneys have been set aside irrevocably for that purpose. In consideration of the acceptance of the Series A Bonds by those who shall own them from time to time, the Series A Indenture shall be deemed to be and shall constitute a contract between the Agency and the Owners from time to time of the Series A Bonds and the covenants and agreements in the Series A Indenture set forth to be performed on behalf of the Agency shall be for the equal and proportionate security and protection of all Owners of the Series A Bonds without preference, priority or distinction as to security or otherwise of any of the Series A Bonds over any of the others by reason of the number or date thereof, of the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein. Special Fund; Deposit of Subordinate Tax Revenues. The Agency shall establish and hold a special fund to be known as the Redevelopment Project Tax Allocation Bonds (Subordinate Lien) Special Fund (the Special Fund ). The Agency shall deposit all of the Subordinate Tax Revenues received in any Bond Year in the Special Fund promptly upon receipt thereof; provided, that the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Subordinate Tax Revenues which, together with other available amounts in the Special Fund exceeds the amounts required to be transferred to the Trustee for deposit in the Interest Account, Principal Account and the Reserve Account in such Bond Year pursuant to Section 5.03 of the Series A Indenture. On or before the fifth day immediately preceding each Interest Payment Date, the Agency shall transfer from the Special Fund to the Trustee for deposit to the Bond Fund an amount equal to the principal and interest owing on the Series A Bonds on such Interest Payment Date and an amount, if any, necessary to increase the amount in the Reserve Account to the Reserve Requirement. Any Subordinate Tax Revenues received by the Agency during any Bond Year in excess of the amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account and the Reserve Account in such Bond Year pursuant to Section 5.03 of the Series A Indenture, shall be released from the pledge and lien under the Series A Indenture and may be used for any lawful purposes of the Agency. All Subordinate Tax Revenues and any other amounts at any time paid by the Agency and designated in writing for deposit in the Special Fund shall be held by the Agency solely for the uses and purposes set forth in Article V of the Series A Indenture. So long as any of the Series A Bonds are Outstanding, the Agency shall not have any beneficial right or interest in the Subordinate Tax Revenues, except only as provided in the Series A Indenture, and such moneys shall be used and applied as in the Series A Indenture set forth. Bond Fund; Establishment and Maintenance of Accounts. The Series A Indenture establishes a special fund to be known as the Redevelopment Project Tax Allocation Bonds (Subordinate Lien) Bond Fund (the Bond Fund ) which shall be held by the Trustee. The Trustee shall receive and deposit to the Bond Fund the amount specified pursuant to the Series A Indenture. Within the Bond Fund the Trustee shall establish an Interest Account, a Principal Account and a Reserve Account. All moneys in the Bond Fund shall be transferred and set aside by the Trustee in the following respective special accounts of the Bond Fund (each of which is by the Series A Indenture created to be held in trust by the Trustee) in the following order of priority: (a) Interest Account. At least one Business Day prior to each Interest Payment Date, the Trustee shall transfer from the Bond Fund and set aside in the Interest Account an amount which, when added to the amount contained in the Interest Account will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Series A Bonds issued pursuant to the Series A Indenture and then Outstanding. The Trustee shall also deposit in the Interest Account E-1-10

185 any other moneys received by it from the Agency and designated in writing by the Agency for deposit in the Interest Account. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Series A Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Series A Indenture). (b) Principal Account. At least one Business Day prior to each Principal Payment Date, the Trustee shall transfer from the Bond Fund and set aside in the Principal Account an amount which, when added to the amount contained in the Principal Account will be equal to the principal becoming due and payable on the Series A Bonds on such Principal Payment Date, whether by reason of scheduled maturity or mandatory sinking fund redemption pursuant to Section 4.01(b) of the Series A Indenture. No deposit need be made into the Principal Account if the amount contained therein is at least equal to the principal to become due on such Principal Payment Date, whether by reason of scheduled maturity or mandatory sinking fund redemption. The Trustee shall also deposit in the Principal Account any other moneys received by it from the Agency and designated in writing by the Agency for deposit in the Principal Account. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal on the Series A Bonds as it shall become due and payable, whether by reason of scheduled maturity or mandatory sinking fund redemption. (c) Reserve Account. At least one Business Day before each Interest Payment Date and after the deposits required pursuant to the preceding subparagraphs have been made, the Trustee shall withdraw from the Bond Fund and deposit in the Reserve Account and any subaccounts therein an amount of money, if any, required to maintain the Reserve Account and in the full amount of the Reserve Requirement. No deposit need be made in the Reserve Account and the separate subaccounts therein so long as there shall be on deposit therein a sum equal to at least the amount required by this paragraph to be on deposit therein. There is hereby established the Series A Bonds Reserve Subaccount in the Reserve Account, into which there shall be deposited from the proceeds of the Series A Bonds the amount set forth in Section 3.01 of the Series A Indenture, being the 2007 Reserve Requirement and which shall be held for the benefit of the Agency and the Owners of the Series A Bonds. There may be established in the Reserve Account in connection with issuance of any series of Parity Bonds a separate subaccount into which there shall be deposited the amount required by Section 3.03(e) of the Series A Indenture and in the Supplemental Indenture relating to such series of Parity Bonds. All money in the Reserve Account, and any subaccount therein shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account and the Principal Account, in such order, in the event of any deficiency at any time in any of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Series A Bonds in the event that no other money of the Agency is lawfully available therefor, or for the retirement of the Series A Bonds then Outstanding, except that so long as the Agency is not in default under the Series A Indenture, any amount in the Reserve Account and each subaccount therein in excess of the amount required by this paragraph to be on deposit therein except as otherwise provided in the Series A Indenture, shall be transferred to the Bond Fund. The Reserve Requirement for a series of Bonds may be satisfied by crediting to the Reserve Account moneys, a letter of credit, a bond insurance policy, any other comparable credit facility or any combination thereof, which has been approved in writing by the rating agency then rating the Series A Bonds and which in the aggregate make funds available in the Reserve Account in an amount equal to the Reserve Requirement (but only with the prior written consent of the Insurer with respect to the Series A Bonds Reserve Subaccount). Upon the deposit with the Trustee of such letter of credit, bond insurance policy or other comparable credit facility, the Trustee shall transfer a portion of the moneys then on hand in the Reserve Account to the Redevelopment Fund to be applied for lawful redevelopment purposes for which proceeds of the applicable series of bonds can be used. The Agency has delivered to the Series A Bonds Reserve Subaccount a surety bond (the Surety Bond ) to satisfy the 2007 Reserve Requirement. The Trustee shall hold the Surety Bond for the benefit of the Owners of the Series A Bonds and shall draw funds on the Surety Bond as stated therein. E-1-11

186 (d) Surplus. Except as may be otherwise provided in any Supplemental Indenture, the Agency shall not be obligated to transfer to the Trustee for deposit in the Bond Fund in any Bond Year an amount of Subordinate Tax Revenues which, together with other available amounts in the Bond Fund, exceeds the amounts required in such Bond Year pursuant to Section 5.03 of the Series A Indenture. In the event that for any reason whatsoever any amounts shall remain on deposit in the Bond Fund on any August 2 after making all of the transfers theretofore required to be made pursuant to the preceding clauses (a), (b) and (c) and pursuant to any Supplemental Indenture, the Trustee shall withdraw such amounts from the Bond Fund and transfer such amounts to the Agency, to be used for any lawful purposes of the Agency permitted by the Law. Payment Procedure Pursuant to the Surety Bond. The Insurer has provided its Reserve Account Surety Bond to satisfy the Reserve Requirement. As long as the Reserve Account Surety Bond shall be in full force and effect, the Agency, Trustee agree to comply with the following provisions: (a) In the event and to the extent that moneys on deposit in the Bond Fund, plus all amounts on deposit in and credited to the Reserve Account in excess of the amount of the Reserve Account Surety Bond, are insufficient to pay the amount of principal and interest coming due, then upon the later of: (i) one (1) day after receipt by the General Counsel of the Insurer of a demand for payment in the form attached to the Reserve Account Surety Bond as Attachment 1 (the Demand for Payment ), duly executed by the Trustee certifying that payment due under the Indenture has not been made to the Trustee; or (ii) the payment date of the Series A Bonds as specified in the Demand for Payment presented by the Trustee to the General Counsel of the Insurer, the Insurer will make a deposit of funds in an account with the Trustee or its successor, in New York, New York, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee under the Indenture (as specified in the Demand for Payment) up to but not in excess of the Reserve Account Surety Bond Coverage, as defined in the Surety Bond; provided, however, that in the event that the amount on deposit in, or credited to, the Reserve Account, in addition to the amount available under the Reserve Account Surety Bond, includes amounts available under a letter of credit, insurance policy, Reserve Account Surety Bond or other such funding instrument (the Additional Funding Instrument ), draws on the Reserve Account Surety Bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. (b) the Trustee shall, after submitting to the Insurer the Demand for Payment as provided in (a) above, make available to the Insurer all records relating to the Funds and Accounts maintained under the Series A Indenture. (c) the Trustee shall, upon receipt of moneys received from the draw on the Reserve Account Surety Bond, as specified in the Demand for Payment, credit the Reserve Account to the extent of moneys received pursuant to such Demand. (d) the Reserve Account shall be replenished in the following priority: (i) principal and interest on the Reserve Account Surety Bond shall be paid from first available Subordinate Tax Revenues, principal and interest on the Reserve Account Surety Bond and on the Additional Funding Instrument shall be paid from first available Subordinate Tax Revenues on a pro rata basis; (ii) after all such amounts are paid in full, amounts necessary to fund the Reserve Account to the required level, after taking into account the amounts available under the Reserve Account Surety Bond and the Additional Funding Instrument shall be deposited from next available Subordinate Tax Revenues. Right Reserved to Add to Tax Revenue Pledge. The Agency shall have the right, pursuant to a Supplemental Indenture adopted without the need for Bondholder consent, to amend and revise the definition of Subordinate Tax Revenues pledged to repayment of the Series A Bonds, but only if, in the opinion of Bond Counsel, said amendment and revision of the definition of Subordinate Tax Revenues adds additional security to said definition. E-1-12

187 Payment Procedure Under Policy. 1. As long as the Policy shall be in full force and effect, the Agency, the Trustee agree to comply with the following provisions: (a) At least one (1) business day prior to all Interest Payment Dates the Trustee will determine whether there will be sufficient funds in the Bond Fund to pay the principal of or interest on the Series A Bonds on such Interest Payment Date. If the Trustee determines that there will be insufficient funds in the Bond Fund, the Trustee shall so notify the Insurer. Such notice shall specify the amount of the anticipated deficiency, the Series A Bonds to which such deficiency is applicable and whether such Series A Bonds will be deficient as to principal or interest, or both. If the Trustee has not so notified the Insurer at least one (1) business day prior to an Interest Payment Date, the Insurer will make payments of principal or interest due on the Series A Bonds on or before the first (1st) business day next following the date on which the Insurer shall have received notice of nonpayment from the Trustee. (b) The Trustee shall, after giving notice to the Insurer as provided in (a) above, make available to the Insurer and, at the Insurer s direction, to The Bank of New York, in New York, New York, as insurance trustee for the Insurer or any successor insurance trustee (the Insurance Trustee ), the registration books of the Agency maintained by the Trustee and all records relating to the Bond Fund maintained under the Series A Indenture. (c) The Trustee shall provide the Insurer and the Insurance Trustee with a list of registered owners of Series A Bonds entitled to receive principal or interest payments from the Insurer under the terms of the Financial Guaranty Insurance Policy, and shall make arrangements with the Insurance Trustee (i) to mail checks or drafts to the registered owners of Series A Bonds entitled to receive full or partial interest payments from the Insurer and (ii) to pay principal upon Series A Bonds surrendered to the Insurance Trustee by the registered owners of Series A Bonds entitled to receive full or partial principal payments from the Insurer. (d) The Trustee shall, at the time it provides notice to the Insurer pursuant to (a) above, notify registered owners of Series A Bonds entitled to receive the payment of principal or interest thereon from the Insurer (i) as to the fact of such entitlement, (ii) that the Insurer will remit to them all or a part of the interest payments next coming due upon proof of Holder entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an appropriate assignment of the registered owner s right to payment, (iii) that should they be entitled to receive full payment of principal from the Insurer, they must surrender their Series A Bonds (along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee to permit ownership of such Series A Bonds to be registered in the name of the Insurer) for payment to the Insurance Trustee, and not the Trustee and (iv) that should they be entitled to receive partial payment of principal from the Insurer, they must surrender their Series A Bonds for payment thereon first to the Trustee who shall note on such Series A Bonds the portion of the principal paid by the Trustee and then, along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee, to the Insurance Trustee, which will then pay the unpaid portion of principal. (e) In the event that the Trustee has notice that any payment of principal of or interest on a the Series A Bond which has become Due for Payment and which is made to a Holder by or on behalf of the Agency has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee shall, at the time the Insurer is notified pursuant to (a) above, notify all registered owners that in the event that any registered owner s payment is so recovered, such registered owner will be entitled to payment from the Insurer to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee shall furnish to the Insurer its records evidencing the payments of principal of and interest on the Series A Bonds which have been made by the Trustee and subsequently recovered from registered owners and the dates on which such payments were made. E-1-13

