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HomeMy WebLinkAbout6/15/2005 - STAFF REPORTS (15) u w q�IFOR�� City Council Staff Report CITY COUNCIL JUNE 15, 2005 LEGISLATIVE ITEM SUBJECT: ASSESSMENT DISTRICT NO. 164, "MOUNTAIN GATE II" FROM: David H. Ready, City Manager BY: Public Works and Engineering Department SUMMARY This item will complete the proceedings related to Assessment District No. 164 (AD 164) formed by previous City Council action on December 1, 2004, related to the "Mountain Gate II" development, being constructed by Mountain Gate II Palm Springs Ventures, LLC. A delay was required between the formation of AD 164 and the issuance and sale of bonds to fund AD 164 to allow the appraised value of the Mountain Gate II development to reach the City's minimum criteria of a 4 to 1 value to lien ratio. RECOMMENDATION: 1. Adopt Resolution No. "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, AUTHORIZING THE ISSUANCE AND SALE OF LIMITED OBLIGATION BONDS IN THE AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $3,806,000 FOR THE PURPOSE OF FINANCING THE ACQUISITION AND CONSTRUCTION OF PUBLIC IMPROVEMENTS FOR ASSESSMENT DISTRICT NO. 164 ("MOUNTAIN GATE II"), AND APPROVING RELATED AGREEMENTS AND ACTIONS." 2. Authorize the City Manager to execute all necessary documents. STAFF ANALYSIS: On December 1, 2004, the City Council approved the formation of Assessment District No. 164 (AD 164) in accordance with the Municipal Improvement Act of 1913, and the Item No. 3.A. City Council Staff Report June 15, 2005— Page 2 Assessment District No. 164 Improvement Bond Act of 1915, through the provisions of the Streets and Highways Code (see Attachment 1). As disclosed in the attached staff report, the appraisal performed on the vacant property being constructed as the Mountain Gate II development was not expected to have sufficient value to meet the City's minimum requirement of a 4 to 1 value to lien ratio for publicly financed private development projects. AD 164 was approved with a total bond amount of $3,806,000, requiring a minimum property value of $15,224,000. The appraisal determined that the required value would not exist until the rough grading of the development had been completed. As of the date of this report, the rough grading and installation of the sewer system has been completed, installation of the water system and street improvements have commenced; and construction of the first phase of homes has begun. The current appraised value of the property has been determined to be $18,200,000.resulting in a value to lien ratio of 4.8 to 1. The City's Financial Advisor has determined that the City's minimum requirements for completing the process related to AD 164 are satisfied, and recommends that the City Council authorize the issue and sale of$3,806,000 of City of Palm Springs 2005 Limited Improvement Obligation Bonds. Staff recommends that the attached Resolution be adopted, and that all associated actions be approved related to AD 164. FISCAL IMPACT: Although the City is the issuer of the tax-exempt obligations for AD 164, the City does not incur any obligation to satisfy payment of the annual assessments. Failure of payment of any of the assessments levied against the properties within AD 164 constitute a foreclosable lien on such properties if unpaid, which is used to secure and satisfy the annual bond payments. No fiscal impact will result from the City's approval of this action. David J. Barakian David H. Ready Director of Public Works/City Engineer City Manager Attachments: 1. December 1, 2004 staff report 2. Resolution DATE: December 1, 2004 TO: City Council FROM: Director of Public Works/City Engineer ASSESSMENT DISTRICT 164 RECOMMENDATION: It is recommended that the City Council approve various Resolutions related to the proposed formation of a 1913 Act Assessment District, using 1915 Act Bonds for certain eligible public improvements for the development project known as Mountain Gate II consisting of Tract No. 32028 and 32028-1, located on the northeast side of State Highway 111 north of Gateway Drive. SUMMARY: On July 28, 2004, the City Council approved an application for further processing of the formation of Assessment District 164,submitted by Mountain Gate II Palm Springs Ventures, LLC. The City Council's authorization allowed staff to select and negotiate contracts with consultants for an assessment engineer's report, appraisal and market absorption study; and authorized the collection of necessary deposits from the applicant to fund consultant contracts. On October 6, 2004, the City Council adopted a Resolution of Intention to consider the formation of Assessment District 164, scheduling a Public Hearing for consideration of its formation for December 1, 2004. The purpose of this Public Hearing is to consider all information related to the application forformation of Assessment District 164, public testimony related thereto, and consideration of adoption of various Resolutions that will implement formation of Assessment District 164. BACKGROUND: Mountain Gate II Palm Springs Ventures, LLC, is the developer for Tentative Tract No. 32028 located on the northeast side of State Highway 111 north of Gateway Drive. The Tentative Tract Map was approved by City Council on July 7,2004, and the final maps(Tract Map No. 32028 and 32028-1)were approved by City Council on November 17, 2004. The overall development consists of 196 single family residential lots. Carlos Cueva, of Mountain Gate II Palm Springs Ventures, LLC, has submitted an application for formation of a 1913 Act Assessment District, identified as Assessment District 164, using 1915 Act Bonds for the public improvements for this development. Following a review of the application by the City's Special Districts Committee, City Council authorized further processing of the formation of Assessment District 164 at its July 28, 2004, meeting. The Council's authorization allowed for City staff to select and award various consultant contracts necessary to provide information necessary for the formation of Assessment District 164, as well as scheduled the formal Public Hearing for consideration of the formation of Assessment District 164 for the December 1, 2004, meeting. As discussed during Council's consideration of Assessment District 164 at its July 28 meeting, the applicant is proposing that Assessment District 164 fund public sewer improvements, water improvements, street improvements, sewer fees, water Assessment District 164 December 1, 2004 Page 2 fees, utility undergrounding improvements,engineering costs, and all district formation and financing costs. The final confirmed engineer's total Assessment District bond amount is $3,806,000. As shown on Attachment 2 (the "Financing Summary"), the final confirmed engineer's estimate forAssessment District 164 results in a per lot annual assessment of$1,784 forthe larger"El Dorado"units, and a per lot assessment of$1,438 for the smaller"Ventana"units. These annual assessments assume a bond term of 25 years at a rate of 6.0% will be obtained once a sale of the bonds is completed. The final confirmed costs of the Assessment District and resulting assessments comply with the City's Policy regarding Special"Assessment Districts; and the value to lien ratio will meet or exceed the 4:1 requirement, and the overall tax rates are below the 2% maximum allowed by law, (1.71% for the "El Dorado" units and 1.67%for the "Ventana" units). In accordance with the approved appraisal for the property, the required value of the property necessary to exceed the 4:1 value to lien ratio will not occur until such time that the development is under construction, and the rough grading of the pads has been completed. A grading plan for the development is nearing completion and will soon be ready for the City Engineer's approval, and it is expected that grading of the development will be completed within the next few months. Upon completion of the grading of the development and confirmation that the appraised value of the property has met or exceeded the minimum 4:1 value to lien ratio, staff will schedule the City Council's formal action on the issuance and sale of limited obligation bonds for the purposes of financing Assessment District 164. After the formation of Assessment District 164 is complete,the City will be the issuer of the tax-exempt obligations for the Assessment District. The City does not incur any obligation for the subject debt, which will be secured and payable solely from assessments on the properties within Assessment District 164 and will constitute a foreclosable lien on such properties if unpaid. Following consideration of public testimony at the Public Hearing, the City Council may consider approval of various Resolutions that will allow staff to proceed with formation of Assessment District 164. Resolutions are required to certify the results of the assessment ballot proceedings, approving the final Engineer's Report, approving joint financing agreements with Desert Water Agency and Southern California Edison, and ratifying all actions necessary for the formation of Assessment District 164 as required by state law and the California Constitution. The City Council's approval of the various Resolutions in no way commits the City to any financial contribution or liability to repay the bond indebtedness. Unpaid assessments are secured through foreclosable liens, and City staff costs to administerthe Assessment District and are reimbursed through the annual assessments levied to the property owners within the Assessment District. SUBMITTE AVID APPROVED: �� DAVID J. BARAKIAN D H. READY Director of Public Works/City Engineer City Manager ATTACHMENTS: 1. Resolutions (5), 2; Financing Summary, 3. Assessment District Map l Mountain Gate Oin Phase II �� Assessment `' District No. 164 s _ Tract No. 32028 0�ii �,}IA ' ,g' AD will Finance Approx $2.9 Million to Reimburse Developer for: Water and Sewer Facilities Undergrounding Utilities Exterior Landscape Development Impact Fees (Developer Funding $509,000) Acquisition Fund $ 2,940,000 Reserve Fund 301,000 Capitalized Interest 317,000 Underwriting 76,000 Costs 172,000 Total Assessment $3,806,000 Bond Term — 25 Years Effective Interest Rate — 6.0% Overall Tax Rates: Ventana 1.67% El Dorado 1.71% Including General, Assessment Bonds Will Not Be Issued Until and LMD Value to Lien Equals 4 to 1 Par Amount $3,806,000 Value Needed $15,224,000 Estimated Annual Assessment: Ventana $1,438 El Dorado $1,784 Revised: November 18, 2004 rEnxEm 11d5_DAY 6 ,YA3 AT TE I W ASSESSMENT DIAGRAM FOR 1 2 JI4LIX_M.➢i BTU(_PA63_ff 11APG ff.l@9Q.T ASSESSAENT DISTRICT NO. 164 Ab mMBMIiY FAm_TilE9 UL211@T2]T TE 6FT£6 TIE OMfY �➢1 TE mIMY ff W4IIBI�IfATE O<flLOx)MA. ASSESS�AO. OOSK2IY (A/OUNTAN GATE 2 ) A T�5 PA kM Ao. GAM'L.Cl6q N14ISIDE UILNfY/.'�ODK-R��A Ri7-3c'O-pf3-B er CITY OF PALM SIMMS, COLAWY OF RIMM79 STATE OF CALFORMA DISTRICT BOUNDARY 1 F➢1➢Dl TE LFF9£6 i!E 9PrA1MB6Hf 6'SfiHl+6 ) TE CIIT 0=PI1M 6Fpl�TtS_aT LF ..'003. 5 9WmTF1RTT ff= Ll,Y ff vruA wxar. ( TPA CT NO. e6AtE 6�L l 32028 '« 11 l� �lsiA Sr Sr tr AN A5�1f 141x IEViET BY 1FE CITY WINCIL pF 1!E CItt ff f5 9e « Ir lel. PN.M 3gIH$p1 T1E LGI$Pg�9,.W1 PMiF19 lF IAIO SY.W �� .a TAa A�QlI onaLw a TIE_ar ff_mux. am Aster BnaAw Aro nE w�ert PIIL epE U �• TJ TIE tFFLE ff LIE lFHITIIB(EWT 6 SIfEkTB W TIE_aY « r r y ALTA ff xmx.rErE�eas a APLE m TIE AS®O?xn>_ r6Qm IM T!E OFFI(£6 TE aromnomlr 6 eRE£Is Fox « xe �eST TtE ExAtr AILUIT of EAa A`9EgQ?L .GAva-r El,»vum z� E' so z9 PHASE 1 ff Loa saN w TE A�9FIR BTAaaw. �ti fe r ALTA CFESTA FIlID]N TE 6 lif cry R w TE Citt w P" �_- STTti STALE W CALTei TIH_aY ff SIXi tl )> « m r :E za CIT'GFIK BF,iIE CITY Of PAW 9iVBY5 STATE!F CALffOfNTA TI E _ LpNA DI a 6 0 p�/UC�� TNO. 65 B3 « 32028 fPwA,aA « r « qr is pGt so 37 r n r « It f II M s 3e + " u .z MCT NO. II ASS M. m1-aws - 32028-1 Y ASSE33MS PAFML W. sw w!a a (iFSBYOII.6 r HIp r fa c 9 « u A « 6 C' q lA u n 52 , ++ 6A�iAJ. r 4. 