188 (f) In addition to those rights granted the Insurer under the Series A Indenture, the Insurer shall, to the extent it makes payment of principal of or interest on Series A Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Policy, and to evidence such subrogation (i) in the case of subrogation as to claims for past due interest, the Trustee shall note the Insurer s rights as subrogee on the registration books of the Agency maintained by the Trustee upon receipt from the Insurer of proof of the payment of interest thereon to the registered owners of the Series A Bonds, and (ii) in the case of subrogation as to claims for past due principal, the Trustee shall note the Insurer s rights as subrogee on the registration books of the Agency maintained by the Trustee upon surrender of the Series A Bonds by the registered owners thereof together with proof of the payment of principal thereof. 2. The Agency covenants and agrees that it shall reimburse the Insurer for any amounts paid under the Financial Guaranty Insurance Policy and all costs of collection thereof and enforcement of the Series A Indenture and any other documents executed in connection with the Series A Indenture, together with interest thereon, from the date paid or incurred by the Insurer until payment thereof in full by the Agency, payable at the Insurer Payment Rate (as hereinafter defined), including without limitation (to the extent permitted by applicable law) interest on claims paid by the Insurer in respect of interest on the Series A Bonds. Such payment obligation shall be payable on demand and on a parity with, and from the same sources and secured by the same security as, regularly scheduled principal and interest payments in respect of the Series A Bonds. For purposes of the foregoing, Insurer Payment Rate shall mean the lesser of (a) the maximum rate permissible under applicable usury or similar laws limiting interest rates and (b) the greater of (i) the then applicable highest rate of interest on the Series A Bonds and (ii) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank, N.A. ( Chase ) at its principal office in the City of New York, as its prime or base lending rate ( Prime Rate ) (any change in such Prime Rate to be effective on the date such change is announced by Chase) plus 3 percent. The Insurer Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event that Chase ceases to announce its Prime Rate publicly, Prime Rate shall be the publicly announced prime or base lending rate of such national bank as the Insurer shall specify. 3. While the Policy is in effect, the Agency or the Trustee shall furnish to the Insurer, upon request, the following: (a) (b) a copy of any financial statement, audit and/or annual report of the Agency, and such additional information it may reasonably request. 4. Upon request, such information shall be delivered at the Agency s expense to the attention of the Surveillance Department, unless otherwise indicated: (a) a copy of any notice to be given to the registered owners of the Obligations, including, without limitation, notice of any redemption of or defeasance of the Series A Bonds, and any certificate rendered pursuant to the Series A Indenture relating to the security for the Series A Bonds. (b) To the extent that the Agency has entered into a continuing disclosure agreement with respect to the Series A Bonds, the Insurer shall be included as party to be notified. (c) The Trustee or Agency shall notify the general counsel to the Insurer of any failure of the Agency to provide relevant notices, certificates, etc. (d) Notwithstanding any other provision of the Series A Indenture, the Trustee or Agency shall immediately notify the general counsel to the Insurer if at any time there are insufficient moneys to make any payments of principal and/or interest as required and immediately upon the occurrence of any event of default under the Series A Indenture. E-1-14

189 Covenants of the Agency Punctual Payment. The Agency will punctually pay or cause to be paid the principal and interest to become due in respect of all the Series A Bonds in strict conformity with the terms of the Series A Bonds and of the Series A Indenture, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Series A Indenture and all Supplemental Indentures and of the Series A Bonds. Nothing in the Series A Indenture contained shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes permitted by law. Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the Agency will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Series A Bonds and will not, directly or indirectly, approve any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded whether or not with the consent of the Agency, such claim for interest so extended or funded shall not be entitled, in case of default under the Series A Indenture, except subject to the prior payment in full of the principal of all of the Series A Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. Against Encumbrances. Except for Parity Bonds issued in accordance with Sections 3.03 and 3.04 of the Series A Indenture, the Agency covenants and agrees that it will not issue any other obligations payable, as to either principal or interest, from the Subordinate Tax Revenues which have, or purport to have, any lien upon the Subordinate Tax Revenues superior to or on a parity with the lien of the Series A Bonds including bonds on a parity with the Senior Lien Bonds; provided, however, that nothing in the Series A Indenture shall prevent the Agency from issuing and selling pursuant to law refunding bonds or other refunding obligations payable from and having a first lien on a parity basis with all Outstanding Parity Bonds upon the Subordinate Tax Revenues if such refunding bonds or other refunding obligations are issued and are sufficient for the purpose of refunding all or a portion of the Series A Bonds then Outstanding. Protection of Security and Rights of Bondowners. The Agency will preserve and protect the security of the Series A Bonds and the rights of the Bondowners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any of the Series A Bonds by the Agency the Series A Bonds shall be incontestable by the Agency. Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, or upon the revenues therefrom, when the same shall become due. Nothing in the Series A Indenture contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Project or any part thereof. Compliance with Law, Completion of Project. The Agency will comply with all applicable provisions of the Law in completing the Project including, without limitation, duly noticing and holding any public hearing required by either Section or of the Law prior to application of proceeds of the Series A Bonds to any portion of the Project subject to either Section or In addition, the Agency will comply timely with the public hearing and further requirements of Section The Agency will commence, and will continue to completion, with all practicable dispatch, the Project and the Project will be accomplished and completed in a sound and economical manner and in conformity with the Redevelopment Plan and the Law. Notwithstanding the foregoing, the Agency may, in accordance with applicable provisions of the Law, amend the limits of the Redevelopment Plan from time to time in order to extend the term or amount of any of such limits, so long as any such amendment will not reduce the amount of Subordinate Tax Revenues to be received by the Agency, as certified in a certificate of a Redevelopment Consultant. E-1-15

190 Taxation of Leased Property. Whenever any property in the Redevelopment Project has been redeveloped and thereafter is leased by the Agency to any person or persons (other than a public agency) or whenever the Agency leases real property in the Redevelopment Project to any person or persons (other than a public agency) for redevelopment, the property shall be assessed and taxed in the same manner as privately owned property, as required by Section of the Law. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the Series A Indenture) if the effect of such disposition would be to cause the amount of Subordinate Tax Revenues for the then current or any future Fiscal Year based on assessed valuation of property in the Project Area as evidenced in a written document from the County, to fall below 125% of Annual Debt Service on the Senior Lien Bonds, the Series A Bonds and any Parity Bonds then outstanding. Tax Revenues. The Agency shall comply with all requirements of the Law to insure the allocation and payment to it of the Subordinate Tax Revenues including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County. Such statement of indebtedness shall be provided to the Insurer. The Agency shall not amend the Redevelopment Plan in any manner which reduces Subordinate Tax Revenues as certified by an Independent Financial Consultant unless consented to by the Insurer. Use of Proceeds. The Agency covenants and agrees that the proceeds of the sale of the Series A Bonds will be deposited and used as provided in the Series A Indenture and the Law. Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Series A Indenture and for the better assuring and confirming unto the Owners of the Series A Bonds of the rights and benefits provided in the Series A Indenture. Private Activity Bond Limitation. The Agency shall assure that the proceeds of the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, are not so used as to cause the Series A Bonds, issued as tax-exempt bonds the Series A Indenture, 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 Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, to be federally guaranteed within the meaning of Section 149(b) of the Code. Rebate Requirement. The Agency 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 Series A Bonds, issued as tax-exempt bonds under the Series A Indenture. No Arbitrage. The Agency shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, would have caused the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, to be arbitrage bonds within the meaning of Section 148 of the Code. Maintenance of Tax-Exemption. The Agency shall take all actions necessary to assure the exclusion of interest on the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, from the gross E-1-16

191 income of the Owners of the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture, to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Series A Bonds, issued as tax-exempt bonds under the Series A Indenture. Limit on Indebtedness. The Agency covenants with the Owners of all of the Series A Bonds at any time Outstanding that it will not enter into any obligation or make any expenditure payable from taxes allocated to the Agency under the Law the payments of which, together with payments theretofore made or to be made with respect to other obligations (including, but not limited to, the Series A Bonds) previously entered into by the Agency, would exceed the then-effective limit on the amount of taxes which can be allocated to the Agency pursuant to Section (1) of the Law and the Redevelopment Plan. Annual Accounting of Tax Increment Revenues. The Agency will cause to be prepared and filed with the Trustee and Insurer annually, within 180 days after the close of each Fiscal Year so long as any of the Series A Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues and Subordinate Tax Revenues, all disbursements from the Special Fund and the financial condition of the Redevelopment Project, including the balances in all funds and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year, and will prepare or cause to be prepared and filed with the Trustee and Insurer a pro forma statement demonstrating the future availability of sufficient tax increment revenues to pay timely within the existing limitation on the amount of Tax Revenues allocable and payable to the Agency under the Redevelopment Plan (the Tax Increment Limitation ) (i) the Senior Lien Bonds, the Series A Bonds, all Parity Bonds and subordinate debt, and (ii) the amount payable in the then current Fiscal Year included within the Tax Increment Limitation which are required by section of the Redevelopment Law to be deposited in the Agency's Low and Moderate Income Housing Fund (the Set-Aside Requirement ) which statements and pro forma statement shall be accompanied by a written certificate of the Agency stating that the Agency is in compliance with its obligations under the Series A Indenture. The Trustee shall have no duty or responsibility to review such financial statements. The pro forma statement shall be prepared on or before August 1 of each year or as soon thereafter as practicable, commencing August 1, 2008, and shall set forth: (1) The difference between the Tax Increment Limitation less the total amount of tax increment revenues theretofore allocated to the Agency from and after the Fiscal Year in which a limitation on the allocation of tax increment revenues was established (the Remaining Limitation Amount ); and (2) The principal and interest remaining to be paid on the Senior Lien Bonds, the Series A Bonds, the Parity Bonds and on the subordinate debt, plus the Set-Aside requirement (collectively, the Total Debt Service ). To the extent the Remaining Limitation Amount is equal to 110% or less than the Total Debt Service, the pro forma statement shall set forth the principal amount of the Senior Lien Bonds, the Series A Bonds, the Parity Bonds or subordinate debt (to the nearest integral multiple of $5,000), as applicable that must be retired in order for the Remaining Limitation Amount to be at least equal to 110% of the Total Debt Service (the Prepayment Amount ). In making this calculation, the Agency shall assume that it will prepay debt in the following order or priority (the Prepayment Order ): (a) it shall prepay the Senior Lien Bonds, the Series A Bonds and all Outstanding Parity Bonds by allocating payment among the principal of the Senior Lien Bonds, the Series A Bonds and applicable principal payments with respect to Parity Bonds as the Agency shall designate and (b) to the extent there are no longer any Series A Bonds or Parity Bonds outstanding, prepay the subordinate debt pro rata by maturity and by lot within a maturity, in a manner which results in the Senior Lien Bonds, Parity Bonds and subordinate debt to be paid from Tax Revenues and Subordinate Tax Revenues in a timely manner. The Agency shall notify the trustee for the Senior Lien Bonds of the Prepayment Amount, if any, applicable to the Senior Lien Bonds, E-1-17

192 the Series A Bonds and all Parity Bonds as soon as possible after completion of the pro forma statement and shall pay any Prepayment Amount from Tax Revenues and Subordinate Tax Revenues after (i) having on deposit in the Special Fund an amount equal to the principal and interest due and payable in the next succeeding Bond Year on the Senior Lien Bonds, the Series A Bonds and all Parity Bonds, and (ii) having on deposit an amount sufficient to pay principal and interest in the next succeeding Bond Year on the subordinate debt. At the time the Remaining Limitation Amount is determined to be 110% or less than the Total Debt Service, the Agency shall transfer any Prepayment Amount to the Trustee for deposit in the Redemption Account for the Series A Bonds, the Senior Lien Bonds, or the Redemption Account or any other payment with respect to Parity Bonds, as applicable, and use such moneys to redeem as applicable Senior Lien Bonds, Bonds and redeem or otherwise prepay Parity Bonds, as applicable, on the first applicable optional redemption date in the Prepayment Order and at the applicable redemption price, all as further provided in the Series A Indenture. Notwithstanding the above, if prior to any such optional redemption, a subsequent annual pro forma statement indicates that further Tax Revenues and Subordinate Tax Revenues will be 110% or more of the Total Debt Service in each year such debt service is payable, the Agency may authorize the Trustee to release such Tax Revenues and Subordinate Tax Revenues from the Redemption Account for delivery to the Agency. Amounts deposited in the Redemption Account for such purposes shall be invested solely in Defeasance Obligations. The Agency shall furnish a copy of the above-referenced written certificates, statements and pro forma statement to any Owner upon reasonable request at the expense of such Owner. Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Series A Indenture, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee shall, at the written request of any participating underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, but only to the extent the Trustee has been indemnified from and against any loss, cost, expense, claim or liability, including, without limitation, fees and expenses of attorneys and additional fees and expenses of the Trustee or any Bondowner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Agency to comply with its obligations under the Series A Indenture. Parity Bonds Issuance of Parity Bonds. The Series A Bonds and the Series B Bonds are issued on a subordinate basis to the Senior Lien Bonds. The Agency may not issue additional obligations, including bonds on a parity with the Senior Lien Bonds, which are senior to the Series A Bonds. In addition to the Series A Bonds, the Agency may, by a Supplemental Indenture, issue Parity Bonds payable from Tax Revenues as and to the extent provided in the Series A Indenture and secured by the pledge made under the Series A Indenture equally and ratably with the Series A Bonds previously issued. The Agency may issue, and the Trustee may authenticate and deliver to the purchasers thereof, Parity Bonds, in such principal amount as shall be determined by the Agency, but only upon compliance by the Agency with the provisions of Section 3.03 and Section 3.04 of the Series A Indenture and any additional requirements set forth in said Supplemental Indenture and subject to the following specific conditions, which are hereby made conditions precedent to the issuance of any such Parity Bonds: (a) No Event of Default shall have occurred and then be continuing; (b) A Tax Revenue Certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, together with an allowance for estimated additional annual Tax Revenues to be received by the Agency within the Fiscal Year following the date such computation was made due to increase in taxable valuation of property in the Project Area resulting from the transfer of ownership or any other interest in real property but not yet entered on the tax roll, shall be at least equal to 125% of the sum of Annual Debt Service on the Senior Lien Bonds and the Series A Bonds (including such Parity E-1-18

193 Debt) for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series A Bonds and any Parity Debt. The Tax Revenue Certificate shall also show that the amount of Subordinate Tax Revenues, including debt service on the Senior Lien Bonds, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, and excluding the taxpayer with the highest assessed value in the Project Area, shall be at least equal to 100% of the sum of Annual Debt Service on the Senior Lien Bonds and the Series A Bonds (including such Parity Debt). For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Subordinate Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (c) The Agency shall certify to the Trustee that the aggregate amount of the principal of and interest on all Outstanding Bonds (including the Senior Lien Bonds) coming due and payable following the issuance of such Parity Bonds shall not exceed the maximum amount of Tax Revenues permitted under the Redevelopment Plan to be allocated and paid to the Agency following the issuance of such Parity Bonds, and shall not exceed any limitation on the time during which such tax increment revenues may be received; (d) The Supplemental Indenture authorizing the issuance of Parity Bonds shall provide that (i) interest on such Parity Bonds shall be calculated at a fixed interest rate if the Agency determines in such Supplemental Indenture that it is to be paid on a current basis, shall be payable on February 1 and August 1 in each year of the term of such Parity Bonds except the first twelve-month period during which interest may be payable on any February 1 or August 1, and (ii) the principal of such Parity Bonds shall be payable on August 1 in any year, as determined by the Agency, in which principal is payable; (e) Money shall be deposited in the Reserve Account or in a subaccount therein (or a reserve fund letter of credit, bank insurance policy or other comparable credit facility provided) in an amount equal to the Reserve Requirement for all outstanding Bonds, including such Parity Bonds; and (f) The Agency shall deliver to the Trustee a certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Bonds set forth in the Series A Indenture have been satisfied and that the deposit into the Reserve Account as set forth above has been made. For the purposes of the calculation of the coverage requirements set forth in subsection (b) of Section 3.03 of the Series A Indenture with respect to the issuance of Parity Bonds, Outstanding Bonds and Parity Bonds shall not include a principal amount of such Parity Bonds, determined on such basis among maturities as the Agency may determine, equal to the proceeds of such Parity Bonds to be deposited in an escrow fund established for such Parity Bonds (the Escrowed Bonds ), provided that the Supplemental Indenture authorizing the issuance of such Parity Bonds shall provide that: (1) Such proceeds shall be invested in Permitted Investments, and an amount equal to the difference between the projected interest earnings on such proceeds and the interest due on the Escrowed Bonds shall be deposited in the Interest Account so as to pay interest on the Escrowed Bonds as it becomes due and payable; (2) Moneys may be transferred from the escrow fund established for the Escrowed Bonds only if a Tax Revenue Certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, which for the purpose of this calculation shall include debt service on E-1-19

194 the Senior Lien Bonds, based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 125% of the sum of Annual Debt Service on the Series A Bonds (including such Parity Debt) and annual debt service on the Senior Lien Bonds for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series A Bonds and any Parity Debt, and 100% of annual debt service on the Senior Lien Bonds and the Series A Bonds excluding the taxpayer in the Project Area with the highest assessed valuation. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (3) Such Parity Bonds shall be redeemed from moneys remaining on deposit in the escrow fund established for the Escrowed Bonds at the expiration of a specified escrow period in such manner as may be determined by the Agency in the Supplemental Indenture; and (4) The Insurer shall be provided with notice of the issuance of such Escrow Bonds and a copy of the related Supplemental Indenture. The Agency shall not issue any indebtedness bearing interest at variable rates. Any computations establishing that debt service coverage is sufficient to authorize to support the issuance of Parity Debt or that requisite debt service savings are available to support the issuance of refunding bonds shall, in all cases, be evidenced by a certificate of an Independent Certified Public Accountant or an Independent Financial Consultant. Proceedings for Issuance of Parity Bonds. Whenever the Agency shall determine to issue Parity Bonds pursuant to Section 3.03 of the Series A Indenture, the Agency shall authorize the execution of a Supplemental Indenture specifying the principal amount and prescribing the forms of such Parity Bonds and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates (or the manner of determining same), redemption provisions and place or places of payment of principal or of premium (if any) and interest on such Parity Bonds, and any other provisions respecting the Parity Bonds not inconsistent with the terms of the Series A Indenture. Before such Parity Bonds shall be issued and delivered, the Agency shall file the following documents with the Trustee: (a) An executed copy of the Supplemental Indenture authorizing such Bonds. (b) A Written Certificate of the Agency stating that, to the knowledge of the Agency, no Event of Default has occurred and is then continuing. (c) An opinion of Bond Counsel that the execution of the Supplemental Indenture has been duly authorized by the Agency in accordance with the Series A Indenture; that the Parity Bonds, when duly executed by the Agency and authenticated and delivered by the Trustee, will be legally valid and binding limited obligations of the Agency; and that the issuance of such Parity Bonds will not in and of itself impair the exclusion for federal income tax purposes of interest on any Outstanding Bonds. E-1-20

195 (d) A written certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Bonds set forth in Section 3.03 of the Series A Indenture have been satisfied. Subordinate Debt. Nothing in the Series A Indenture shall be intended or construed in any way to prohibit or impose any limitations on the issuance by the Agency of bonds, notes, or other obligations or evidences of indebtedness payable from Subordinate Tax Revenues on a subordinate basis to the pledge of Subordinate Tax Revenues to the repayment of the Series A Bonds and any Parity Bonds ( Subordinate Debt ), provided that following an Event of Default under the Series A Indenture, no Subordinate Debt shall be paid prior to the Series A Bonds or any other Parity Debt in any fiscal year of the Agency. Duties and Liabilities of Trustee Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to the occurrence of an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Series A Indenture. The Trustee shall only be obligated to perform such duties as are expressly set forth in the Series A Indenture, and no duties or obligations not expressly set forth in the Series A Indenture shall be implied. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Series A Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) The Agency may remove the Trustee, at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee (i) if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Series A Bonds then Outstanding (or their attorneys duly authorized in writing), (ii) if at any time requested to do so by the Insurer, or (iii) if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of Section 7.01 of the Series A Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. In each case such removal shall be accomplished by the giving of written notice of such removal by the Agency to the Trustee and the Insurer, whereupon in the case of the Trustee, the Agency shall appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the Agency and the Insurer and by giving the Bondowners notice of such resignation by mail at their respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Agency shall promptly appoint a successor Trustee by an instrument in writing. The Trustee shall not be relieved of its duties until such successor Trustee has accepted such appointment. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee and approval by the Insurer. If no successor Trustee shall have been appointed and have accepted appointment within thirty (30) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondowner (on behalf of himself and all other Bondowners), at the expense of the Agency, may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Series A Indenture shall signify its acceptance of such appointment by executing and delivering to the Agency and to its predecessor Trustee a written acceptance thereof, and thereupon and upon receipt by the predecessor Trustee of all fees and expenses due and payable to it, such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, E-1-21

196 properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Series A Indenture; but, nevertheless at the Written Request of the Agency or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Series A Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Series A Indenture. Upon request of the successor Trustee, the Agency shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection (d), the Agency shall mail a notice of the succession of such Trustee to the trusts under the Series A Indenture to each rating agency which then has a current rating on the Series A Bonds, if any, and to the Bondowners at their respective addresses shown on the Registration Books. If the Agency fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Agency. (e) Any Trustee appointed under the provisions of Section 7.01 of the Series A Indenture in succession to the Trustee shall be a corporation or other entity organized and doing business under the laws of any state, the District of Columbia or the United States of America, authorized under such laws to exercise corporate trust powers, which shall have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least seventy-five million dollars ($75,000,000), and subject to supervision or examination by federal or state authority. If such corporation or other entity publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection (e) the combined capital and surplus of such corporation or other entity shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in Subsection (d) above. (f) The Trustee shall not take the Policy into account in determining whether the rights of Bondowners are adversely affected by actions taken pursuant to the terms and provisions of the Series A Indenture, and the Insurer shall be included as a party in interest and as a party entitled to (i) notify the Trustee of the occurrence of an Event of Default and (ii) request the Trustee to intervene in judicial proceedings that affect the Series A Bonds or the security therefor. The Trustee shall be required to accept notice of default from the Insurer. Merger or Consolidation. Any bank or company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or company shall be eligible under subsection (e) of Section 7.01 of the Series A Indenture, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Series A Indenture to the contrary notwithstanding. Liability of Trustee. (a) The recitals of facts in the Series A Indenture and in the Series A Bonds contained shall be taken as statements of the Agency, and the Trustee shall not assume responsibility for the correctness of the same, nor make any representations as to the validity or sufficiency of the Series A Indenture or of the Series A Bonds nor shall incur any responsibility in respect thereof, other than as expressly stated in the Series A Indenture. The Trustee shall, however, be responsible for its representations contained in its E-1-22

197 certificate of authentication on the Series A Bonds. The Trustee shall not be liable in connection with the performance of its duties the Series A Indenture, except for its own negligence or willful misconduct. The Trustee may act through agents, attorneys and receivers and shall not be liable for the acts or omissions of any agents, attorneys or receivers selected by it with due care. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondowners, whether or not such committee shall represent the Owners of a majority in principal amount of the Series A Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by its officers, agents, directors or employees, unless it shall be proved that it was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of (i) the Owners of not less than a majority in aggregate principal amount (or other percentage provided for in the Series A Indenture) of the Series A Bonds at the time Outstanding, or (ii) the Insurer, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Series A Indenture. (d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Series A Indenture. (e) The Trustee shall not be deemed to have knowledge of any Event of Default the Series A Indenture unless and until it shall have actual knowledge thereof, or shall have received written notice thereof, at its Corporate Trust Office. Except as otherwise expressly provided in the Series A Indenture, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements in the Series A Indenture or of any of the documents executed in connection with the Series A Bonds, or as to the existence of an Event of Default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be responsible for reviewing the contents of any financial statements furnished to the Trustee pursuant to Section 6.07 of the Series A Indenture and may rely conclusively on the certificates accompanying such financial statements to establish the Agency's compliance with its financial covenants the Series A Indenture, including, without limitation, its covenants regarding the deposit of Subordinate Tax Revenues into the Bond Fund and the investment and application of moneys on deposit in the Bond Fund (other than its covenants to transfer such moneys to the Trustee when due the Series A Indenture). (f) The Trustee shall not be considered in breach of or in default in its obligations the Series A Indenture or progress in respect thereto in the event of enforced delay ( unavoidable delay ) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays or suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (g) The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to the Series A Indenture provided, however, that: (i) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the E-1-23

198 originally executed instructions and/or directions, (ii) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (iii) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person. Deposit and Investment of Moneys in Funds. Moneys in the Bond Fund, the Interest Account, the Principal Account, the Reserve Account, the Redemption Fund, and the Costs of Issuance Fund shall be invested by the Trustee in Permitted Investments as specified by the Treasurer of the Agency and shall be promptly confirmed in writing by the Agency with the Trustee within at least one (1) Business Day. In the absence of any such direction provided by the Treasurer of the Agency, the Trustee shall invest any such moneys in Permitted Investments described in clause (v) of the definition thereof which by their terms mature prior to the date on which such moneys are required to be paid out the Series A Indenture. Investments in such accounts shall be valued at market at least semi-annually. No forward delivery agreements, hedge, purchase and resale agreements or par-put agreements may be used with respect to the investment of any fund or account with respect to the trust estate pledged to the Series A Bonds without the prior written consent of the Insurer. Moneys in the Series A Bonds Reserve Account shall only be invested in the investments described in items (i), (ii), and (v) of the definition of Permitted Investments with maturities of no longer than 5 years and such other investments described in the definition of Permitted Investments, with respect to which the Insurer has granted it prior written consent. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. Whenever in the Series A Indenture any moneys are required to be transferred by the Agency to the Trustee, such transfer may be accomplished by transferring a like amount of Permitted Investments which by their terms mature prior to the date on which such moneys are required to be paid out the Series A Indenture. All interest or gain derived from the investment of amounts in any of the funds or accounts established the Series A Indenture (other than with respect to funds held by the Agency) shall be retained in the respective funds and accounts to be used for the purposes thereof; provided, however, that all interest or gain from the investment of amounts in the respective subaccounts of the Reserve Account shall be deposited by the Trustee in the Interest Account, but only to the extent that the amount remaining in the respective subaccounts of the Reserve Account following such deposit is equal to the Reserve Requirement for the applicable series of Bonds. The Agency acknowledges that to the extent regulations of the Controller of the Currency or other applicable regulatory entity grant the Agency the right to receive brokerage confirmations of security transactions as they occur, the Agency specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Agency periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Series A Indenture. Moneys credited to any fund or account under the Series A Indenture which are uninvested pending disbursement or receipt of proper investment directions or as directed by the Agency as provided in the Series A Indenture, may be deposited to and held in a non-interest bearing demand deposit account established with the commercial banking department of the Trustee or any bank affiliated with the Trustee. The Trustee may make any investments under the Series A Indenture through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Series A Indenture. For purposes of acquiring any investments under the Series A Indenture, the Trustee may in its discretion commingle funds held by it under the Series A Indenture. The Trustee (or any of its affiliates) may act as principal or agent in the acquisition of any investment. The Trustee shall incur no liability for E-1-24