5' 6 + "Y �o s .. N.i.S. WfA aAwo ON r r 47 TRACT AV. -%WS IOs-Lois r9$Aas LEGETD r TRACT W. 32128-1 s1-Lors YjAe Aam LOS=exraun � .o �r TOTAL- M-LOTS 3137 ACES ----- NiEl LAp1QLA}Y WT m SruE YjST. A L e E A T A. TM A54RAE11 pUplWl D]eFLRY 80A5 FIq 4 ARAn LOT _ �B `"A a omxmfT.'O'Pm m'�anm°p'n 1¢'Te Aw n a Lnum aae zr ( 32028 N� pp"FS WYSE 111 GI A14QSItl6 AF Lp18 O1 vlim9(£FFfi m TIE @NfY s oA� C I F f l:5 Ada wcR iYl Fl9f.1L YFM�}iWA, W.O. 04-0339 CF RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, AUTHORIZING THE ISSUANCE AND SALE OF LIMITED OBLIGATION BONDS IN THE AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $3,806,000 FOR THE PURPOSE OF FINANCING THE ACQUISITION AND CONSTRUCTION OF PUBLIC IMPROVEMENTS FOR ASSESSMENT DISTRICT NO. 164 ("MOUNTAIN GATE II"), AND APPROVING RELATED AGREEMENTS AND ACTIONS WHEREAS, the City has taken proceedings for the levy of assessments and the issuance of bonds (the "Bonds") under the provisions of the Municipal Improvement Act of 1913, Division 12 of the Streets and Highways Code and the Improvement Bond Act of 1915, Division 10 of said Code (the "Act'); and WHEREAS, the City has determined at this time to issue its City of Palm Springs 2005 Limited Obligation Bonds Assessment District No. 164 (Mountain Gate II) ("Assessment District No. 164") in the aggregate principal amount of not to exceed $3,806,000 (the 'Bonds") for the purpose of providing funds to acquire and construct certain public improvements benefiting properties in Assessment District No. 164, to be secured by a pledge of and first lien on the revenues to be derived from the levy and collection of the assessments, which revenues are designed to be sufficient in time and amount to pay the principal of premium, if any, and interest on the Bonds as the same become due and payable; and WHEREAS, the City Council of the City wishes at this time to authorize all proceedings relating to the issuance of the Bonds, and to approve the execution and delivery of all agreements and documents relating thereto. THE CITY COUNCIL OF THE CITY OF PALM SPRINGS DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. Adoption of Authorizinq Procedures. The City Council hereby authorizes the Bonds to be issued pursuant to the Act. SECTION 2. Issuance of Bonds; Approval of Fiscal Aqent Aqreement. The Bonds shall be issued in the maximum principal amount of not to exceed $3,806,000, pursuant to a Fiscal Agent Agreement, dated as of July 1, 2005 (the "Fiscal Agent Agreement'), by and between the City and The Bank of New York Trust Company, N.A., as Fiscal Agent (the "Fiscal Agent'). The City Council hereby approves the Fiscal Agent Agreement in substantially the form on file with. the City Clerk, together with any changes therein or additions thereto approved by the Mayor, City Manager, City Attorney, Finance Director, the City Clerk or such other official of the City as may be designated by the Council (each an "Authorized Officer"), provided that the execution thereof by an Authorized Officer shall be conclusive evidence of the approval of any such changes or additions. The City Council hereby authorizes and directs an Authorized Officer to execute, Page 3 and the City Clerk to attest to the final form of the Fiscal Agent Agreement for and in the name of the City. The City Council hereby authorizes the delivery and performance of the Fiscal Agent Agreement. The City Council hereby directs the Finance Director and Treasurer to execute and the City Clerk to attest to the Bonds pursuant to the Act. As provided in the Fiscal Agent Agreement, the proceeds of the Bonds shall be applied by the City to acquire and construct certain public improvements as per the Engineer's Report. SECTION 3. Sale of Bonds. The City Council hereby approves the sale of the Bonds by negotiation with Stone & Youngberg, LLC (the "Underwriter"). The Bonds shall be sold pursuant to a Bond Purchase Agreement (the "Bond Purchase Agreement") by and between the City and the Underwriter in the form on file with the City Clerk, together with any changes therein or additions thereto approved by an Authorized Officer, provided that the execution thereof by an Authorized Officer shall be conclusive evidence of the approval of any such additions and changes. The Bond Purchase Agreement shall be executed in the name and on behalf of the City by an Authorized Officer upon submission of a proposal by the Underwriter to purchase the Bonds; provided, however, that such proposal is acceptable to an Authorized Officer and is consistent with the requirements of this Resolution. The amount of Underwriter's discount shall be not more than 2.00% of the par amount of the Bonds and the true effective rate of interest to be borne by the Bonds (taking into account any original issue discount on the sale thereof) shall not exceed 6.00% per annum. SECTION 4. Official Statement. The City Council hereby approves, and hereby deems final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the Preliminary Official Statement describing the Bonds in substantially the form on file with the City Clerk. An Authorized Officer is hereby authorized to execute an appropriate certificate stating the City Council's determination that the Preliminary Official Statement has been deemed final within the meaning of such Rule. Distribution of the Preliminary Official Statement in connection with the sale of the Bonds is hereby approved. An Authorized Officer is hereby authorized and directed to approve any changes in or additions to a final form of said Official Statement, provided that the execution thereof by an Authorized Officer shall be conclusive evidence of the approval of any such changes and additions. The City Council hereby authorizes the distribution of the final Official Statement by the purchaser of the Bonds. The final Official Statement shall be executed in the name and on behalf of the City by an Authorized Officer. SECTION 5. The City Council hereby approves the Continuing Disclosure Certificate between the City and The Bank of New York Trust Company, N. A., as dissemination agent, in substantially the form on file with the City Clerk, together with any changes therein or additions thereto approved by an Authorized Officer, provided that the execution thereof by an Authorized Officer shall be conclusive evidence of the approval of any such changes or additions. The City Council Kesowtion ivo. Page 4 hereby authorizes and directs an Authorized Officer to execute the final form of the Continuing Disclosure Agreement for and in the name of the City. SECTION 6. Official Actions. Each Authorized Officer is hereby authorized and directed, for and in the name and on behalf of the City, to execute any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which he or she may deem necessary or advisable in order to consummate the issuance and sale of the Bonds and any of the other transactions contemplated by the documents approved pursuant to this Resolution. Whenever in this resolution any Authorized Officer is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such Authorized Officer to act on his or her behalf in the case such officer shall be absent or unavailable. SECTION 7: Effective Date. This Resolution shall take effect from and after the date of its passage and adoption. ADOPTED THIS 15th day of June, 2005. David H. Ready, City Manager ATTEST: James Thompson, City Clerk CERTIFICATION STATE OF CALIFORNIA ) COUNTY OF RIVERSIDE ) ss. CITY OF PALM SPRINGS ) I, JAMES THOMPSON, City Clerk of the City of Palm Springs, hereby certify that Resolution No. is a full, true and correct copy, and was duly adopted at a regular meeting of the City Council of the City of Palm Springs on by the following vote: AYES: NOES: ABSENT: ABSTAIN: James Thompson, City Clerk City of Palm Springs, California 00) W DRAFT AS OF JUNE 6,20415 Ta e a .,".u, NEW ISSUE—BOOK-ENTRY-ONLY NOT RATED ,tea, •^ �^ (See"CONCLUDING INFORMATION-No Rating on the Bonds; Secondary Market"herein) C V In the opinion of Aleshire & Wynder, LET!, Irvine, California, Bond Counsel, based on existing statutes, regulations, ratings and court decisions and assuming, an7ong inatters, compliance th " Bonds is ex laded from gross income for federal income tax pi poses and is e,erupt frominterest tState of Californiaepersonal yam'; income tames. In the opinion of Bond Counsel, interest is not a specific preference item for purposes of the federal v ° individual or corporate alternative minimum taxes, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion b regarding other,federal or State tax consequences relating to the ownership or disposition of, or the accrual or receipt of the interest on the Bonds. See `LEGAL MATTERS—Tax Matters"herein. ❑ :b V RIVERSIDE COUNTY STATE OF CALIFORNIA a"+ v o o $3,806,000 CITY OF PALM SPRINGS a a = 2005 LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) o Dated: Date of Delivery Due: September 2 as Shown on the Inside Front Cover. a ❑ The cover page contains certain information for quick reference only. It is not a summary of the issue. Potential ° o investors must read the entire Official Statement to obtain information essential to the making of an informed °a investment decision. Investment in the Bonds involves risks. See "BONDHOLDERS' RISKS" herein for a • ° discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. mz .p City of Palm Springs 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) w ar (the"Bonds")are being issued by the City of Palm Springs(the"City")pursuant to a Fiscal Agent Agreement, dated as • c of July 1, 2005 (the"Fiscal Agent Agreement"),by and between the City and The Bank of New York Trust Company, N.A.,as fiscal agent(the"Fiscal Agent")to: (i)finance the costs of acquisition of certain public improvements serving m property within Assessment District No. 164 (the "District") of the City, (it) fund capitalized interest on the Bonds o a through September 2, 2006, (iii)pay costs related to the issuance of the Bonds, and (iv) make a deposit to a Reserve ,tZAccount. The Bonds are being issued pursuant to provisions of the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code(the"Bond Law"). The Bonds are payable from assessments levied pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the"1913 Act"). N c See"SOURCES OF PAYMENT FOR THE BONDS"and"BONDHOLDERS'RISKS"herein. hrterest on the Bonds is payable semiannually on March 2 and September 2 each year, commencing March 2, 2006 (each, ,in "brterest Payment Date"), until maturity or earlier redemption. The Bonds are subject to optional, special y mandatory and mandatory sinking payment redemption as described herein. See"THE BONDS-Redemption"herein. The Bonds are offered when, as and if issued subject to the approval as to their legality by Aleshire& Wynder, LLP, LI) Irvine, California, Bond Counsel and certain other conditions. Certain legal matters will be passed on for tine City by u m w the City Attorney and Jones Hall,A Professional Law Corporation, San Francisco, California,Disclosure Counsel. It is a anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC on or about ® u 2005. O 'a ;„„ •- STt7NG & YOUNGf3FRG LLC s, ry is IT H a The date of this Official Statement is , 2005. $3,806,000 CITY OF PALM SPRINGS 2005 LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) MATURITY SCHEDULE (BaseCUSIP� $ Serial Bonds Maturity Date Principal Interest Reoffering September 2 Amount Rate Yield CU I t 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $ % Term Bond maturing September 2, ,Price "/° CUSIP} f Copyright 2005, American Bankers Association. CUSIPOO data herein is provided by Standard & Poor's CUSIP Service Bureau. This data in not intended to create a database and does not serve in any way as a substitute for ' the CUSIP Service Bureau. CUSIP© numbers are provided for convenience of reference only. Neither the Agency nor the Underwriter takes any responsibility for the accuracy of such numbers. GENERAL INFORMATION ABOUT TIIIS OFFICIAL STATEMENT Use of Of Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City in any press release and in any oral statement made with the approval of an authorized officer of the City or any other entity described or referenced herein, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward-looking statements." Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward- looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Limit of'Offering. No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the City, the Financial Advisor or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has 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 Underwriter does not guarantee the accuracy or completeness of such information. Information Subject to Change. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. �5) CITY OF PALM SPRINGS,CALIFORNIA CITY COUNCIL Ronald Oden,Mayor Michael McCulloch,Mayor Pro-Tem Ghn y Foat, Council Member Christopher Mills, Council Member Stephen Pougnet, Council Member CITY STAFF David H. Ready, City Manager Troy L. Butzlaff,Assistant City Manager- Craig A. Graves,Director of Finance and Treasurer Dave Barakian,Director of Public Works/City Engineer Marcus Fuller, Senior Civil Engineer John S. Raymond,Director of Community&Economic Development Tames Thompson, City Clerk PROFESSIONAL SERVICES Bond Counsel Aleshire&Wynder, LIT Irvine, California Disclosure Counsel Jones Hall, A Professional Law Corporation San Francisco, California Financial Advisor Harrell& Company Advisors, LLC Orange, California Underwriter Stone&Youngberg LLC Los Angeles, California Assessment Engineer Albert A.Webb Associates Riverside, California Appraiser Harris Realty Appraisal Newport Beach,California Market Absorption Consultant Empire Economics Capistrano Beach,California Fiscal Agent The Bank of New York Trust Company,N.A. Los Angeles, California TABLE OF CONTENTS INTRODUCTION......................................................I Other Possible Claims Upon the Value of an The Issuer..................................................................1 Assessment Parcel................................................28 The District................................................................1 Direct and Overlapping Indebtedness......................30 Security and Sources of Repayment for the Bonds....I Bankruptcy Proceedings..........................................30 Put-pose......................................................................2 Payment of the Assessment Not a Personal PropertyValues..........................................................2 Obligation.............................................................30 Legal Matters.............................................................2 No City Obligation to Pay Debt Service..................30 Professionals Involved in the Offering......................3 Loss of Tax Exemption............................................31 Offering of the Bonds................................................3 No Acceleration Provision.......................................31 Information Concerning this Official Statement........3 Proposition 218;Possible Future Ballot Initiatives.31 THE BONDS...............................................................5 Payments by FDIC..................................................32 General Provisions.....................................................5 LEGAL MATTERS..................................................34 Book-Entry-Only System ..........................................6 Enforceability of Remedies.....................................34 Redemption................................................................6 Approval of Legal Proceedings...............................34 Scheduled Debt Service on the Bonds.......................8 Tax Matters..............................................................34 Estimated Uses of Funds............................................9 Absence of Litigation..............................................36 SOURCES OF PAYMENT FOR THE BONDS.....10 CONCLUDING INFORMATION..........................37 Repayment of the Bonds..........................................10 No Rating on the Bonds; Secondary Market...........37 Reserve Account......................................................11 Underwriting...........................................................37 THE CITY OF PALM SPRINGS............................12 The Financial Advisor.............................................37 Continuing Disclosure............................... .............37 THE DISTRICT.......................................................12 Additional Information............................................38 General.....................................................................12 References...............................................................38 Status of Development;Financing Plan...................13 Execution.................................................................38 Description of the Bond-Funded Improvements......14 APPENDIX A-SUMMARY OF THE FISCAL Estimated Improvement Costs.................................16 AGENTAGREEMENT Acquisition Agreement............................................16 The Developer.........................................................17 APPENDIX B—CITY OF PALM SPRINGS Appraised Values.....................................................20 INFORMATION STATEMENT Absorption Study.....................................................20 APPENDIX C—FORMS OF CONTINUING No Delinquencies in Property Tax Payments...........20 DISCLOSURE CERTIFICATES Total Effective Tax Rate..........................................21 Direct and Overlapping Debt...................................22 APPENDIX D—ASSESSMENT PARCEL Annual Levy............................................................24 LISTING BONDHOLDERS'RISKS.......................................25 APPENDIX E—FORM OF BOND COUNSEL General.....................................................................25 OPINION Foreclosure and Sale Proceedings...........................25 APPENDIX F—APPRAISAL REPORT Depletion of Reserve Account.................................26 Valuation of Property in the District........................26 APPENDIX G—ABSORPTION STUDY Factors Affecting Parcel Value and Aggregate APPENDIX H—DTC AND THE BOOK- Values....................................................................27 ENTRY-ONLY SYSTEM Prepayment of Assessments.....................................28 OFFICIAL STATEMENT $3,806,000 CITY OF PALM SPRINGS 2005 LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) This Official Statement which includes the cover page and appendices (the "Official Statement") is provided to famish certain information concerning the sale of the City of Palm Springs 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) (the `Bonds"), in the aggregate principal amount of$3,806,000. INTRODUCTION The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all teens and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized teens used in this Official Statement and not otherwise defined herein have the same meaning as in the Fiscal Agent Agreement(defined below). The Issuer The City of Palm Springs (the "City") was incorporated as a general law city on April 20, 1938. It became a charter city on July 12, 1994. The City encompasses 96.2 square miles in Central Riverside County. The City is located 108 miles east of downtown Los Angeles and 120 miles west of the Arizona border. Neighboring communities include Palm Desert, Rancho Mirage, Desert Hot Springs and Cathedral City(see"APPENDIX B-CITY OF PALM SPRINGS INFORMATION STATEMENT"herein). The District The land within Assessment District No. 164 (Mountain Gate II) (the"District") is comprised of a 31.4 acre site under development with single family detached homes located on the northeast corner of North Palm Canyon Drive and Chino Canyon Creel. The District is an extension of the Mountain Gate I residential conununity, which is located adjacent and to the east of the property. The District is segregated into two contiguous zones designated 1 and 2 (each, a "Zone" and collectively, the"Project"). The District is expected to have two component residential product lines,The Veutana Collection in Zone 1 and The El Dorado Collection in Zone 2, with a total of 196 single-family homes. The City has approved Tract Nos. 32028 and 32028-1 and Tract Maps for both tracts were recorded on December 2, 2004. For additional description of the District, see"THE DISTRICT"herein. Security and Sources of Repayment for the Bonds The Bonds are to be secured under the Fiscal Agent Agreement, dated as of July 1, 2005 (the "Fiscal Agent Agreement"), between the City and The Bank of New York Trust Company, N.A., Los Angeles, California, as fiscal agent (the "Fiscal Agent") (see "APPENDIX A- SUMMARY OF THE FISCAL AGENT AGREEMENT" herein) and pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Sheets and Highways Code) (the "1913 Act") and the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code) (the `Bond Law") (collectively, the "Assessment Bond Law"). 1 The Bonds are limited obligations of the City secured by a first lien on the unpaid assessments (the "Assessments")levied within the District by the City pursuant to the Assessment Bond Law and the funds pledged therefor under the Fiscal Agent Agreement. Assessments levied on the property in the District are estimated to be sufficient, if paid timely, to pay the aggregate amount of the principal and interest on the Bonds. See"SOURCES OF PAYMENT FOR THE BONDS" and"BONDHOLDERS'RISKS"herein. The City has covenanted to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of Assessments. For a more detailed description of the foreclosure covenant see "SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds - Covenant to Commence Foreclosure Proceedings." The Bonds are limited obligations of the City payable solely from the proceeds of unpaid Assessments levied on the Assessment Parcels (see "SOURCES OF PAYMENT FOR THE BONDS — Repayment of the Bonds" herein) within the District and other funds pledged corder the Fiscal Agent Agreement. The Bonds do not constitute a debt or liability of the State of California or of any political subdivision thereof, other than the City. The City shall only be obligated to pay the principal of the Bonds, and the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State of California or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds, except to the limited extent described herein. See "SOURCES OF PAYMENT FOR THE BONDS" and "BONDHOLDERS'RISKS" herein. Purpose Proceeds from the Bonds will be used to (i) finance the costs of acquisition of certain public improvements of benefit to property within the District, (ii) fund capitalized interest on the Bonds through September 2, 2006, (iii) pay costs related to the issuance of the Bonds, and (iv) make a deposit to a Reserve Account(see"THE BONDS—Estimated Uses of Funds"herein). Property Values Ann appraisal report (the "Appraisal Report") dated May 20, 2005 was prepared by Harris Realty Appraisal, Newport Beach, California (the "Appraiser") in connection with the Bonds. The propose of the Appraisal was to ascertain the market value of the fee simple estate for the assessed property in the District with May 1, 2005 as the dale of value. Subject to the assumptions contained in the Appraisal Report,the Appraiser estimated that the fee simple interest in the property in the District had an estimated aggregate value of $18,200,000 ($10,000,000 for Zone 1 and $8,200,000 for Zone 2). This estimate included the effect of the lien of the Assessments. See `BONDHOLDERS' RISKS," "APPENDIX F — APPRAISAL REPORT,"and"THE DISTRICT—Appraised Values." Legal Matters The legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Aleshire & Wynder, LLP, Irvine, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, are described more fully under the heading "LEGAL MATTERS" herein. Certain legal matters will be passed on for the City by .Tones Hall,A Professional Law Corporation, San Francisco, California, as Disclosure Counsel and by the City Attorney. 