199 losses arising from any investments made pursuant to Section 7.07 of the Series A Indenture. For purposes of determining the amount on deposit in any fund or account held under the Series A Indenture, all Permitted Investments credited to such fund or account shall be valued by the Trustee, at least monthly, at the market value (excluding accrued interest, other than in the case of the Reserve Account (where accrued interest shall be included) and excluding brokerage commissions, if any). In making any such valuations, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system. Modification or Amendments Amendments Permitted. The Series A Indenture and the rights and obligations of the Agency and of the Owners of the Series A Bonds may be modified or amended at any time by a Supplemental Indenture with written consent of the Insurer and pursuant to the affirmative vote at a meeting of Bondowners or with the written consent without a meeting of the Owners of a majority in aggregate principal amount of the Series A Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 8.04 of the Series A Indenture. No such modification or amendment shall (1) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the Agency to pay the principal thereof, or interest thereon, or any premium payable on the redemption thereof, at the time and place and at the rate and in the currency provided therein without the express consent of the Owner of such Bond, or (2) permit the creation by the Agency of any mortgage pledge or lien upon the Subordinate Tax Revenues superior to or on a parity with the pledge and lien created for the benefit of the Series A Bonds (except as otherwise provided in the Series A Indenture) or reduce the percentage of Bonds required for the affirmative vote or written consent to an amendment or modification or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. The Series A Indenture and the rights and obligations of the Agency and of the Owners of the Series A Bonds may also be modified or amended at any time by a Supplemental Indenture with written consent of the Insurer, but without the consent of any Bondowners, but only to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency in the Series A Indenture contained, other covenants and agreements thereafter to be observed or to limit or surrender any right or power in the Series A Indenture reserved to or conferred upon the Agency; or (b) to make modifications not adversely affecting any Outstanding series of Bonds of the Agency in any material respect, including an amendment pursuant to Section 5.05 of the Series A Indenture; or (c) with the written consent of the Trustee to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Series A Indenture, or in regard to questions arising under the Series A Indenture, as the Agency and the Trustee may deem necessary or desirable and not inconsistent with the Series A Indenture, and which shall not materially adversely affect the rights of the Owners of the Series A Bonds; or (d) to provide for the issuance of any Parity Bonds, and to provide the terms and conditions under which such Parity Bonds may be issued, subject to and in accordance with the provisions of Section 3.03 and Section 3.04 of the Series A Indenture. Bondowners' Meetings. The Agency may at any time call a meeting of the Bondowners. In such event the Agency is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof and to fix and adopt rules and regulations for the conduct of said meeting. Procedure for Amendment with Written Consent of Bondowners. The Agency may at any time adopt a Supplemental Indenture amending the provisions of the Series A Bonds or of the Series A Indenture or any Supplemental Indenture, to the extent that such amendment is permitted by Section 8.01 of the Series E-1-25

200 A Indenture, to take effect when and as provided in this section. A copy of such Supplemental Indenture, together with a request to Bondowners for their consent thereto, shall be mailed by the Agency to each registered Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Indenture and request shall not affect the validity of the supplemental Indenture when assented to as in this section provided. Such Supplemental Indenture shall not become effective unless there shall be filed with the Trustee the written consents of the Owners of a majority in aggregate principal amount of the Series A Bonds then Outstanding (exclusive of Bonds disqualified as provided in Section 8.04 of the Series A Indenture) and a notice shall have been mailed as hereinafter in this section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Series A Bonds for which such consent is given which proof shall be such as is permitted by Section Any such consent shall be binding upon the Owner of the Series A Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice as provided for in the Series A Indenture has been mailed. Any revocation received by the Trustee after such notice has been mailed shall be of no force or effect. After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Indenture, the Agency shall mail a notice to the Bondowners in the manner hereinbefore provided in this section for the mailing of the Supplemental Indenture, stating in substance that the Supplemental Indenture has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Indenture or consents thereto). Proof of the mailing of such notice shall be filed with the Trustee. A record consisting of the papers required by this section to be filed with the Trustee shall be proof of the matters therein stated until the contrary is proved. The Supplemental Indenture shall become effective upon the filing with the Trustee of the proof of mailing of such notice, and the Supplemental Indenture shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in the Series A Indenture) upon the Agency and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period. Consent of Insurer, Notice to Rating Agency. For all purposes of the Series A Indenture, (i) any amendment or supplement to the Series A Indenture shall be subject to the prior written consent of the Insurer, (ii) the initiation or approval of any action which requires the consent of the Bondowners shall be subject to the prior written consent of the Insurer, (iii) any rating agency rating the Series A Bonds must receive notice from the Agency of each amendment and a copy thereof at least 15 days in advance of its execution or adoption, and (iv) the Insurer shall be provided by the Agency with a full transcript of all proceedings relating to the execution of any Supplemental Indenture. The Insurer may charge the Agency a fee for any consent or amendment to the Indenture while the Policy is in place. Any provision of the Series A Indenture expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer under the Series A Indenture without the prior written consent of the Insurer. The Insurer reserves the right to charge the Agency a fee for any consent or amendment to the Indenture while the Policy is outstanding. Events of Default and Remedies of Bondowners Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under the Series A Indenture: (a) if default shall be made in the due and punctual payment of the principal of or interest or redemption premium (if any) on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; E-1-26

201 (b) if default shall be made by the Agency in the observance of any of the covenants, agreements or conditions on its part in the Series A Indenture or in the Series A Bonds contained, other than a default described in the preceding clause a), and such default shall have continued for a period of thirty (30) days following the receipt by the Agency of written notice from the Trustee or any Bondowner of the occurrence of such default; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30)-day period and if corrective action is instituted by the Agency within such thirty (30)-day period the Agency, with the prior written consent of the Insurer may diligently pursue such corrective action until such failure is corrected, but in no event more than 90 days following the receipt by the Agency of such notice; or (c) if the Agency shall file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property. If an Event of Default has occurred under Section 9.01 of the Series A Indenture and is continuing, the Trustee shall give written notice thereof to the Insurer. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, with the consent of the Insurer, and if requested in writing by the Owners of a majority in aggregate principal amount of the Series A Bonds then Outstanding or if directed by the Insurer, the Trustee shall (a) declare the principal of the Series A Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the Series A Indenture or in the Series A Bonds to the contrary notwithstanding, and (d) subject to the provisions of Section 9.06 of the Series A Indenture, exercise any other remedies available to the Trustee and the Bondowners in law or at equity. Immediately upon obtaining actual knowledge of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Insurer and the Agency by telephone confirmed in writing. Such notice shall also state whether the principal of the Series A Bonds shall have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clause (a) or (c) above the Trustee shall, and with respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Owners of the Series A Bonds in the same manner as provided in the Series A Indenture for notices of redemption of the Series A Bonds. Upon declaration of an Event of Default, the Agency shall transfer the Special Fund and all moneys therein to the Trustee who shall hold such Special Fund for the benefit of the Bondholders until such Event of Default shall have been cured. For any default under subsection (c) hereof, any reorganization or liquidation plan with respect to the Agency must be acceptable to the Insurer. In the event of any reorganization or liquidation, the Insurer shall have the right to vote on behalf of all Owners who hold the Series A Bonds absent a default by the Insurer under the applicable Policy insuring the Series A Bonds. This provision, however, is subject to the condition that if, at any time after the principal of the Series A Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all principal on the Series A Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Series A Bonds, with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee E-1-27

202 (other than in the payment of principal of and interest on the Series A Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Series A Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all of the Series A Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Subject to the provisions of the Series A Indenture, the Trustee agrees to enforce by mandamus, suit or other proceeding at law or in equity the covenants and agreements of the Agency. Application of Funds Upon Acceleration. All of the Subordinate Tax Revenues and all sums in the funds and accounts established and held by the Trustee under the Series A Indenture upon the date of the declaration of acceleration (other than the Rebate Account, if any) as provided in Section 9.01 of the Series A Indenture, and all sums thereafter received by the Trustee under the Series A Indenture, shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the fees, costs and expenses of the Trustee and thereafter of the Bondowners in declaring such Event of Default, including reasonable compensation to its or their agents, attorneys and counsel; and Second, to the payment of the whole amount then owing and unpaid upon the Series A Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the Outstanding Bonds (to the extent that such interest on overdue installments of principal and interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Series A Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, or any Bond over any other Bond, ratably to the aggregate of such principal and interest. E-1-28

203 APPENDIX E-2 SERIES B BONDS SUMMARY OF LEGAL DOCUMENTS The following is a summary of certain provisions of the Series B Indenture and does not purport to be complete. Reference is hereby made to the Series B Indenture which is available from the Agency upon request. Any capitalized term not otherwise defined in this summary is as defined in the Series B Indenture Reserve Requirement means the maximum annual debt service on the Series B Bonds. Annual Debt Service means, for each Fiscal Year, the sum of (a) the interest payable on the Outstanding Bonds in such Fiscal Year, assuming that the Outstanding Serial Bonds are retired as scheduled and that the Outstanding Term Bonds are redeemed from sinking fund payments as scheduled and (b) the principal amount of the Outstanding Serial Bonds payable by their terms in such Fiscal Year and the principal amount of the Outstanding Term Bonds scheduled to be paid or redeemed from sinking fund payments in such Fiscal Year, excluding the redemption premiums, if any, thereon. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Bonds, determined among the maturities of such Parity Bonds in such manner as may be determined by the Agency in the Supplemental Indenture under which such Parity Bonds are issued, to the extent the proceeds thereof are then deposited in an escrow fund from which amounts may not be released to the Agency except in accordance with the provisions of Section 3.03 of the Series B Indenture relating to Parity Bonds. Bond Fund means the fund by that name established pursuant to Section 5.03 of the Series B Indenture. Bond Year means, with respect to the Series B Bonds, the twelve-month period extending from August 2 in any year to the following August 1, both dates inclusive; provided, however, that the first Bond Year shall begin on the Closing Date and end on August 1, 2008, and with respect to any Parity Bonds shall have the meaning ascribed in any Supplemental Indenture relating thereto. Closing Date means any date upon which there is a physical delivery of any series of the Series B Bonds in exchange for an amount representing the purchase price of the Series B Bonds by the original purchaser. Costs of Issuance means items of expense payable or reimbursable directly or indirectly by the Agency and related to the authorization, sale and issuance of the Series B Bonds, which items of expense shall include, but not be limited to, printing costs, costs of reproducing and binding documents, closing costs, filing and recording fees, initial fees and charges of the Trustee including its first annual administration fee, expenses incurred by the Agency in connection with the issuance of the Series B Bonds, underwriter's discount, original issue discount, legal fees and charges, including bond counsel and financial consultants fees, costs of cash flow verifications, premiums for any municipal bond insurance policy that may be purchased and for any reserve account surety bond the Agency may purchase, rating agency fees, charges for execution, transportation and safekeeping of the Series B Bonds and other costs, charges and fees in connection with the original issuance of the Series B Bonds. Costs of Issuance Fund means the fund by that name established by Section 3.02 of the Series B Indenture. E-2-1

204 Escrow Agreement means the Escrow Deposit and Trust Agreement dated as of July 1, 2007, by and between the Agency and Wells Fargo Bank, National Association, as Escrow Bank. Escrow Bank means Wells Fargo Bank, National Association. Event of Default means any of the events described in Section 9.01 of the Series B Indenture. Interest Account means the Account by that name established pursuant to Section 5.03 of the Series B Indenture. Interest Payment Date means February 1 and August 1 in any year in which Bonds are Outstanding, commencing February 1, Maximum Annual Debt Service means, as of the date of any calculation, the largest Annual Debt Service with respect to the Series B Bonds during the current or any future Fiscal Year. Outstanding, when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 8.04 of the Series A Indenture) all Bonds except (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds paid or deemed to have been paid within the meaning of Section of the Series A Indenture (regardless of whether all Bonds shall have been so paid or so deemed to have been paid); and (3) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant to the Indenture or any Supplemental Indenture. Parity Bonds means any bonds, notes, loans, advances, or indebtedness issued or incurred by the Agency on a parity with the Series B Bonds in accordance with the provisions of Sections 3.03 and 3.04 of the Series B Indenture. Principal Account means the Account by that name established pursuant to Section 5.03 of the Series B Indenture. Principal Payment Date means August 1 in each year in which any of the Series B Bonds mature or are subject to mandatory sinking fund redemption by their respective terms; and with respect to any Parity Bond means the stated maturity date of such Parity Bond. Purchase Price, for the purpose of computation of the Yield of the Series B Bonds, has the same meaning as the term issue price in Section 1273(b) and 1274 of the Code, and, in general, means the initial offering price to the public (not including bond houses and brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of the Series B Bonds are sold or, if the Series B Bonds are privately placed, the price paid by the original purchaser thereof or the acquisition cost of such original purchaser. The term Purchase Price, for the purpose of computation of the Yield of Permitted Investments, means the fair market value of the Permitted Investments on the date of use of Bond proceeds for acquisition thereof, or if later, on the date that any Permitted Investment becomes a Nonpurpose Investment, as defined in the Code, of the Series B Bonds. Rebate Account means the Account by that name established and held by the Trustee pursuant to Section 7.10 of the Series B Indenture. Redemption Fund means the fund by that name established by Section 5.04 of the Series B Indenture. E-2-2

205 Redevelopment Fund means the fund by that name held by the Agency. Registration Books means the records maintained by the Trustee pursuant to Section 2.07 of the Series B Indenture for the registration and transfer of ownership of Series B Bonds. Representation Letter shall mean the letter of representations from the Agency to, or other instrument or agreement of the Agency with, a Book-Entry Depository in which the Agency, among other things, makes certain representations to such Book-Entry Depository with respect to Series B Bonds, the payment thereof and delivery of notices with respect thereto. Reserve Account means the account by that name established pursuant to Section 5.03 of the Series B Indenture, within which Reserve Account there may be created separate subaccounts with respect to each series of the Series B Bonds. Reserve Requirement means, with respect to Parity Bonds, as of the date of calculation an amount equal to the lesser of (i) 10% of the initial outstanding principal amount of the Parity Bonds excluding from said principal amount in the case of any Parity Bonds an amount equal to the amount then on deposit in any escrow fund created with respect to such Parity Bonds created pursuant to Section 3.03 of the Series B Indenture; (ii) Maximum Annual Debt Service on the Parity Bonds; or (iii) 125% of average Annual Debt Service on the Parity Bonds. Second Subordinate Tax Revenues means the Second Subordinate Tax Revenues paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth in the Series B Indenture, excluding amounts required by Section of the Law to be used by the Agency to increase and improve the supply of Low and Moderate Income Housing, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such from such taxes. Second Subordinate Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section of the Law prior to the date hereof, except agreements which are subordinate in payment by their respective terms, (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section of the law, and (iii) the amounts necessary to pay debt service on the Senior and Subordinate Lien Bonds. Securities Depositories means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax (516) or 4190; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Agency may designate in a Written Request of the Agency delivered to the Trustee. Senior and Subordinate Lien Bonds means the Senior Lien Bonds, Series A Bonds and any obligations issue on parity with the Series A Bonds. Serial Bonds means with respect to the Series B Bonds, all of the Series B Bonds other than the Series B Bonds which are Term Bonds, and with respect to Parity Bonds, means all of the Series B Bonds of such series of Parity Bonds of such series which are not Term Bonds. Series A Bonds means the Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Merged Redevelopment Project Tax Allocation Bonds (Subordinate Lien) 2007 Series A. Special Fund means the fund by that name established by Section 5.02 of the Series B Indenture. E-2-3