2 ��� � � ' l Professionals Involved in the Offering The Bank of New York Trust Company, N.A., Los Angeles, California, will serve as the fiscal agent, paying agent, registrar, authentication and transfer agent for the Bonds and perform the functions required of it under the Fiscal Agent Agreement for the payment of the principal of and interest and any premium on the Bonds and all activities related to the redemption of the Bonds. Aleshire & Wynder, LLP, Irvine, California, has served as Bond Counsel. Jones Hall, A Professional Law Corporation, San Francisco, California, has served as Disclosure Counsel. Harrell & Company Advisors, LLC, Orange, California, Financial Advisor, advised the City as to the financial structure and certain other financial matters relating to the Bonds. Harris Realty Appraisal,Newport Beach, California,prepared the Appraisal attached hereto as "APPENDIX F." Empire Economics, Capistrano Beach, California, prepared the Absorption Study attached hereto as"APPENDIX G." Payment of the fees of Bond Counsel, Disclosure Counsel and the Financial Advisor are contingent on the sale and delivery of the Bonds. Offering of the Bonds Authority for Issuance. The Bonds are issued by the City pursuant to the Assessment Bond Law and Resolution No. adopted by the City Council on , 2005 (the "Resolution"). The Bonds are being sold to Stone &Youngberg LLC (the "Underwriter"), pursuant to a Bond Purchase Agreement authorized by the Resolution. Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Aleshire & Wynder, LLP, Irvine, California, as Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery on or about 2005 through the facilities of The Depository Trust Company. Information Concerning this Official Statement This Official Statement speaks only as of its date. The information set forth herein has been obtained by the City with the assistance of Harrell & Company Advisors, LLC, (the "Financial Advisor") from sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor or Disclosure Counsel. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended as such and are not to be construed as representations of fact. Preliminary Official Statement Deemed Final. The information set forth herein is in a form deemed final, as of its date, by the City for the purpose of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended(except for the omission of certain information permitted to be omitted under the Rule). The information herein is subject to revision, amendment and completion in a Final Official Statement. The information and expressions of opinion herein are subject to change without notice and the delivery of this Official Statement shall not,under any circumstances, create any implication that there has been no change in the information or opinions set forth herein or in the affairs of the City since the date hereof. 3 Availability of Legal Documents. The stunmaries and references contained herein with respect to the Fiscal Agent Agreement and other statutes or docuuments do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Fiscal Agent Agreement Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Underwriter: Stone & Youngberg LLC, 515 S. Figueroa Street, Suite 1060, Los Angeles, California 90071, telephone (213) 443-5000. Copies of these documents may be obtained after delivery of the Bonds at the corporate trust office of the Fiscal Agent, The Bank of New York Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017 or from the City at 3200 E. Tahquitz Canyon Way,Palm Springs, California 92262,telephone(760)323-8221. 4 THE BONDS General Provisions Repayment of the Bonds. The Bonds will be issued in Authorized Denominations and will be dated the date of delivery thereof and will mature as set forth on the inside front cover page. "Authorized Denominations"means $5,000 or any integral multiples thereof, except for one odd bond, if any. Interest is payable on the Bonds at the rates per ann un set forth on the inside front cover page hereof,payable on Match 2, 2006 and on each September 2 and March 2 thereafter(the"Interest Payment Dates"). Interest with respect to the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30- day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (ii) a Bond is authenticated on or before August 15, 2005, in which event interest thereon will be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full,payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special Record Date to be established by the Fiscal Agent for the payment of such defaulted interest to be fixed by the Fiscal Agent, notice of which shall be given to such Owner by first class mail not less than ten days prior to such special Record Date. Interest shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds filed with the Fiscal Agent prior to any Record Date, interest on such Bonds shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing)by wire transfer of immediately available funds to an account in the United States designated in such written request. The principal of the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Fiscal Agent. Payment of principal of any Bond shall be made only upon presentation and surrender of such Bond at the Office of the Fiscal Agent. Transfer or Exchange of Bonds. Any Bond may, in accordance with its terns, be transferred upon the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Fiscal Agent shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount, in any authorized denomination. The Fiscal Agent shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Fiscal Agent for a like aggregate principal amount of Bonds of the same maturity of other authorized denominations. The City may charge a reasonable sum for each new Bond issued, and the Fiscal Agent shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. 5 The Fiscal Agent shall not be obligated to make any transfer or exchange of Bonds during the period established by the Fiscal Agent for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. Book-Entry-Only System The Depository Trust Company ("DTC"), New York, NY, 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 Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. Purchasers of beneficial interests in the Bonds will not receive physical certificates. For information on DTC and its book-entry system, see "APPENDIX H." Redemption Optional Redemption. The Bonds maturing on or after September 2, 2016 are subject to optional redemption prior to maturity at the option of the City on any Interest Payment Date on or after September 2, 2015, as a whole or in part from any source of available funds at a redemption price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest thereon to the date fixed for redemption as follows: Redemption Dates Redemption Prices September 2,2015 and March 2, 2016 102.0% September 2, 2016 and March 2, 2017 101.0% September 2,2017 and each Interest Payment Date thereafter 100.0% The Finance Director shall notify the Fiscal Agent of Bonds to be called for redemption 45 days prior to redemption whenever sufficient fiends are available therefor in the Assessment Revenue Fund to be established and held by the Finance Director of the City pursuant to the Fiscal Agent Agreement. Special Mandatory Redemption from Prepayments. The Bonds are subject to redemption prior to maturity on any Interest Payment Date on or after September 2, 2006 in whole or in part, and by lot, from amounts constituting prepayments of unpaid Assessments at a redemption price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed)together with accrued interest thereon to the date fixed for redemption as follows: Redemption Dates Redemption Prices September 2,2006 through March 2, 2010 103.0% September 2,2010 through March 2, 2015 102.5% September 2, 2015 and thereafter As Provided for Optional Redemption 6 Mandatory Sinking Payment Redemption of Bonds. The Bonds maturing September 2, , (the "Tenn Bonds") are subject to mandatory redemption, without premium, prior to their maturity date, in part by lot on September 2, in each year commencing September 2, , from mandatory sinking payments made by the City at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption in the aggregate principal amounts and on September 2 in the respective years as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Term Bonds may be purchased by the City and tendered to the Fiscal Agent, and(ii) if some but not all of the Term Bonds have been redeemed pursuant to optional redemption or special mandatory redemption provisions described above, the total amount of all future sinking payments shall be reduced by the aggregate principal amount of the Term Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis integral multiples of$5,000 as determined by the City. SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, Redemption Date September 2 Principal Amount Notice of Redemption. While the Bonds are subject to DTC's book-entry system, the Fiscal Agent will be required to give notice of redemption only to DTC as provided in the letter of representations executed by the City and received and accepted by DTC. DTC and the Participants will have sole responsibility for providing any such notice of redemption to the beneficial owners of the Bonds to be redeemed. Any failure of DTC to notify any Participant, or any failure of Participants to notify the Beneficial Owner of any Bonds to be redeemed, of a notice of redemption or its content or effect will not affect the validity of the notice of redemption, or alter the effect of redemption. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the corporate trust office of the Fiscal Agent for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption and with regard to optional redemption in the event that funds required to pay the Redemption Price are not on deposit under the Fiscal Agent Agreement at the time the notice of redemption is sent, a statement to the effect that the redemption is conditioned upon the receipt of the appropriate funds required to pay the redemption price by the Fiscal Agent on or prior to the redemption date. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. The City may direct the Fiscal Agent to rescind the notice of redemption if inadequate funds are on deposit in the Redemption Fund 5 days,prior to the redemption date. 7 Ham. rM Selection of Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds, the Fiscal Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption, by lot in any manner which the Fiscal Agent in its sole discretion shall deem appropriate. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations, except for one odd bond, if any, and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Scheduled Debt Service on the Bonds The following is the scheduled annual Debt Service on the Bonds. Bond Year Ending Principal Interest Annual Debt Service September 2, 2005 September 2, 2006 September 2, 2007 September 2, 2008 September 2, 2009 September 2, 2010 September 2, 2011 September 2, 2012 September 2, 2013 September 2, 2014 September 2, 2015 September 2, 2016 September 2, 2017 September 2, 2018 September 2,2019 September 2,2020 September 2, 2021 September 2, 2022 September 2, 2023 September 2, 2024 September 2, 2025 September 2,2026 September 2,2027 September 2, 2028 September 2, 2029 September 2, 2030 Total 8 Estimated Uses of Funds Under the provisions of the Fiscal Agent Agreement, the Fiscal Agent will receive the proceeds from the sale of the Bonds and will apply them as follows: Construction and Acquisition Fund Reserve Account al Revenue Fund t21 Underwriter's Discount Original Issue Discount Costs of Issuance Fund e31 Total Uses f� Bond proceeds to he deposited into the Restive Account, which equals the Reserve Requirement. See "SOURCES OF PAYMENT FOR THE BONDS—Reserve Account." (') Represents capitalized interest on the Bonds through September 2,2006. t3� Costs of Issuance includes Bond Counsel fee,Disclosure Counsel fee,Fiscal Agent fees,Financial Advisor fee, Appraiser fee,printing costs and other miscellaneous costs of issuance. 9 G+v'i3 SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds General. The Bonds are issued upon and are secured by the unpaid Assessments against properties within the District (the "Assessment Parcels"), together with interest thereon (collectively, the "Assessment District Revenues"). The Assessment District Revenues constitute a source for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are secured by a first lien on the moneys in the Assessment Revenue Fund (the "Assessment Revenue Fund") created pursuant to the Fiscal Agent Agreement. Principal of and interest on the Bonds are payable exclusively out of the Assessment Revenue Fund which is held by the City and amounts held in any other fund or account under the Fiscal Agent Agreement. The unpaid Assessments levied on the Assessment Parcels are collected in amoral installments, together with interest on the declining balances, on the tax roll of the County of Riverside on which general taxes on real property are collected. The amoral Assessment installments, together with interest thereon, are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do general taxes. The Assessment Parcels are subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes, subject to the foreclosure covenants discussed below. These annual Assessment installments together with interest are to be paid into the Assessment Revenue Fund, and are used to pay the principal of and interest on the Bonds as they become due and payable. The Bonds are limited obligations of the City payable solely from the proceeds of unpaid Assessments levied on the Assessment Parcels within the District. The Bonds shall not be deemed to constitute a debt or liability of the State of California or of any political subdivision thereof, other than the City. Neither the faith and credit nor the taxing power of the City, except to the limited extent described herein, the Slate of California or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. Covenant to Commence Foreclosure Proceedings. The Assessment Bond Law provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of the unpaid assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory under the Assessment Bond Law. However, in the Fiscal Agent Agreement, the City has covenanted that, in the event any assessment or installment thereof, or any interest thereon is not paid when due, the City shall order the institution of a court action to foreclose the lien of the unpaid assessment, provided that (1) the delinquency on such assessed parcel is in excess of $3,000; or (2) the balance in the Reserve Account is less than the Reserve Requirement. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. In the event(1) or(2)herein apply, any assessment of installment thereof, including any interest thereon, is not paid when due, the City will order and cause to be commenced, within 150 days of the date of receipt of notice from the County Auditor of delinquencies in the payment of any installments on any assessments, and thereafter diligently prosecute, an action in the Riverside Comity Superior Court to foreclose the lien of any and all such delinquent installments or of any interest thereon. In the event court foreclosure proceedings are necessary, there may be a delay in payments to Bondholders pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See"BONDHOLDERS'RISKS"and"Repayment of the Bonds—.General" . herein. 10 Priority of Lien. Each assessment(and any reassessment thereof) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. The lien is subordinate to all fixed special assessment liens imposed upon the same property prior to the date that the assessments became a lien oil the property assessed, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. The lien is co-equal to and independent of the lien for general taxes and any community facilities district (Mello-Roos district) special taxes, including general taxes and cormnunity facilities district special taxes levied or imposed subsequent to the date the assessment lien securing the Bonds was imposed on land in the District. The direct and overlapping debt of property within the District as of 2005 is shown under the heading"THE DISTRICT-Direct and Overlapping Debt." Sales of Tax-Defaulted Properly Generally. Property securing delinquent assessment installments which is not sold pursuant to the judicial foreclosure proceedings described above may be sold, subject to redemption by the property owner, in the same manner and to the same extent as real property sold for nonpayment of general County property taxes. On or before June 30 of the year in which such delinquency occurs, the property becomes tax-defaulted. This initiates a five-year period during which the property owner may redeem the property. At the end of the five-year period the properly becomes subject to sale by the County Treasurer and Tax Collector. Except in certain circumstances, as provided in the Assessment Bond Law, the purchaser at any such sale takes such property subject to all unpaid Assessments, interest and penalties, costs, fees and other charges which are not satisfied by application of the sales proceeds and subject to all public improvement Assessments which may have priority. Reserve Account The Fiscal Agent shall establish, maintain and hold in trust a special fund designated the "Reserve Account." The City shall cause the Reserve Account to be administered in accordance with Part 16 of the Bond Law; provided that proceeds from redemption of sale of properties, with respect to which payment of delinquent Assessments and interest thereon was made from the Reserve Account, shall be credited to the Reserve Account. Amounts in the Reserve Account shall be used and withdrawn by the Fiscal Agent solely for the following purposes: (a) for the purpose of making transfers to the Interest Account and the Principal Account, in such order of priority, on any date which the principal of or interest on the Bonds becomes due and payable, in the event of any deficiency at any time in any of such accounts, or at any time upon the Written Request of the City for the retirement of all the Bonds then Outstanding; and (b) in the event of a mandatory redemption of the Bonds from Principal Prepayments, the resulting excess in the Reserve Account shall be transferred to the Redemption Account and applied(i)as a credit towards the prepayment of the assessments relating to such redemption of the Bonds, and (ii)to the mandatory redemption of the Bonds on the date fixed for such redemption. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Account in excess of the Reserve Requirement on the Business Day preceding each Interest Payment Date shall be withdrawn from the Reserve Account by the Fiscal Agent and deposited in the Interest Account. There will be deposited into the Reserve Account from the proceeds of the Bonds an amount equal to $ which equals the initial Reserve Requirement. The Reserve Requirement is defined in the Fiscal Agent Agreement as the amount, as of any date of calculation, equal to the least of(i) m,�iximun amoral debt service, (ii) one hundred twenty-five percent (125"%) of average annual debt service,'or (rii) ten percent(10%) of the initial principal amount of the Bonds. 11 6- w9 THE CITY OF PALM SPRINGS The City was incorporated as a general law city on April 20, 1938 and became a charter city on July 12, 1994. The City operates under the Council/Manager form of government. The City encompasses 96.2 square miles in central Riverside County. It is approximately 108 miles east of downtown Los Angeles and 120 west of the Arizona border. Neighboring communities include Palm Desert, Rancho Mirage, Desert Hot Springs and Cathedral City. See "APPENDIX B - CITY OF PALM SPRINGS INFORMATION STATEMENT"herein. THE DISTRICT The information set forth herein regarding ownership of real property in the District, the property owners within the District and any proposed development of property in the District was provided by the Developer and others and has not been independently verified. Neither the City, the Financial Advisor nor the Underwriter makes any representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District. No assurance can be given that additional development within the District will occur, or that it will occur in a timely manner. The information should not be construed to suggest that the Bonds or the Assessments that will be used to pay the Bonds are personal obligations of the property owners within the District. The owners ofproperty within the District will not be personally liable forpayments of the Assessments to be applied to pay the principal of and interest on the Bonds. Accordingly, no property owner's financial statements have been included in this Official Statement. Furthermore, no representation is made that the property owners will have funds available to complete any further development within the District. General The land within the District encompasses approximately 31.4 gross acres located on the northeast comer of North Palm Canyon Drive (State Highway 111) and Chino Canyon Creek. Undeveloped land is located north, west, and east of the property. The District is an extension of the Mountain Gate I residential community,which is located adjacent and to the east of the property. For purpose of allocating the Assessments, the District is further segregated into two zones designated I and 2 (each, a "Zone" and collectively, the"Project'). The District is expected to have two component residential product lines,The Ventana Collection in Zone 1 and The El Dorado Collection in Zone 2, with a total of 196 single-family homes. The City has approved a subdivision of 196 single family residential lots and property in the District is divided into Tract Nos. 32028 with 115 buildable lots and Tract No. 32028-1 with the remaining 81 buildable lots. Tract Maps for both Tract No. 32028 and 32028-1 were recorded on December 2, 2004. Homes in the District are being developed by Century Vintage Homes (the"Developer") and the property is owned by Mountain Gate II Palm Springs Ventures LLC ("Property Owner"), a Delaware limited liability company. The majority of the infrastructure improvements for development of the lots, including the improvements to be financed with proceeds of the Bonds are expected to be complete by the fourth quarter of 2005. Sixty-seven pre-sale lots are in various stages of construction, all of which are either under contract or reserved as of May 5, 2005. See"Status of Development; Financing Plan"below. 12 The topography of the District and the surrounding land area is relatively level. The neighborhood is generally located between the I-10 freeway to the north, Vista Chino Drive to the south, the San Jacinto mountains to the west and Gene Autry Drive to the east. The neighborhood is characterized as being in transition from vacant land to single family detached residences. There is sporadic industrial/commercial use along Radio Road and hidian Canyon Drive. The property immediately southeast of the District consists of a 516-unit condominium complex built in 1982, Properties further to the southeast are small tracts of modest homes ranging in sizes from 1,273 to 1,850 square feet built in the early 1960's. The District is bounded on the north by Palm Canyon Drive(State Hwy 111),the major transportation corridor into the City from the I-10 freeway. Status of Development; Financing Plan The Developer has provided the following information with respect to development within the District. No assurance can be given that all information is complete. No assurance can be given that development of the property will be completed, or that it will be completed in a timely manner. Since the ownership of the parcels is subject to change, the development plans outlined below may not be continued by the subsequent owner if the parcels are sold, although development by any subsequent owner will be subject to the approvals, policies and requirements of the City. No assurance can be given that the plans or projections detailed below will actually occur: The property in the District comprises 31.37 gross acres and includes entitlements for 196 detached single-family homes. The Developer plans to establish two separate collections of single fancily residences, marketed as "The Ventana Collection"in Zone I and "77he El Dorado Collection" in Zone 2 The Ventana Collection consists of 115 homes that are expected to be offered in six phases with home sizes ranging from 1,208 to 1,843 square feet on a minimun lot size of 5,500 square feet. The Developer's estimated base selling prices range from $309,990 to $368,990 as of May 5, 2005. The El Dorado Collection consists of 81 homes that are expected to be offered in six phases with home sizes ranging from 2,083 to 3,005 square feet on a minimum lot size of 6,000 square feet. The Developer's estimated base selling prices range from$389,990 to $530,465 as of May 5,2005. Construction on the site commenced in January 2005, and as of the date of the appraisal, May 20, 2005, there were lots with slabs, 67 homes in various stages of construction and raw lots. The Developer anticipates that the homes in the first phase would be available for move-in by September 2005, and homes in the second phase would be available for move-in by October 2005. As shown in the table below, 67 of the 74 homes released for sale are either under contract or under reservation. The following table summarizes the product types proposed by the Developer to be constructed within the District. The base sale prices reflects the actual pricing for Phase 1 in each development. The Ventana Collection Number Square Estimated Base Number of Product Type of Lots Footaee Site Price Range Lots Sold p) 101 7 1,208 $309,990-$338,990 5 102 26 1,400 $319,990-$343,990 11 103 55 1,626 $329,990-$358,990 21 104 27 1,843 $344,990-$368,990 12 13 7ii r The El Dorado Collection Number Square Estimated Base Number of Product Tvpe of Lots Footage Sale Price Range Lots Sold to 201G(2) 20 2,083 $389,990-$444,990 7 202F ALT o) 4 2,168 $419,990-$424,990 1 202 4 2,223 $419,990-$424,990 0 202 ALT 9 2,454 $424,990-$444,990 3 202G1 ALT(4) 26 2,454 $424,990-$444,990 6 202G1 14) 10 2,506 $434,990-$479,335 1 202GIX(5) 1 2,697 $494,335 0 203 6 2,778 $469,990-$474,990 0 203G(2) 1 3,005 $530,465 0 to As of May 5,2005. t�1 Includes optional guest casita. (s> Includes optional pool and spa package in front of property. (4) Includes optional guest casita with bathroom amenities. (s) Includes optional bonus room. Source: Century Vintage Homes. The development of the land within the District will require significant expenditures of funds by the Developer. According to the Developer, infrastructure improvements for development of the lots, including the improvements to be financed with proceeds of the Bonds are expected to be complete in the fourth quarter of 2005. As of May 3, 2005, the Developer estimated that the total construction cost (including land acquisition, land development, home construction financing, and carrying costs) would equal approximately $47.2 million, of which the Developer had incurred approximately $6.3 million, which included but is not limited to offsite and onsite costs. As of May 5, 2005, the Developer estimated that its total construction cost (including land acquisition, land development, home financing, and carrying costs) would equal approximately $70.6 million, $63 million of which had been incurred. Of this total cost, approximately$1.8 million will be funded through equity contributions by the Developer, and $2.1 million will be reimbursed with the proceeds of the Bonds. The remaining $66.7 million of development and construction costs is anticipated to come from a series of commercial loans. The Developer has secured loans in the amount of$66.7 million from Indy Mac Bank, F.S.B. As of May 5, 2005, $29.8 million in loan proceeds had been disbursed. No assurance can be given that the Developer will be able to secure the necessary financing to permit the remaining property and home development as currently planned. or that any development financing ultimately obtained will be sufficient for the development of the project as currently planned. Of!-the-total $17.2 million in anticipated development cost,, appr=ex-imately $3.01 million wi44-bo nkicu ed iih 4he p�osec�s of tle Bands-aed approximately $ rn lljen e funded-through egahy-eentribtAk-gs-by the Developer. The-eemainin3 development costa o€WIsfoxirnately $___ million art antieipatcd to come fry��ciaes oC e� 3 v e coal ltm —T" F�eeleper ha+cu cntlj seer d k an events-irrthe amount of$13.04-million for acquisition an"evelopment and $53.68--rir lfion far eonstrucflrfr<>ri -in' *ems k-)ZS B., of which have +yet beerf disbursed 14 The Improvements generally consist of street improvements, sewer and water improvements, landscaping and electric utility improvements, water and sewer facility fees, and cabling and connection fees. The Engineer's Report describes the Improvements as follows: ZONE Plans and Specifications The cost of approved plans for the improvements to be acquired. Sewer Sewer improvements including 8-inch diameter sewer main and 4-inch diameter sewer laterals, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Water Water improvements including water mains and 1-inch diameter water service lines, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Landscaping Landscape improvements including parkway landscaping, together with appurtenances and appurtenant work, on the northeasterly side of Palm Canyon Drive(State Hwy 111). Underground Existing Power Lines Includes but is not limited to undergrounding existing overhead electric power lines (Southem California Edison) within the public right-of-way and easements in the District, appurtenances and appurtenant work. Water and Sewer Fees Includes water facility fees for the Desert Water Agency and sewer facility fees for the City of Palm Springs. ZONE Plans and Specifications The cost of approved plans for the improvements to be acquired. Sewer Sewer improvements including 8-inch diameter sewer main and 4-inch diameter sewer laterals, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Water Water improvements including water mains and 1-inch diameter water service lines, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Landscaping Landscape improvements including parkway landscaping, together with appurtenances and appurtenant work, on the northeasterly side of Palm Canyon Drive(State Hwy 111). Underground Existing Power Lines Includes but is not limited to undergrounding existing overhead electric power lines (Southern California Edison) within the public right-of-way and easements in the District, appurtenances and appurtenant work. 15 p a`P. �9'V. Water and Sewer Fees Includes water facility fees for the Desert Water Agency and sewer facility fees for the City of Palm Springs. All of the improvements will be constructed by the Developer under the Acquisition Agreement (defined below). The Water Improvements will be constructed and conveyed to the Desert Water Agency under a Water Facilities Agreement dated as of between the City and Desert Water Agency and approved and agreed to by the Property Owner. Estimated Improvement Costs The data shown below is the estimated costs of the Improvements contained in the Engineer's Report prepared by Albert A.Webb Associates. Zone 1 Zone 2 The Ventana Collection The El Dorado Collection Construction Costs(1) $1,047,428 $1,045,762 Development Fees(2) 509,220 358,668 Engineering Costs 175,599 167,727 Total Improvement Costs 1,732,247 1,572,157 Less: Contribution by Property Owner (98,003) (143,892) Deposit to Construction and Acquisition Fund $1,634,244 $1,428,265 o) Water and sewer main construction, landscaping, and electric utility improvements, as described above under "Description of the Bond-Funded Improvements." (2) Water facility fees,water meter fees and sewer facility fees. Acquisition Agreement The City and the Developer have entered into an Acquisition and Funding Agreement dated as of 2005 (the"Acquisition Agreement")relating to the acquisition of the Improvements providing in general Urat (a) the City will issue the Bonds to finance a portion of the cost of acquiring the Improvements; (b) the Developer will proceed with due diligence to complete the construction of the Improvements; and(c) the Developer will agree to sell the Improvements to the City and the City agrees to accept and acquire the Improvements at a cost not to exceed the actual cost. Pursuant to the Acquisition Agreement, the Developer will pay any costs of the Improvements in excess of amounts available from Bond proceeds. 16 Q<< h r." The Developer The information contained in this section has been obtained from the Developer No assurance can be given that the planned development will occur or that the planned development will occur in a timely manner. No representation is made as to the accuracy or adequacy of such information provided by the Developer: The property within the District will be developed by the Developer. The property within the District is owned by Mountain Gate II Palm Springs Ventures, LLC, a Delaware Limited Liability Company ("Mountain Gate II LLC") and its development management company, Century Vintage Homes ("Century," or the"Developer"). Century was formed in 1994 as the result of the merger of two home building companies, Century Homes Communities and Crowell Industries, Inc., and is one of the Inland Empire's largest builders of affordable single-family homes for the first-time, first move-up, retirement and resort community home buyer. Century's operations include location, acquisition and development of land and the design, construction, marketing and sales of homes. The sales price of Century's homes available for sale currently ranges from the mid $100,000's to the high $600,000's with the average price being approximately $215,000 as of December 1, 2003. Century has constructed and sold over 4,400 homes, typically in new home communities, since its inception in 1994. The two companies that merged to combine Century have built and sold over 20,000 homes through their various joint venture entities and company owned projects over their nearly forty years of operations. Century operates primarily in San Bernardino and Riverside Counties but has projects in other areas. Its administrative offices are located at Fairway Commerce Center, 1535 South "D" Street, Suite 200, San Bernardino, California 92408. Century's website address is www.centiryvintagehomes.coin. Information on the website is not deemed accurate or complete. 