206 Tax Revenue Certificate means a written certificate of an Independent Financial Consultant identifying the amount of Second Subordinate Tax Revenues shown on the records of the County Assessor to be received by the Agency in either the current Bond Year or any future Bond Year. Tax Revenues means moneys paid by the Agency to the Trustee derived from (a) that portion of taxes in the Redevelopment Project and received by the Agency, which is allocated to and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 19 of Article XVI of the Constitution of the State of California, all as more particularly set forth hereafter in this Indenture, including a portion of the amount required by Section of the Law to be used by the Agency to increase and improve the supply of Low and Moderate Housing, (b) reimbursements, subventions, including payments to the Agency with respect to personal property within the Redevelopment Project pursuant to Section 16110, et seq. of the Government Code of the State, or other payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such from such taxes. Tax Revenues shall not include (i) any amounts payable by the Agency under agreements entered into pursuant to Section of the Law prior to the date hereof, except agreements which are subordinate in payment by their respective terms, and (ii) all amounts required to be paid to entities other than the Agency pursuant to statutory tax sharing imposed by Section of the law. Term Bonds means, with respect to the Series B Bonds, the Series B Bonds originally issued under the Series B Indenture maturing on August 1, 2027 and August 1, 2036; and with respect to any Parity Bonds, means such Parity Bonds which are payable on or before their specified Principal Payment Dates from sinking account payments established for that purpose and calculated to retire such Parity Bonds on or before their respective Principal Payment Dates. Trustee means the Trustee appointed by the Agency and acting as an independent trustee with the duties and powers in the Series B Indenture provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in Section 7.01 of the Series B Indenture. The initial Trustee under the Series B Indenture is Wells Fargo Bank, National Association. Tax Revenues; Funds and Accounts, Surplus SERIES B INDENTURE Costs of Issuance Fund. The Series B Indenture established a separate fund to be known as the Costs of Issuance Fund, which shall be held by the Trustee in trust. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Agency stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. On the date six months following the Closing Date, or upon the earlier Written Request of the Agency stating that all known Costs of Issuance have been paid, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Interest Account of the Bond Fund. Pledge of Tax Revenues. The Series B Bonds shall be secured by a pledge (which pledge shall be effected in the manner and to the extent hereinafter provided) of and first lien on all of the Second Subordinate Tax Revenues (except as otherwise provided in Section 5.02 of the Series B Indenture), and, by a pledge of all of the moneys in the Special Fund, the Bond Fund, the Interest Account, the Principal Account, the Reserve Account and the Redemption Fund and investment earnings thereon except as provided in Section 7.10 of the Series B Indenture. The Second Subordinate Tax Revenues shall be allocated solely to the payment of the principal and interest, and redemption premium, if any, of the Series B Bonds and to the Reserve Account for the purposes set forth in Section 5.03 of the Series B Indenture; except that the Second Subordinate Tax Revenues may be apportioned in such amounts for such other purposes as are expressly permitted by Section 5.02 of the Series B Indenture. The pledge and E-2-4

207 allocation of Second Subordinate Tax Revenues is for the exclusive benefit of the Series B Bonds and shall be irrevocable until all of the Series B Bonds have been paid and retired or until moneys have been set aside irrevocably for that purpose. In consideration of the acceptance of the Series B Bonds by those who shall own them from time to time, the Series B Indenture shall be deemed to be and shall constitute a contract between the Agency and the Owners from time to time of the Series B Bonds and the covenants and agreements in the Series B Indenture set forth to be performed on behalf of the Agency shall be for the equal and proportionate security and protection of all Owners of the Series B Bonds without preference, priority or distinction as to security or otherwise of any of the Series B Bonds over any of the others by reason of the number or date thereof, of the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or in the Series B Indenture. Special Fund; Deposit of Second Subordinate Tax Revenues. The Agency shall establish and hold a special fund to be known as the Redevelopment Project Tax Allocation Bonds (Second Subordinate Lien) Special Fund (the Special Fund ). The Agency shall deposit all of the Second Subordinate Tax Revenues received in any Bond Year in the Special Fund promptly upon receipt thereof; provided, that the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Second Subordinate Tax Revenues which, together with other available amounts in the Special Fund exceeds the amounts required to be transferred to the Trustee for deposit in the Interest Account, Principal Account and the Reserve Account in such Bond Year pursuant to Section 5.03 of the Series B Indenture. On or before the fifth day immediately preceding each Interest Payment Date, the Agency shall transfer from the Special Fund to the Trustee for deposit to the Bond Fund an amount equal to the principal and interest owing on the Series B Bonds on such Interest Payment Date and an amount, if any, necessary to increase the amount in the Reserve Account to the Reserve Requirement. Any Second Subordinate Tax Revenues received by the Agency during any Bond Year in excess of the amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account and the Reserve Account in such Bond Year pursuant to Section 5.03 of the Series B Indenture, shall be released from the pledge and lien under the Series B Indenture and may be used for any lawful purposes of the Agency. All Second Subordinate Tax Revenues and any other amounts at any time paid by the Agency and designated in writing for deposit in the Special Fund shall be held by the Agency solely for the uses and purposes set forth in Article V of the Indenture. So long as any of the Series B Bonds are Outstanding, the Agency shall not have any beneficial right or interest in the Second Subordinate Tax Revenues, except only as provided in the Series B Indenture, and such moneys shall be used and applied as in the Series B Indenture set forth. Bond Fund; Establishment and Maintenance of Accounts. There is hereby established a special fund to be known as the Redevelopment Project Tax Allocation Bonds (Second Subordinate Lien) Bond Fund (the Bond Fund ) which shall be held by the Trustee. The Trustee shall receive and deposit to the Bond Fund the amount specified in Section 3.01 of the Series B Indenture on the Closing Date and the amounts required to be deposited thereto pursuant to Section 5.02 of the Series B Indenture. Within the Bond Fund the Trustee shall establish an Interest Account, a Principal Account and a Reserve Account. All moneys in the Bond Fund shall be transferred and set aside by the Trustee in the following respective special accounts of the Bond Fund (each of which is hereby created to be held in trust by the Trustee) in the following order of priority: (a) Interest Account. At least one Business Day prior to each Interest Payment Date, the Trustee shall transfer from the Bond Fund and set aside in the Interest Account an amount which, when added to the amount contained in the Interest Account will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Series B Bonds issued under the Series B Indenture and then Outstanding. The Trustee shall also deposit in the Interest Account any other E-2-5

208 moneys received by it from the Agency and designated in writing by the Agency for deposit in the Interest Account. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Series B Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Series B Indenture). (b) Principal Account. At least one Business Day prior to each Principal Payment Date, the Trustee shall transfer from the Bond Fund and set aside in the Principal Account an amount which, when added to the amount contained in the Principal Account will be equal to the principal becoming due and payable on the Series B Bonds on such Principal Payment Date, whether by reason of scheduled maturity or mandatory sinking fund redemption pursuant to Section 4.01(b) of the Series B Indenture. No deposit need be made into the Principal Account if the amount contained therein is at least equal to the principal to become due on such Principal Payment Date, whether by reason of scheduled maturity or mandatory sinking fund redemption. The Trustee shall also deposit in the Principal Account any other moneys received by it from the Agency and designated in writing by the Agency for deposit in the Principal Account. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal on the Series B Bonds as it shall become due and payable, whether by reason of scheduled maturity or mandatory sinking fund redemption. (c) Reserve Account. At least one Business Day before each Interest Payment Date and after the deposits required pursuant to the preceding subparagraphs have been made, the Trustee shall withdraw from the Bond Fund and deposit in the Reserve Account and any subaccounts therein an amount of money, if any, required to maintain the Reserve Account and in the full amount of the Reserve Requirement. No deposit need be made in the Reserve Account and the separate subaccounts therein so long as there shall be on deposit therein a sum equal to at least the amount required by this paragraph to be on deposit therein. There is hereby established the Series B Bonds Reserve Subaccount in the Reserve Account, into which there shall be deposited from the proceeds of the Series B Bonds the amount set forth in Section 3.01 of the Series B Indenture, being the 2007 Reserve Requirement and which shall be held for the benefit of the Agency and the Owners of the Series B Bonds. There may be established in the Reserve Account in connection with issuance of any series of Parity Bonds a separate subaccount into which there shall be deposited the amount required by Section 3.03(e) of the Series B Indenture and in the Supplemental Indenture relating to such series of Parity Bonds. All money in the Reserve Account, and any subaccount therein shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account and the Principal Account, in such order, in the event of any deficiency at any time in any of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Series B Bonds in the event that no other money of the Agency is lawfully available therefor, or for the retirement of the Series B Bonds then Outstanding, except that so long as the Agency is not in default under the Series B Indenture, any amount in the Reserve Account and each subaccount therein in excess of the amount required by this paragraph to be on deposit therein except as in the Series B Indenture otherwise provided, shall be transferred to the Bond Fund. The Reserve Requirement for a series of Bonds may be satisfied by crediting to the Reserve Account moneys, a letter of credit, a bond insurance policy, any other comparable credit facility or any combination thereof, which has been approved in writing by the rating agency then rating the Series B Bonds and which in the aggregate make funds available in the Reserve Account in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such letter of credit, bond insurance policy or other comparable credit facility, the Trustee shall transfer a portion of the moneys then on hand in the Reserve Account to the Redevelopment Fund to be applied for lawful redevelopment purposes for which proceeds of the applicable series of bonds can be used. The Agency has delivered to the Series B Bonds Reserve Subaccount a surety bond (the Surety Bond ) to satisfy the 2007 Reserve Requirement. The Trustee shall hold the Surety Bond for the benefit of the Owners of the Series B Bonds and shall draw funds on the Surety Bond as stated therein. E-2-6

209 (d) Surplus. Except as may be otherwise provided in any Supplemental Indenture, the Agency shall not be obligated to transfer to the Trustee for deposit in the Bond Fund in any Bond Year an amount of Second Subordinate Tax Revenues which, together with other available amounts in the Bond Fund, exceeds the amounts required in such Bond Year pursuant to Section In the event that for any reason whatsoever any amounts shall remain on deposit in the Bond Fund on any August 2 after making all of the transfers theretofore required to be made pursuant to the preceding clauses (a), (b) and (c) and pursuant to any Supplemental Indenture, the Trustee shall withdraw such amounts from the Bond Fund and transfer such amounts to the Agency, to be used for any lawful purposes of the Agency permitted by the Law. Covenants of the Agency Punctual Payment. The Agency will punctually pay or cause to be paid the principal and interest to become due in respect of all the Series B Bonds in strict conformity with the terms of the Series B Bonds and of the Series B Indenture, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Series B Indenture and all Supplemental Indentures and of the Series B Bonds. Nothing in the Series B Indenture contained shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes permitted by law. Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the Agency will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Series B Bonds and will not, directly or indirectly, approve any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded whether or not with the consent of the Agency, such claim for interest so extended or funded shall not be entitled, in case of default under the Series B Indenture to the benefits of the Series B Indenture, except subject to the prior payment in full of the principal of all of the Series B Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. Against Encumbrances. Except for Parity Bonds of the Senior Lien Bonds, Senior and Subordinate Lien Bonds and Parity Bonds issued in accordance with Sections 3.03 and 3.04 of the Series B Indenture, the Agency covenants and agrees that it will not issue any other obligations payable, as to either principal or interest, from the Second Subordinate Tax Revenues which have, or purport to have, any lien upon the Second Subordinate Tax Revenues superior to or on a parity with the lien of the Series B Bonds; provided, however, that nothing in the Series B Indenture shall prevent the Agency from issuing and selling pursuant to law refunding bonds or other refunding obligations payable from and having a first lien on a parity basis with all Outstanding Parity Bonds upon the Second Subordinate Tax Revenues if such refunding bonds or other refunding obligations are issued and are sufficient for the purpose of refunding all or a portion of the Series B Bonds then Outstanding. Protection of Security and Rights of Bondowners. The Agency will preserve and protect the security of the Series B Bonds and the rights of the Bondowners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any of the Series B Bonds by the Agency the Series B Bonds shall be incontestable by the Agency. Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, or upon the revenues therefrom, when the same shall become due. Nothing in the Series B Indenture contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Project or any part thereof. Compliance with Law, Completion of Project. The Agency will comply with all applicable provisions of the Law in completing the Project including, without limitation, duly noticing and holding any public E-2-7

210 hearing required by either Section or of the Law prior to application of proceeds of the Series B Bonds to any portion of the Project subject to either Section or In addition, the Agency will comply timely with the public hearing and further requirements of Section The Agency will commence, and will continue to completion, with all practicable dispatch, the Project and the Project will be accomplished and completed in a sound and economical manner and in conformity with the Redevelopment Plan and the Law. Notwithstanding the foregoing, the Agency may, in accordance with applicable provisions of the Law, amend the limits of the Redevelopment Plan from time to time in order to extend the term or amount of any of such limits, so long as any such amendment will not reduce the amount of Second Subordinate Tax Revenues to be received by the Agency, as certified in a certificate of a Redevelopment Consultant. Taxation of Leased Property. Whenever any property in the Redevelopment Project has been redeveloped and thereafter is leased by the Agency to any person or persons (other than a public agency) or whenever the Agency leases real property in the Redevelopment Project to any person or persons (other than a public agency) for redevelopment, the property shall be assessed and taxed in the same manner as privately owned property, as required by Section of the Law. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the Series B Indenture) if the effect of such disposition would be to cause the amount of Tax Revenues for the then current or any future Fiscal Year based on assessed valuation of property in the Project Area as evidenced in a written document from the County, to fall below 110% of Annual Debt Service on the Senior Lien Bonds, Senior and Subordinate Lien Bonds, the Series B Bonds and any Parity Bonds then outstanding. Tax Revenues. The Agency shall comply with all requirements of the Law to insure the allocation and payment to it of the Second Subordinate Tax Revenues including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County. The Agency shall not amend the Redevelopment Plan in any manner which reduces Second Subordinate Tax Revenues as certified by an Independent Financial Consultant. Use of Proceeds. The Agency covenants and agrees that the proceeds of the sale of the Series B Bonds will be deposited and used as provided in the Series B Indenture and the Law. Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Series B Indenture and for the better assuring and confirming unto the Owners of the Series B Bonds of the rights and benefits provided in the Series B Indenture. Private Activity Bond Limitation. The Agency shall assure that the proceeds of the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, are not so used as to cause the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, 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 Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, to be federally guaranteed within the meaning of Section 149(b) of the Code. Rebate Requirement. The Agency 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 E-2-8