17 0 �o� Provided below is a partial listing of regional projects and developments undertaken by the Developer and their principal participants in the past three years and the date of completion of those projects. Proieet Number of Units Jurisdiction Completion Date Mountain View II 383 Desert Hot Springs Under construction Mountain Gate It 196 Palm Springs Under construction Fair Oaks Ranch Country View Estates 138 Banning Under construction Mountain View Country Estates 436 Desert Hot Springs Under construction Gavilan Springs Country Estates II 60 Riverside County Under construction San Jacinto Country Ranch Estates 69 San Jacinto Under construction Wildwood 11 71 Yucaipa Under construction Mountain Gate 308 Palm Springs Completed in 2004 Foxfire Ranch—Santa Barbara II 284 Victorville Completed in 2004 Encanto II at Villa Montego 79 Indio Completed in 2004 Monticello III by Heritage Palms County Club 71 Indio Completed in 2004 Shadow Hills Master Plan Phase I 169 Indio Completed in 2004 Las Brisas North 189 Indio Completed in 2004 Shadow Hills Villa Estates 100 Indio Completed in 2004 The Encantos at Villa Montego 341 Indio Completed in 2004 Gavtlan Springs Country Estates 112 Riverside County Completed in 2004 University Heights Country View Estates 53 San Bernardino Completed it)2004 Foxfire Ranch—Santa Barbara 85 Victorville Completed in 2004 Las Brisas at Villa Montego 29 Indio Completed in 2003 The Fairways at Indian Palms 209 Indio Completed in 2003 Monticello by Heritage Palms C.C. 66 Indio Completed in 2003 Las Brisas at Rancho Indio 130 Indio Completed in 2003 The Tournament Collection at PGA West 70 La Quinta Completed in 2003 Duna Fairways at La Quinta Resort 81 La Quinta Completed in 2003 The Classics at Monticello 86 La Quinta Completed in 2003 The Heritage at Monticello 120 La Quinta Completed in 2003 La Temva at Rancho Mirage 45 Rancho Mirage Completed in 2003 Foxfire Ranch—Capistrano 8 Victorville Completed in 2003 Wildwood Canyon Country Estates 62 Yucaipa Completed in 2003 Starlight Estates at IPCC 53 Indian Palms Completed in 2002 Colony Cove Estates at Indian Wells 11 Indio Completed in 2002 Aliso II 30 India Completed in 2002 The "Century" team was formed by John Pavelak in 1971 and was called John Pavelak Construction Company. The company built and sold speculation and contract homes throughout the Inland Empire of Riverside and San Bernardino. Century Homes was formed as a joint venture between two custom homebuilders, John Pavelak and Chester Squibb, each of whom wanted to focus on building affordable single-family home communities. These two individuals brought with them a combined 35 years of building industry experience. 18 In 1984 Century formed a joint venture with Harry Crowell of Crowell Industries, a 22-year veteran builder of 11,000 homes throughout California. In June 1994, a new entity was created to form the current operating entity, Century Crowell Communities. The two principals of Century Crowell have over 70 combined years of experience in homebuilding, and numerous industry achievements including Entrepreneur of the year (John Pavelak) and past Building Industry Association chapter and Southern California president(Harry Crowell). John Pavelak, President, Chief)executive Officer, Co-Chairman of the Board. Mr. Pavelak founded John Pavelak Construction Company in 1971. This was the forerunner company to Century Homes Communities created in 1976 with Charles Squibb, another prominent builder. The new entity brought together a combined 35 years of building experience and developed the philosophy of building quality and affordable single-family home communities throughout the Inland Empire. Nine years later Mr. Pavelak became sole owner when he purchased Mr. Squibb's interest in the company. John Pavelak continued as the driving force behind Century Homes and its innovative construction and marketing techniques. In 1984 Century Homes commenced joint venturing projects with Crowell Industries. In 1994 after a decade of successful partnering, the two companies merged their expertise and combined their financial strength to create Century Crowell Communities. Mr. Pavelak is a seasoned real estate professional. He received "Entrepreneur of the Year" from Inc. Magazine in 1991 and"Man of the Year"by the city of Rialto in 1988. In 1996 he captured the"Builder of the Year" award from the Building Industry Association, the highest recognition for individuals and corporations who have contributed to the industry with excellence and distinction. Harry Crowell, Co-Chairman of the Board. Mr. Crowell, President of Crowell Industries, also is owner and an officer and director of various other corporations related to the real estate industry. He has been involved in the construction business since the early 1960's. In 1982 Mr. Crowell received the "Builder of the Year Award" from the Building hndustry Association of Southern California and was also the recipient of the"Humanitarian Award"from the Arthritis Foundation. Gary Weintraub, Senior Vice President of Operations. Mr. Weintraub, who joined John Pavelak early in Century's formative years, is a 25-year veteran of commercial and residential real estate development and an original member of the John Pavelak Construction Company. He heads up all construction activities, oversees the customer service department, the purchasing department, and works closely with the sales and marketing departments. Knowledgeable in all areas of construction and land development activities, he directs and coordinates professional outside consultants (architects, engineers and land planners) and managers of the various Century projects. He also works closely with various governmental agencies. Anthony "Tony" Scimia, Senior Vice President of Marketing and Sales. Mr. Scimia is a highly accomplished twenty-year new home sales and marketing veteran. Prior to joining Century, he was with Lewis Homes and Walker Lee New Homes Division. Having joined Century in 1984, he has been with the company for nearly 20 years; and in his current capacity for 14 years. Mr. Scimia manages sales personnel, market analysts, and works closely with Mr. Pavelak on forward planning and acquisitions. Honors bestowed on Mr. Scimia are the coveted Laurel award, the 1994 Marketing Director of the Year, and 1999 Lifetime Achievement award. Mr. Scimia's progressive attitude and real estate expertise ranges from competitive market positioning to conducting feasibilities of new residential real estate. His vast knowledge of various market segments range from first-time buyers, move up, luxury resort, and active adult buyer profiles. Mr. Scimia has conducted and attended numerous new home sales marketing educational conferences. A founding member of the Inland Empire Sales and Marketing Council, he,has served on the Board of Directors for five years and he holds a California real estate license. 19 Appraised Values The City caused the preparation of an appraisal of the property within the District, dated May 20, 2005 (the "Appraisal Report") by Harris Realty Appraisal (flee "Appraiser"), Newport Beach, California. The findings in the Appraisal Report are subject to a number of assumptions and qualifications which are described therein including assumptions of good title, absence of hazardous substances and possession of all required governmental approvals. The Appraiser assumes no responsibility for building permits, zoning changes,engineering or other services or duty connected with the legal use of the property. In addition to the general assumptions, the Appraisal Report also assumes that the Improvements financed with proceeds of the Bonds are in place on the date of valuation. For a description of certain of the assumptions made in the Appraisal Report, see"APPENDIX F-APPRAISAL REPORT." For a description of certain risks that might affect the assumptions made in the Appraisal Report, see "BONDHOLDERS' RISKS-Valuation of Property in the District." The Appraisal Report provides an estimated"as is"value of the subject properties, assuming the proposed District financing is in place, of$18,200,000 ($10,000,000 for Zone 1 and $8,200,000 for Zone 2). The date of value, for which the opinions of value are expressed in the Appraisal Report, is May 1, 2005. Based upon an "as is" value of $18,200,000 and outstanding principal amount of Bonds equal to $3,806,000, the appraised value-to-lien ratio is 4.8 to 1 overall, 4.9 to I for Zone 1 and 4.6 to 1 for Zone 2. This does not take into account overlapping assessment and other liens on the property in the District. See"Total Effective Tax Rate" and"Direct and Overlapping Debt"below. In considering the Appraisal Report and the estimates of value contained therein, it should be noted that the Appraisal Report is based upon a number of standard and special assumptions which affect the estimates as to value. Because the Appraisal Report sets forth the Appraiser's opinion as to value only as of May 1,2005, it does not reflect any changes to value that might have occurred since that date or which may occur in the future. See"THE DISTRICT- Status of Development; Financing Plan"herein. Absorption Study A Market Feasibility and Absorption Analysis dated March 2005 (the "Absorption Study") was prepared by Empire Economics, Capistrano Beach, California. According to the Absorption Study,housing units in the District are projected to be absorbed as follows: 50 units between September—December 2005,when escrow closings for the first phases of construction continence, 90 units in 2006 when additional product becomes available and 56 units in 2007 as the projects are closed out. See"APPENDIX G—ABSORPTION STUDY." No Delinquencies in Property Tax Payments As of May 1, 2005, the Property Owner is current on all ad valorem property tax on its property within the District. The Property Owner has represented that they have paid all previous assessments on other projects when due and their properties have not been the subject of any foreclosure actions. 20 Total Effective Tax Rate CITY OF PALM SPRINGS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE 11) ESTIMATED FISCAL YEAR 2006/07 TAX OBLIGATION FORA SAMPLE DEVELOPED PROPERTY ZONE 1—THE VENTANA COLLECTION Value(Based on Product Type A with Home Size of 1,208 Square Peet) Estimated Sales Price(1"Phase) $309,990 Less Homeowner's Exemption (7,000) Assessed Value $302,990 Property Taxes Percent of AV Projected Amount Ad Valorem Property Taxes: General Purpose 1.00000% $3,029.90 Palm Springs Unified School District 0.05715 173.16 Desert Water Agency 0.06000 181.79 Desert Community College District Debt Service 0.01994 60.42 Total Ad Valorem Tax 1.13709% $3,445.27 Assessments,Special Taxes and Parcel Charges: Palm Springs AD No. 164 0> $1,388.29 City of Palm Springs CPD No.2005-1 (2) 350.00 PROJECTED TOTAL PROPERTY TAX $5,183.56 Projected Total Effective Tax Rate as a%of Estimated Sales Price 1.71% o) Includes an estimated$75 for administration in addition to the assessment for debt service. (2) The Developer anticipates future annexation into the City's CPD No.2005-1 (Public Safety). Source: City of Palm Springs. 