211 government, to the extent that such section is applicable to the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture. No Arbitrage. The Agency shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, would have caused the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, to be arbitrage bonds within the meaning of Section 148 of the Code. Maintenance of Tax-Exemption. The Agency shall take all actions necessary to assure the exclusion of interest on the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, from the gross income of the Owners of the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture, to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Series B Bonds, issued as tax-exempt bonds under the Series B Indenture. Limit on Indebtedness. The Agency covenants with the Owners of all of the Series B Bonds at any time Outstanding that it will not enter into any obligation or make any expenditure payable from taxes allocated to the Agency under the Law the payments of which, together with payments theretofore made or to be made with respect to other obligations (including, but not limited to, the Series B Bonds) previously entered into by the Agency, would exceed the then-effective limit on the amount of taxes which can be allocated to the Agency pursuant to Section (1) of the Law and the Redevelopment Plan. Annual Accounting of Tax Increment Revenues. The Agency will annually cause to be prepared and filed with the Trustee, within 180 days after the close of each Fiscal Year so long as any of the Series B Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, Subordinate Tax Revenues and Second Subordinate Tax Revenues, all disbursements from the Special Fund and the financial condition of the Redevelopment Project, including the balances in all funds and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year, and will prepare or cause to be prepared and filed with the Trustee a pro forma statement demonstrating the future availability of sufficient tax increment revenues to pay timely within the existing limitation on the amount of Tax Revenues, Subordinate Tax Revenues and Second Subordinate Tax Revenues allocable and payable to the Agency under the Redevelopment Plan (the Tax Increment Limitation ) (i) the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, the Series B Bonds, all Parity Bonds and subordinate debt, and (ii) the amount payable in the then current Fiscal Year included within the Tax Increment Limitation which are required by section of the Redevelopment Law to be deposited in the Agency's Low and Moderate Income Housing Fund (the Set-Aside Requirement ) which statements and pro forma statement shall be accompanied by a written certificate of the Agency stating that the Agency is in compliance with its obligations under the Series B Indenture. The Trustee shall have no duty or responsibility to review such financial statements. The pro forma statement shall be prepared on or before August 1 of each year or as soon thereafter as practicable, commencing August 1, 2008, and shall set forth: (1) The difference between the Tax Increment Limitation less the total amount of tax increment revenues theretofore allocated to the Agency from and after the Fiscal Year in which a limitation on the allocation of tax increment revenues was established (the Remaining Limitation Amount ); and (2) The principal and interest remaining to be paid on the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, the Series B Bonds, the Parity Bonds and on the subordinate debt, plus the Set-Aside requirement (collectively, the Total Debt Service ). E-2-9

212 To the extent the Remaining Limitation Amount is equal to 110% or less than the Total Debt Service, the pro forma statement shall set forth the principal amount of the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, the Series B Bonds, the Parity Bonds or subordinate debt (to the nearest integral multiple of $5,000), as applicable that must be retired in order for the Remaining Limitation Amount to be at least equal to 110% of the Total Debt Service (the Prepayment Amount ). In making this calculation, the Agency shall assume that it will prepay debt in the following order or priority (the Prepayment Order ): (a) it shall prepay the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, the Series B Bonds and all Outstanding Parity Bonds by allocating payment among the principal of the Senior Lien Bonds,, the Senior and Subordinate Lien Bonds, the Series B Bonds and applicable principal payments with respect to Parity Bonds as the Agency shall designate and (b) to the extent there are no longer any Series B Bonds or Parity Bonds outstanding, prepay the subordinate debt pro rata by maturity and by lot within a maturity, in a manner which results in the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, Parity Bonds and subordinate debt to be paid from Tax Revenues, Subordinate Tax Revenues and Second Subordinate Tax Revenues in a timely manner. The Agency shall notify the trustee for the Senior Lien Bonds and the, the Senior and Subordinate Lien Bonds of the Prepayment Amount, if any, applicable to the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, the Series B Bonds and all Parity Bonds as soon as possible after completion of the pro forma statement and shall pay any Prepayment Amount from Tax Revenues, Subordinate Tax Revenues and Second Subordinate Tax Revenues after (i) having on deposit in the Special Fund an amount equal to the principal and interest due and payable in the next succeeding Bond Year on the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, the Series B Bonds and all Parity Bonds, and (ii) having on deposit an amount sufficient to pay principal and interest in the next succeeding Bond Year on the subordinate debt. At the time the Remaining Limitation Amount is determined to be 110% or less than the Total Debt Service, the Agency shall transfer any Prepayment Amount to the Trustee for deposit in the Redemption Account for the Series B Bonds, the Senior Lien Bonds, the Senior and Subordinate Lien Bonds, or the Redemption Account or any other payment with respect to Parity Bonds, as applicable, and use such moneys to redeem as applicable Senior Lien Bonds, Senior and Subordinate Lien Bonds and redeem or otherwise prepay Parity Bonds, as applicable, on the first applicable optional redemption date in the Prepayment Order and at the applicable redemption price, all as further provided in the Series B Indenture. Notwithstanding the above, if prior to any such optional redemption, a subsequent annual pro forma statement indicates that further Tax Revenues, Subordinate Tax Revenues and Second Subordinate Tax Revenues will be 110% or more of the Total Debt Service in each year such debt service is payable, the Agency may authorize the Trustee to release such Tax Revenues, Subordinate Tax Revenues and Second Subordinate Tax Revenues from the Redemption Account for delivery to the Agency. Amounts deposited in the Redemption Account for such purposes shall be invested solely in Defeasance Obligations. The Agency shall furnish a copy of the above-referenced written certificates, statements and pro forma statement to any Owner upon reasonable request at the expense of such Owner. Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Series B Indenture, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee shall, at the written request of any participating underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, but only to the extent the Trustee has been indemnified from and against any loss, cost, expense, claim or liability, including, without limitation, fees and expenses of attorneys and additional fees and expenses of the Trustee or any Bondowner may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Agency to comply with its obligations under this section. E-2-10

213 Duties and Liabilities of Trustee Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to the occurrence of an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Series B Indenture. The Trustee shall only be obligated to perform such duties as are expressly set forth in the Series B Indenture, and no duties or obligations not expressly set forth in the Series B Indenture shall be implied. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Series B Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) The Agency may remove the Trustee, at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee (i) if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Series B Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of Section 7.01 of the Series B Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. In each case such removal shall be accomplished by the giving of written notice of such removal by the Agency to the Trustee, whereupon in the case of the Trustee, the Agency shall appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the Agency and by giving the Bondowners notice of such resignation by mail at their respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Agency shall promptly appoint a successor Trustee by an instrument in writing. The Trustee shall not be relieved of its duties until such successor Trustee has accepted such appointment. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within thirty (30) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondowner (on behalf of himself and all other Bondowners), at the expense of the Agency, may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Series B Indenture shall signify its acceptance of such appointment by executing and delivering to the Agency and to its predecessor Trustee a written acceptance thereof, and thereupon and upon receipt by the predecessor Trustee of all fees and expenses due and payable to it, such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Series B Indenture; but, nevertheless at the Written Request of the Agency or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Series B Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions in the Series B Indenture set forth. Upon request of the successor Trustee, the Agency shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection (d), the Agency shall mail a notice of the succession of such Trustee to the trusts under the Series B E-2-11

214 Indenture to each rating agency which then has a current rating on the Series B Bonds, if any, and to the Bondowners at their respective addresses shown on the Registration Books. If the Agency fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Agency. (e) Any Trustee appointed under the provisions of Section 7.01 of the Series B Indenture in succession to the Trustee shall be a corporation or other entity organized and doing business under the laws of any state, the District of Columbia or the United States of America, authorized under such laws to exercise corporate trust powers, which shall have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least seventy-five million dollars ($75,000,000), and subject to supervision or examination by federal or state authority. If such corporation or other entity publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection (e) the combined capital and surplus of such corporation or other entity shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in Subsection (d) above. Merger or Consolidation. Any bank or company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or company shall be eligible under subsection (e) of Section 7.01, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Series B Indenture to the contrary notwithstanding. Liability of Trustee. (a) The recitals of facts in the Series B Indenture and in the Series B Bonds contained shall be taken as statements of the Agency, and the Trustee shall not assume responsibility for the correctness of the same, nor make any representations as to the validity or sufficiency of the Series B Indenture or of the Series B Bonds nor shall incur any responsibility in respect thereof, other than as expressly stated in the Series B Indenture. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Series B Bonds. The Trustee shall not be liable in connection with the performance of its duties under the Series B Indenture, except for its own negligence or willful misconduct. The Trustee may act through agents, attorneys and receivers and shall not be liable for the acts or omissions of any agents, attorneys or receivers selected by it with due care. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondowners, whether or not such committee shall represent the Owners of a majority in principal amount of the Series B Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by its officers, agents, directors or employees, unless it shall be proved that it was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount (or other percentage provided for in the Series B Indenture) of the Series B Bonds at the time Outstanding, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Series B Indenture. E-2-12

215 (d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Series B Indenture. (e) The Trustee shall not be deemed to have knowledge of any Event of Default under the Series B Indenture unless and until it shall have actual knowledge thereof, or shall have received written notice thereof, at its Corporate Trust Office. Except as otherwise expressly provided in the Series B Indenture, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements in the Series B Indenture or of any of the documents executed in connection with the Series B Bonds, or as to the existence of an Event of Default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be responsible for reviewing the contents of any financial statements furnished to the Trustee pursuant to Section 6.07 of the Series B Indenture and may rely conclusively on the certificates accompanying such financial statements to establish the Agency's compliance with its financial covenants under the Series B Indenture, including, without limitation, its covenants regarding the deposit of Second Subordinate Tax Revenues into the Bond Fund and the investment and application of moneys on deposit in the Bond Fund (other than its covenants to transfer such moneys to the Trustee when due under the Series B Indenture). (f) The Trustee shall not be considered in breach of or in default in its obligations under the Series B Indenture or progress in respect thereto in the event of enforced delay ( unavoidable delay ) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays or suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (g) The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to the Series B Indenture provided, however, that: (i) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (ii) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (iii) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, requisition, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Agency, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Series B Indenture in good faith and in accordance therewith. The Trustee shall not be bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto is established to the satisfaction of the Trustee. Whenever in the administration of the trusts imposed upon it by the Series B Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Series B Indenture, such matter (unless other evidence in respect thereof be in the Series B Indenture specifically prescribed) may be deemed to be conclusively proved and established by a written certificate of the Agency, which shall be full warrant to the Trustee for any action E-2-13

216 taken or suffered in good faith under the provisions of the Series B Indenture in reliance upon such written certificate. No provision in the Series B Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability under the Series B Indenture. The Trustee shall be entitled to interest on any amounts advanced by it at the maximum rate permitted by law. The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Series B Bonds. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Series B Indenture shall be retained in its possession and shall be subject at all reasonable times during business hours upon reasonable notice to the inspection of the Agency and any Bondowner of at least 5% of the principal amount of Bonds Outstanding, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. Compensation and Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all reasonable services rendered under the Series B Indenture and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under the Series B Indenture. The Agency further covenants and agrees to indemnify and save the Trustee and its officers, directors, agents and employees harmless against any costs, claims, loss, expense and liabilities which it may incur arising out of or in the acceptance, exercise and performance of its powers and duties under the Series B Indenture, including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence, willful misconduct or willful default of the Trustee, its officers, directors, agents or employees. The obligations of the Agency under this paragraph shall survive resignation or removal of the Trustee under the Series B Indenture and payment of the Series B Bonds and discharge of the Series B Indenture. Deposit and Investment of Moneys in Funds. Moneys in the Bond Fund, the Interest Account, the Principal Account, the Reserve Account, the Redemption Fund, and the Costs of Issuance Fund shall be invested by the Trustee in Permitted Investments as specified by the Treasurer of the Agency and shall be promptly confirmed in writing by the Agency with the Trustee within at least one (1) Business Day. In the absence of any such direction provided by the Treasurer of the Agency, the Trustee shall invest any such moneys in Permitted Investments described in clause (v) of the definition thereof which by their terms mature prior to the date on which such moneys are required to be paid out under the Series B Indenture. Investments in such accounts shall be valued at market at least semi-annually. No forward delivery agreements, hedge, purchase and resale agreements or par-put agreements may be used with respect to the investment of any fund or account with respect to the trust estate pledged to the Series B Bonds. Moneys in the Series B Bonds Reserve Account shall only be invested in the investments described in items (i), (ii), and (v) of the definition of Permitted Investments with maturities of no longer than 5 years and such other investments described in the definition of Permitted Investments. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. Whenever in the Series B Indenture any moneys are required to be transferred by the Agency to the Trustee, such transfer may be accomplished by transferring a like amount of Permitted Investments which by their terms mature prior to the date on which such moneys are required to be paid out under the Series B Indenture. All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Series B Indenture (other than with respect to funds held by the Agency) shall be retained in the respective funds and accounts to be used for the purposes thereof; provided, however, that all interest or gain from the investment of amounts in the respective subaccounts E-2-14

217 of the Reserve Account shall be deposited by the Trustee in the Interest Account, but only to the extent that the amount remaining in the respective subaccounts of the Reserve Account following such deposit is equal to the Reserve Requirement for the applicable series of Bonds. The Agency acknowledges that to the extent regulations of the Controller of the Currency or other applicable regulatory entity grant the Agency the right to receive brokerage confirmations of security transactions as they occur, the Agency specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Agency periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Series B Indenture. Moneys credited to any fund or account under the Series B Indenture which are uninvested pending disbursement or receipt of proper investment directions or as directed by the Agency as provided in the Series B Indenture, may be deposited to and held in a non-interest bearing demand deposit account established with the commercial banking department of the Trustee or any bank affiliated with the Trustee. The Trustee may make any investments under the Series B Indenture through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Series B Indenture. For purposes of acquiring any investments under the Series B Indenture, the Trustee may in its discretion commingle funds held by it under the Series B Indenture. The Trustee (or any of its affiliates) may act as principal or agent in the acquisition of any investment. The Trustee shall incur no liability for losses arising from any investments made pursuant to Section 7.07 of the Series B Indenture. For purposes of determining the amount on deposit in any fund or account held under the Series B Indenture, all Permitted Investments credited to such fund or account shall be valued by the Trustee, at least monthly, at the market value (excluding accrued interest, other than in the case of the Reserve Account (where accrued interest shall be included) and excluding brokerage commissions, if any). In making any such valuations, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system. Parity Bonds Issuance of Parity Bonds. The Series B Bonds and the Series B Bonds are issued on a subordinate basis to the Senior Lien Bonds and the Senior and Subordinate Lien Bonds. The Agency may issue bonds on a basis senior to the Series B Indenture so long as the provisions of the Senior Lien Bonds Indentures and the Series B Indenture have been satisfied. In addition to the Series B Bonds, the Agency may, by a Supplemental Indenture, issue Parity Bonds payable from Second Subordinate Tax Revenues as and to the extent provided in the Series B Indenture and secured by the pledge made under the Series B Indenture equally and ratably with the Series B Bonds previously issued. The Agency may issue, and the Trustee may authenticate and deliver to the purchasers thereof, Parity Bonds, in such principal amount as shall be determined by the Agency, but only upon compliance by the Agency with the provisions of Section 3.03 and Section 3.04 of the Series B Indenture and any additional requirements set forth in said Supplemental Indenture and subject to the following specific conditions, which are made conditions precedent to the issuance of any such Parity Bonds: (a) No Event of Default shall have occurred and then be continuing; (b) A Tax Revenue Certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, together with an allowance for estimated additional annual Tax Revenues to be received by the Agency within the Fiscal Year following the date such computation was made due to increase in taxable valuation of property in the Project Area resulting from the transfer of ownership or E-2-15

218 any other interest in real property but not yet entered on the tax roll, shall be at least equal to 110% of the sum of Annual Debt Service on the Senior and Subordinate Lien Bonds and the Series B Bonds (including such Parity Debt) for the then current Fiscal Year and all subsequent Fiscal Years through the final maturity of the Series B Bonds and any Parity Debt. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; (c) The Agency shall certify to the Trustee that the aggregate amount of the principal of and interest on all Outstanding Bonds (including the Senior Lien Bonds and Senior and Subordinate Lien Bonds) coming due and payable following the issuance of such Parity Bonds shall not exceed the maximum amount of Tax Revenues permitted under the Redevelopment Plan to be allocated and paid to the Agency following the issuance of such Parity Bonds, and shall not exceed any limitation on the time during which such tax increment revenues may be received; (d) The Supplemental Indenture authorizing the issuance of Parity Bonds shall provide that (i) interest on such Parity Bonds shall be calculated at a fixed interest rate if the Agency determines in such Supplemental Indenture that it is to be paid on a current basis, shall be payable on February 1 and August 1 in each year of the term of such Parity Bonds except the first twelve-month period during which interest may be payable on any February 1 or August 1, and (ii) the principal of such Parity Bonds shall be payable on August 1 in any year, as determined by the Agency, in which principal is payable; (e) Money shall be deposited in the Reserve Account or in a subaccount therein (or a reserve fund letter of credit, bank insurance policy or other comparable credit facility provided) in an amount equal to the Reserve Requirement for all outstanding Bonds, including such Parity Bonds; and (f) The Agency shall deliver to the Trustee a certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Bonds set forth in the Indenture have been satisfied and that the deposit into the Reserve Account as set forth above has been made. For the purposes of the calculation of the coverage requirements set forth in subsection (b) of this Section 3.03 with respect to the issuance of Parity Bonds, Outstanding Bonds and Parity Bonds shall not include a principal amount of such Parity Bonds, determined on such basis among maturities as the Agency may determine, equal to the proceeds of such Parity Bonds to be deposited in an escrow fund established for such Parity Bonds (the Escrowed Bonds ), provided that the Supplemental Indenture authorizing the issuance of such Parity Bonds shall provide that: (1) Such proceeds shall be invested in Permitted Investments, and an amount equal to the difference between the projected interest earnings on such proceeds and the interest due on the Escrowed Bonds shall be deposited in the Interest Account so as to pay interest on the Escrowed Bonds as it becomes due and payable; (2) Moneys may be transferred from the escrow fund established for the Escrowed Bonds only if a Tax Revenue Certificate shall be delivered to the Trustee which shows that the amount of Tax Revenues, based on assessed valuation of property in the Project Area as evidenced in the written records of the County shall be at least equal to 110% of the sum of Annual Debt Service on the Senior Lien Bonds, Senior and Subordinate Lien Bonds and the Series B Bonds (including such Parity Debt) for the then current Fiscal Year and all subsequent E-2-16

219 Fiscal Years through the final maturity of the Series B Bonds and any Parity Debt. For purposes of this calculation, Tax Revenues will be calculated using a 1% tax rate and shall further be reduced by (i) the amount of subventions paid by the State of California or any other amount appropriated by the State for the Agency; (ii) unless the Teeter Plan is currently in effect and the County has made no announcement that the Teeter Plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding five Fiscal Years; and (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non-subordinated Pass Through Agreements, regardless of whether such maximum percentage is in effect for that year. For example, if a Pass Through Agreement includes a step up provision or takes effect upon the occurrence of some event, that pass through shall be calculated at the maximum rate pursuant to the step up or as if the event had already taken place; and (3) Such Parity Bonds shall be redeemed from moneys remaining on deposit in the escrow fund established for the Escrowed Bonds at the expiration of a specified escrow period in such manner as may be determined by the Agency in the Supplemental Indenture. The Agency shall not issue any indebtedness bearing interest at variable rates. Any computations establishing that debt service coverage is sufficient to authorize to support the issuance of Parity Debt or that requisite debt service savings are available to support the issuance of refunding bonds shall, in all cases, be evidenced by a certificate of an Independent Certified Public Accountant or an Independent Financial Consultant. Proceedings for Issuance of Parity Bonds. Whenever the Agency shall determine to issue Parity Bonds pursuant to Section 3.03 of the Series B Indenture, the Agency shall authorize the execution of a Supplemental Indenture specifying the principal amount and prescribing the forms of such Parity Bonds and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates (or the manner of determining same), redemption provisions and place or places of payment of principal or of premium (if any) and interest on such Parity Bonds, and any other provisions respecting the Parity Bonds not inconsistent with the terms of the Series B Indenture. Before such Parity Bonds shall be issued and delivered, the Agency shall file the following documents with the Trustee: (a) An executed copy of the Supplemental Indenture authorizing such Bonds. (b) A Written Certificate of the Agency stating that, to the knowledge of the Agency, no Event of Default has occurred and is then continuing. (c) An opinion of Bond Counsel that the execution of the Supplemental Indenture has been duly authorized by the Agency in accordance with the Series B Indenture; that the Parity Bonds, when duly executed by the Agency and authenticated and delivered by the Trustee, will be legally valid and binding limited obligations of the Agency; and that the issuance of such Parity Bonds will not in and of itself impair the exclusion for federal income tax purposes of interest on any Outstanding Bonds. (d) A written certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Bonds set forth in Section 3.03 of the Series B Indenture have been satisfied. Subordinate Debt. Nothing in the Series B Indenture shall be intended or construed in any way to prohibit or impose any limitations on the issuance by the Agency of bonds, notes, or other obligations or evidences of indebtedness payable from Second Subordinate Tax Revenues on a subordinate basis to the pledge of Second Subordinate Tax Revenues to the repayment of the Series B Bonds and any Parity Bonds ( Subordinate Debt ), provided that following an Event of Default under the Series B Indenture, E-2-17

220 no Subordinate Debt shall be paid prior to the Series B Bonds or any other Parity Debt in any fiscal year of the Agency. Modification or Amendments Amendments Permitted. The Series B Indenture and the rights and obligations of the Agency and of the Owners of the Series B Bonds may be modified or amended at any time by a Supplemental Indenture and pursuant to the affirmative vote at a meeting of Bondowners or with the written consent without a meeting of the Owners of a majority in aggregate principal amount of the Series B Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 8.04 of the Series B Indenture. No such modification or amendment shall (1) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the Agency to pay the principal thereof, or interest thereon, or any premium payable on the redemption thereof, at the time and place and at the rate and in the currency provided therein without the express consent of the Owner of such Bond, or (2) permit the creation by the Agency of any mortgage pledge or lien upon the Second Subordinate Tax Revenues superior to or on a parity with the pledge and lien created for the benefit of the Series B Bonds (except as otherwise provided in the Series B Indenture) or reduce the percentage of Bonds required for the affirmative vote or written consent to an amendment or modification or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. The Series B Indenture and the rights and obligations of the Agency and of the Owners of the Series B Bonds may also be modified or amended at any time by a Supplemental Indenture, but without the consent of any Bondowners, but only to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency in the Series B Indenture contained, other covenants and agreements thereafter to be observed or to limit or surrender any right or power in the Series B Indenture reserved to or conferred upon the Agency; or (b) to make modifications not adversely affecting any Outstanding series of Bonds of the Agency in any material respect, including an amendment pursuant to Section 5.05 of the Series B Indenture; or (c) with the written consent of the Trustee to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Series B Indenture, or in regard to questions arising under the Series B Indenture, as the Agency and the Trustee may deem necessary or desirable and not inconsistent with the Series B Indenture, and which shall not materially adversely affect the rights of the Owners of the Series B Bonds; or (d) to provide for the issuance of any Parity Bonds, and to provide the terms and conditions under which such Parity Bonds may be issued, subject to and in accordance with the provisions of Section 3.03 and Section 3.04 of the Series B Indenture. Bondowners' Meetings. The Agency may at any time call a meeting of the Bondowners. In such event the Agency is authorized to fix the time and place of said meeting and to provide for the giving of notice thereof and to fix and adopt rules and regulations for the conduct of said meeting. Procedure for Amendment with Written Consent of Bondowners. The Agency may at any time adopt a Supplemental Indenture amending the provisions of the Series B Bonds or of the Series B Indenture or any Supplemental Indenture, to the extent that such amendment is permitted by Section 8.01 of the Series B Indenture, to take effect when and as provided in this section. A copy of such Supplemental Indenture, together with a request to Bondowners for their consent thereto, shall be mailed by the Agency to each registered Owner of Bonds Outstanding, but failure to mail copies of such Supplemental Indenture and request shall not affect the validity of the Supplemental Indenture when assented to as in this section provided. E-2-18

221 Such Supplemental Indenture shall not become effective unless there shall be filed with the Trustee the written consents of the Owners of a majority in aggregate principal amount of the Series B Bonds then Outstanding (exclusive of Bonds disqualified as provided in Section 8.04 of the Series B Indenture) and a notice shall have been mailed as hereinafter in this section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Series B Bonds for which such consent is given which proof shall be such as is permitted by Section of the Series B Indenture. Any such consent shall be binding upon the Owner of the Series B Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in this section provided for has been mailed. Any revocation received by the Trustee after such notice has been mailed shall be of no force or effect. After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Indenture, the Agency shall mail a notice to the Bondowners in the manner hereinbefore provided in this section for the mailing of the Supplemental Indenture, stating in substance that the Supplemental Indenture has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Indenture or consents thereto). Proof of the mailing of such notice shall be filed with the Trustee. A record consisting of the papers required by this section to be filed with the Trustee shall be proof of the matters therein stated until the contrary is proved. The Supplemental Indenture shall become effective upon the filing with the Trustee of the proof of mailing of such notice, and the Supplemental Indenture shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in this article) upon the Agency and the Owners of all Bonds at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty-day period. Events of Default; Remedies Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under the Series B Indenture: (a) if default shall be made in the due and punctual payment of the principal of or interest or redemption premium (if any) on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) if default shall be made by the Agency in the observance of any of the covenants, agreements or conditions on its part in the Series B Indenture or in the Series B Bonds contained, other than a default described in the preceding clause a), and such default shall have continued for a period of thirty (30) days following the receipt by the Agency of written notice from the Trustee or any Bondowner of the occurrence of such default; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30)-day period and if corrective action is instituted by the Agency within such thirty (30)-day period the Agency may diligently pursue such corrective action until such failure is corrected, but in no event more than 90 days following the receipt by the Agency of such notice; or (c) if the Agency shall file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property. E-2-19

222 If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, or if requested in writing by the Owners of a majority in aggregate principal amount of the Series B Bonds then Outstanding, the Trustee shall (a) declare the principal of the Series B Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the Series B Indenture or in the Series B Bonds to the contrary notwithstanding, and (d) subject to the provisions of Section 9.06 of the Series B Indenture, exercise any other remedies available to the Trustee and the Bondowners in law or at equity. Immediately upon obtaining actual knowledge of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Agency by telephone confirmed in writing. Such notice shall also state whether the principal of the Series B Bonds shall have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clause (a) or (c) above the Trustee shall, and with respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Owners of the Series B Bonds in the same manner as provided herein for notices of redemption of the Series B Bonds. Upon declaration of an Event of Default, the Agency shall transfer the Special Fund and all moneys therein to the Trustee who shall hold such Special Fund for the benefit of the Bondholders until such Event of Default shall have been cured. This provision, however, is subject to the condition that if, at any time after the principal of the Series B Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all principal on the Series B Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Series B Bonds, with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Series B Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Series B Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all of the Series B Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Subject to the provisions of the Series B Indenture, the Trustee agrees to enforce by mandamus, suit or other proceeding at law or in equity the covenants and agreements of the Agency. Application of Funds Upon Acceleration. All of the Second Subordinate Tax Revenues and all sums in the funds and accounts established and held by the Trustee under the Series B Indenture upon the date of the declaration of acceleration (other than the Rebate Account, if any) as provided in Section 9.01 of the Series B Indenture, and all sums thereafter received by the Trustee under the Series B Indenture, shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the fees, costs and expenses of the Trustee and thereafter of the Bondowners in declaring such Event of Default, including reasonable compensation to its or their agents, attorneys and counsel; and Second, to the payment of the whole amount then owing and unpaid upon the Series B Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the Outstanding Bonds (to the extent that such interest on overdue installments of principal and interest shall have been collected), and in case such moneys shall be E-2-20

223 insufficient to pay in full the whole amount so owing and unpaid upon the Series B Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, or any Bond over any other Bond, ratably to the aggregate of such principal and interest. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Series B Indenture, whether upon its own discretion or upon the request of the Owners of a majority in principal amount of the Series B Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Series B Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in principal amount of the Outstanding Bonds under the Series B Indenture opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. ESCROW AGREEMENT Escrow Fund; Disposition of Earnings. The Escrow Agreement establishes a special fund, to be held in trust by the Escrow Holder for the benefit of the holders and owners of the Refunded Bonds with respect to the payment of the principal of and interest on the Refunded Bonds through August 7, 2007, and the principal of, redemption premium and interest on the Refunded Bonds payable as redemption price for the Refunded Bonds remaining outstanding on said date, to be known as the Escrow Fund. There shall be deposited in and credited to the Escrow Fund the Federal Securities described in Exhibit A of the Escrow Agreement and amounts, if any, derived by the Escrow Holder with respect thereto. All Federal Securities, and amounts held in the Escrow Fund, together with any interest or gain derived from the investment thereof, shall be retained by the Escrow Holder in the Escrow Fund. Any balance remaining in the Escrow Fund after all of the Refunded Bonds shall have been paid in full and any reasonable fees and expenses of the Escrow Holder have been paid shall be transferred to the Agency as its property free and clear of the lien of the Escrow Agreement or the Indentures. The Escrow Fund shall thereupon be terminated. Compensation to Escrow Holder. The Escrow Holder shall look solely to the Agency for compensation for its duties under the Escrow Agreement and shall have no right whatsoever against the Escrow Fund for fees, compensation, costs or expenses until after provision for payment of the redemption price of the Refunded Bonds on August 7, The Agency shall also reimburse the Escrow Holder from available funds of the Agency for out-of-pocket costs such as legal fees and other costs and expenses relating hereto, but under no circumstances shall amounts deposited in the Escrow Fund be deemed to be available for said purposes except upon payment in full first having been made on the Refunded Bonds. Immunities and Liabilities of Escrow Holder. The Escrow Holder may consult with counsel of its own choice (which may be counsel to the Agency) and the opinion of such counsel shall be full and complete authorization to take or suffer in good faith any action in accordance with such opinion of counsel. herein. The Escrow Holder shall not be responsible for any of the recitals or representations contained The Escrow Holder shall not be liable for the accuracy of any calculations provided as to the sufficiency of the moneys or Federal Securities deposited with it to pay the principal, interest, or premiums, if any, on the Refunded Bonds. The Escrow Holder shall not be liable for any action or omission of the Agency under the Escrow Agreement or the Indentures. E-2-21

224 Whenever in the administration of the Escrow Agreement the Escrow Holder shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Series B Indenture, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Escrow Holder, be deemed to be conclusively proved and established by a certificate of an authorized representative of the Agency, and such certificate shall, in the absence of negligence or willful misconduct on the part of the Escrow Holder, be full warrant to the Escrow Holder for any action taken or suffered by it under the provisions of the Escrow Agreement upon the faith thereof. The Escrow Holder may conclusively rely, as to the truth and accuracy of the statements and correctness of the opinions and the calculations provided, and shall be protected and indemnified, in acting, or refraining from acting, upon any written notice, instruction, request, certificate, document or opinion furnished to the Escrow Holder signed or presented by the proper party, and it need not investigate any fact or matter stated in such notice, instruction, request, certificate or opinion. Unclaimed Funds. Notwithstanding any other provision of the Escrow Agreement, any money held by the Escrow Holder under the Series B Indenture in trust remaining unclaimed for one (1) year after the principal of all of the Refunded Bonds shall have been paid in full on August 7, 2007 shall then be repaid to the Agency and the holders and owners of the Refunded Bonds shall thereafter be entitled to look only to the Agency for the repayment thereof, and liability of the Escrow Holder with respect to such money shall thereupon cease. In the event of the repayment of any such money to the Agency as aforesaid the holders of the Refunded Bonds secured hereby with respect to which such money was deposited shall thereafter be deemed to be unsecured creditors of the Agency, without interest. Notwithstanding the foregoing, the Escrow Holder shall, upon the written request of the Agency, repay such money to the Agency at any time earlier than one (1) year if failure to repay such money to the Agency within such earlier period shall give rise to the operation of any escheat statute under applicable law. E-2-22

225 APPENDIX F BOOK-ENTRY ONLY SYSTEM The information in this Appendix concerning DTC and DTC s book-entry system has been obtained from sources that the Agency believes to be reliable, but the Agency takes no responsibility for the accuracy thereof. The Agency gives no assurances that (i) DTC, the Direct and Indirect Participants or others will distribute payments of principal, premium (if any) or interest with respect to the Bonds paid to DTC or its nominee as, the registered owner, to the Beneficial Owners, (ii) such entities will distribute redemption notices or other notices, to the Beneficial Owners, or (iii) an error or delay relating thereto will not occur. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, 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 Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. F-1

226 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity 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 the Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium (if any) and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Agency or the Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts 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 Agency or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any) and interest payments with respect to the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Agency or the 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 Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Agency may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered in accordance with the provisions of the Indenture. F-2

227 APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the REDEVELOPMENT AGENCY OF THE CITY OF AZUSA (the Agency ) in connection with the issuance of the $15,780,000 Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area Taxable Tax Allocation Bonds (Subordinate Lien), 2007 Series A and the $4,790,000 Redevelopment Agency of the City of Azusa Merged Central Business District and West End Redevelopment Project Area Tax Allocation Bonds (Second Subordinate Lien), 2007 Series B Bonds (collectively, the Bonds ). The Bonds are being issued pursuant to two Indenture, each dated as of July 1, 2007 and Wells Fargo Bank, National Association, as successor trustee (the Trustee ). The Agency hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Agency for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Dissemination Agent shall mean the Wells Fargo Bank, National Association, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency and the Trustee 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. Currently, the following are National Repositories: Bloomberg Municipal Repositories P.O. Box 840 Princeton, New Jersey Phone: (609) Fax: (609) Munis@Bloomberg.com Kenny Information Systems, Inc. Attention: Kenny Repository Service 65 Broadway, 16 th Floor New York, New York Phone: (212) Fax: (212) DPC Data Inc. One Executive Drive Fort Lee, New Jersey Phone: (201) Fax: (201) nrmsir@dpcdata.com Thomson NRMSIR Attention: Municipal Disclosure 395 Hudson Street, 3 rd Floor New York, New York Phone: (212) or (800) Fax: (212) Disclosure@Muller.com G-1

228 Bonds. Official Statement shall mean the final Official Statement, dated July 18, 2007, relating to the Participating Underwriter shall mean the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean each National Repository and each State Repository. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State 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. As of the date of this Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The Agency shall, or shall cause, the Dissemination Agent to, not later than one hundred and eighty (180) days after the end of the Agency s fiscal year, commencing with the report for the fiscal year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate, with a copy to the Trustee. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may crossreference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the Agency s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c) hereof. (b) If the Agency is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Agency shall send a notice to that effect to the Municipal Securities Rulemaking Board in substantially the form attached hereto 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) file a report with the Agency (if the Dissemination Agent is other than the Agency) 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. (d) Notwithstanding any statement to the contrary, any filing under this agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the MAC ), or any other central post office approved by the Securities and Exchange Commission, 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, Section 4. Content of Annual Reports. The Agency s Annual Report shall contain or incorporate by reference the following: G-2

229 (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 Agency s audited financial statements are not available at the time the Annual Report is required to be filed pursuant to Section 3(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; (b) The following financial information and operating data set forth in the final Official Statement: (i) Ten largest property tax payers in the Project Area, including name, use code, secured value, unsecured value, total value and percent of total value; (ii) Annual assessed valuations, tax increment values, Tax Revenues (as defined in the Indenture) and coverage ratio of Tax Revenues to debt service on Bonds and all parity debt; and (iii) Discussion of any property tax appeals, which, either alone or in the aggregate could have material adverse effect on Tax Revenues. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the Bonds, (7) Modifications to rights of Bondholders. (8) Optional, contingent or unscheduled Bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the Bonds. (11) Rating changes. (b) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall as soon as possible determine if such event would be material under applicable Federal Securities law. G-3

230 (c) If the Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Agency shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each Repository, with a copy to the Trustee. 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 Bonds pursuant to the Indenture. Section 6. Termination of Reporting Obligation. The Agency s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Agency shall give notice of such termination on the same manner as for a Listed Event under Section 5(c) hereof. Section 7. Dissemination Agent. The Agency may, from time to time, appoint or engage a Disseminating Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Agency. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Agency may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) the amendment or waiver, if it relates to annual or event information to be provided, is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Agency or type of business conducted; (b) 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 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; (c) the proposed amendment or waiver (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of Bondholders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interest of Bondholders; and (d) no amendment increasing or affecting the obligations or duties of the Dissemination Agent or the Trustee shall be made without the consent of either party. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the annual financial information 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 Agency 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. G-4

231 Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Certificate, the Trustee at the written request of any Participating Underwriter or holders of at least 25 percent in aggregate amount of Outstanding Bonds, shall, but only to the extent indemnified to its satisfaction from and against any loss, cost, expense or liability of any kind whatsoever, including, without limitation, fees and expenses of its attorneys and additional fees and expenses of the Trustee, or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Agency 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 Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the Agency to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Agency agrees to indemnify and save the Dissemination Agent (if other than the Agent), its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. Section 12. Beneficiaries. The Disclosure Certificate shall inure solely to the benefit of the Agency, the Dissemination Agent, the Trustee, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. IN WITNESS WHEREOF, the Agency has caused its duly authorized officer to execute and deliver this Certificate on the date first written above. REDEVELOPMENT AGENCY OF THE CITY OF AZUSA By: Name: Title: G-5

232 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Agency: Redevelopment Agency of the City of Azusa Names of Bond Issues: Redevelopment Agency of the City of Azusa Amended and Restated Merged Central Business District and West End Redevelopment Project Area $15,780,000 Taxable Tax Allocation Bonds (Subordinate Lien) 2007 Series A and $4,790,000 Tax Allocation Bonds (Second Subordinate Lien) 2007 Series B Date of Issuance: July 31, 2007 NOTICE IS HEREBY GIVEN that the Redevelopment Agency of the City of Azusa (the Agency ) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate dated, 2007, executed by the Agency for the benefit for the holders and beneficial owners of the above-referenced bonds. The Agency anticipates that the Annual Report will be filed by. Dated: REDEVELOPMENT AGENCY OF THE CITY OF AZUSA By: Name: Title: Exhibit A-1

233 APPENDIX H SPECIMEN OF BOND INSURANCE POLICY H-1

234 (THIS PAGE INTENTIONALLY LEFT BLANK)

235 Financial Guaranty Insurance Policy Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York Telephone: (212) Obligor: Policy Number: Obligations: Premium: Ambac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees to pay to The Bank of New York, as trustee, or its successor (the Insurance Trustee ), for the benefit of the Holders, that portion of the principal of and interest on the above-described obligations (the Obligations ) which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor. Ambac will make such payments to the Insurance Trustee within one (1) business day following written notification to Ambac of Nonpayment. Upon a Holder s presentation and surrender to the Insurance Trustee of such unpaid Obligations or related coupons, uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Holder the amount of principal and interest which is then Due for Payment but is unpaid. Upon such disbursement, Ambac shall become the owner of the surrendered Obligations and/or coupons and shall be fully subrogated to all of the Holder s rights to payment thereon. In cases where the Obligations are issued in registered form, the Insurance Trustee shall disburse principal to a Holder only upon presentation and surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free of any adverse claim, together with an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or such Holder s duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or its nominee. The Insurance Trustee shall disburse interest to a Holder of a registered Obligation only upon presentation to the Insurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to the Insurance Trustee of an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee, duly executed by the Holder or such Holder s duly authorized representative, transferring to Ambac all rights under such Obligation to receive the interest in respect of which the insurance disbursement was made. Ambac shall be subrogated to all of the Holders rights to payment on registered Obligations to the extent of any insurance disbursements so made. In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on an Obligation which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from the Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such Holder will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. As used herein, the term Holder means any person other than (i) the Obligor or (ii) any person whose obligations constitute the underlying security or source of payment for the Obligations who, at the time of Nonpayment, is the owner of an Obligation or of a coupon relating to an Obligation. As used herein, Due for Payment, when referring to the principal of Obligations, is when the scheduled maturity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity; and, when referring to interest on the Obligations, is when the scheduled date for payment of interest has been reached. As used herein, Nonpayment means the failure of the Obligor to have provided sufficient funds to the trustee or paying agent for payment in full of all principal of and interest on the Obligations which are Due for Payment. This Policy is noncancelable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. SPECIMEN President Secretary Effective Date: THE BANK OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy. Form No.: 2B-0012 (1/01) A- Authorized Representative Authorized Officer of Insurance Trustee

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