21 CITY OF PALM SPRINGS ASSESSMENT DISTRICT NO.164 (MOUNTAIN GATE II) ESTIMATED FISCALYEAR 2006/07 TAX OBLIGATION FOR A SAMPLE DEVELOPED PROPERTY ZONE 2—THE ELDORADO COLLECTION Value(Based on Product Type A with Home Size of 2,083 Square Feet) Estimated Sales Price(1"Phase) $389,990 Less Homeowner's Exemption (7,000) Assessed Value $382,990 Property Taxes Percent of AV ProieetedAmount Ad Valorem Property Taxes: General Purpose 1.00000°% $3,829.90 Palm Springs Unified School District 0.05715 218.88 Desert Water Agency 0.06000 229.79 Desert Community College District Debt Service--Proposed 0.01994 76.37 Total Ad Valorem Tax 1.13709% $4,354.94 Assessments,Special Taxes and Parcel Charges: Palm Springs AD No. 164 0) $1,716.62 City of Palm Springs CFD No.2005-1 350.00 PROJECTED TOTAL PROPERTY TAX $6,421.56 Projected Total Effective Tax Rate as a%of Estimated Sales Price 1.68% p) Includes an estimated$75 for administration in addition to the assessment for debt service. (2) The Developer anticipates future annexation into the City's CFD No.2005-1 (Public Safety). Source: City of Palm Springs. Direct and Overlapping Debt Set forth below is the direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc., as of , 2005. The Debt Report is included for general information purposes only. The Debt Report generally includes long-tern obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-tern obligations are not payable from unpaid Assessments nor are they necessarily obligations secured by property within the District. In many cases, long-tenn obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Presently, the Assessment Parcels are subject to $ of direct and overlapping tax and assessment debt and overlapping lease obligation debt, including the Bonds. To repay the direct and overlapping tax and assessment debt and overlapping lease obligation debt, the property owners of the land within the District most pay the annual Assessments and the general property tax levy. 22 1 In addition, other public agencies whose boundaries overlap those of the District could, without the consent of the City, and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the real property within the District in order to finance public improvements or services to be located or furnished inside of or outside of the District. The lien created on the real property within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the Assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the property owners to pay the Assessments and increases the possibility that foreclosure proceeds, if any, will not be adequate to pay delinquent Assessments. CITY OF PALM SPRINGS ASSESSMENT DISTRICT NO.164 (MOUNTAIN GATE II) DIRECT AND OVERLAPPING DEBT Source: California Municipal Statistics, Inc. 23 '°1 ;J Annual Levy The Finance Director is required each Fiscal Year to determine the amount of Assessment Installments needed to pay debt service on the Bonds and administrative expenses of the District for such year. The Finance Director is expected to incur administrative expenses for the levy and collection of the Assessment Installments, foreclosure proceedings,Fiscal Agent fees and arbitrage rebate calculations. A certified list of all parcels subject to the unpaid Assessments, including the amount of the annual Assessment Installments to be levied on each such parcel, is filed by the City with the County Auditor on or before the tenth day of August of that tax year. The amoral Assessment Installments are payable and are collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable and have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property. Annual Assessment Installments are due in two equal installments. Annual Assessment Installments levied become delinquent on the following December loth and April loth. Currently a 10% penalty is added to delinquent taxes. When received, the annual Assessment Installments are required to be deposited in the Assessment Revenue Fund to be held by the Finance Director and transferred by the Finance Director to the Fiscal Agent as provided in the Fiscal Agent Agreement. 24 2), BONDHOLDERS' RISKS General BEFORE PURCHASING ANY OF THE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SIIOULD CAREFULLY CONSIDER,AMONG OTHER THINGS,THE FOLLOWING RISK FACTORS,WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH TIIE PURCHASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE. The purchase of the Bonds involves investment risk. If a rislcfactor materializes to a sufficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, hat are not limited to, the following matters. Debt service on the Bonds is payable from installment payments of principal and interest on unpaid Assessments on the Assessment Parcels. The principal of the Assessments is the aggregate of the amounts of the individual Assessments levied against the Assessment Parcels. The individual Assessment on a parcel will be paid in amoral installments, together with interest on the unpaid balance, unless the unpaid balance is subsequently prepaid. The annual installments of principal and interest with respect to an Assessment Parcel will be collected on the County tax roll at the same time and in Une same mariner as general real property taxes are collected. The annual installments of principal and interest with the respect to all Assessment Parcels were, at the time of initial levy of the Assessments, equal in the aggregate to the annual debt service on the Bonds. Foreclosure and Sale Proceedings The City Council is obligated under certain conditions to institute foreclosure and sale proceedings against Assessment Parcels which have delinquent assessment installments, and may do so in other circumstances even if not so obligated. However, the City has determined, because of the administrative costs involved, not to implement foreclosure proceedings unless and until the applicable delinquent amount (including interest thereon) exceeds $3000 for any one property (see "SOURCES OF PAYMENT FOR THE BONDS — Repayment of the Bonds - Covenant to Commence Foreclosure Proceedings"herein). Foreclosure proceedings are instituted by the bringing of an action in the superior court of the county in which the Assessment Parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same mariner as other civil actions. Upon judgment of foreclosure the Assessment Parcel may be offered for sale at a minimum price. The initially established minimum price will be sufficient to cover the amount of the delinquent installments and unpaid interest together with penalties, costs, fees and charges and the costs of execution and sale. The buyer in a foreclosure sale takes the parcel subject to the remaining assessment installments and regular taxes. However, in the event an Assessment Parcel does not sell for the minirnutn price the court may modify its judgment and reduce or eliminate the minimum price. In order to do so, however, written notice of a hearing on the matter of reducing or eliminating the minimum price is required to be given to the owners of the Bonds. If at the hearing the court determines that such a sale will not result in an ultimate loss to the owners of the Bonds, or if the owners of 75% of the outstanding Bonds by principal amount consent and the sale will not result in an ultimate loss to the non-consenting owners of Bonds, the court may reduce or eliminate the minimum price at which an Assessment Parcel may be sold. Further, if the owners of.75% of the outstanding Bonds by principal amount consent, the court may reduce or eliminate the minimum 25 price at which an Assessment Parcel may be sold even if sale below the minimum price will result in an ultimate loss to non-consenting owners of Bonds, provided that the court makes certain additional determinations specified by statute including the reasonable unavailability of any other remedy acceptable to the owners of 75% or more of the outstanding Bonds by principal amount. Upon sale of the Assessment Parcel for less than the minimum price the remaining unpaid balance of the assessment on the Assessment Parcel will be reduced by the difference between the minimum price and the sale price. By such a reduction the aggregate principal amount of the outstanding Bonds may further exceed the aggregate principal amount of the unpaid Assessments. Depletion of Reserve Account Upon the issuance of the Bonds, the Reserve Account will contain an amount equal to $ This amount represents the initial reserve requirement of the Bonds. Whenever there are insufficient funds in the Revenue Fund to pay the next maturing installment of principal and interest on the Bonds, the amounts necessary to make up the deficiency,to the extent available, will be transferred from the Reserve Account to the Revenue Fund. Amounts so transferred will be reimbursed to the Reserve Account if, and when, available from the payments of delinquent installments and from the proceeds of redemption or sale of delinquent parcels which caused the withdrawal. The Reserve Requirement is subject to reduction if, and when, the unpaid balance of the Assessment on an Assessment Parcel is prepaid. Upon prepayment of an Assessment, there will be a mandatory redemption of the Bonds (see "THE BONDS - Redemption" herein). The Reserve Requirement will be reduced to an amount equal to maximum annual debt service on the Bonds to remain outstanding following such mandatory redemption. A reduction in the Reserve Requirement caused by prepayment of an assessment and the mandatory redemption of Bonds is a permanent reduction. The Reserve Account may be invested, and the investment earnings may be retained in the Reserve Account, to the extent necessary to maintain the amount therein at the Reserve Requirement. No sources of fiords other than such investment earnings and any recoveries of delinquent Assessments are available to replenish deficiencies in the Reserve Account. Accordingly, there is no assurance that the amount in the Reserve Account will, at any particular time,be sufficient to pay, when due, debt service on the Bonds nor that the Reserve Account will be fully reimbursed for any amounts expended for debt service. Valuation of Property in the District The value of the land within the District is a critical factor in determining the investment quality of the Bonds. If there is a default in the payment of the Assessments, the City's only remedy is to commence foreclosure proceedings on the delinquent taxable property in an attempt to obtain fiends to pay the delinquent Assessment. The City corumissioned the Appraisal Report to determine the value of the property in the District. The Appraisal Report states that as of May 12005, the value of the land plus improvements in the District was $18,200,000. The City makes no representation as to the accuracy of the Appraisal Report and the Appraisal Report is subject to certain assumptions, limiting conditions and stipulations contained in the Appraisal Report. See"APPENDIX F—APPRAISAL REPORT." Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of flee "collateral"supporting the willingness of property owners to pay their special taxes and assessments(and, in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually a market value as determined by an appraiser) and the denominator of which is the "lien" of the assessments or special taxes. A value-to-lien ratio should not, however, be viewed as a guarantee of credit-worthiness. Land values are more volatile in the early stages of a development, and are especially sensitive to economic cycles. A downturn of the 26 � economy may depress land values and hence the value-to-lien ratios, by increasing risk to investors and lenders. Further, the value-to-lien ratio cited for a bond issue is based on the aggregate value of all parcels in the District. Individual parcels in an assessment district may fall above or below the average, sometimes even below a 1:1 ratio. (With a ratio below 1:1, the land is worth less than the debt on it.) Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy comas may impede the foreclosure action. Finally, local agencies may form overlapping cmmmuity facilities districts or assessment districts. Debt issuance by another entity can dilute value-to-lien ratios. See"THE DISTRICT—Direct and Overlapping Debt." Factors Affecting Parcel Value and Aggregate Values Prospective purchasers of the Bonds should not assume that the land could be sold for its original sales price or its fair market value at a foreclosure sale for delinquent Assessments. The future value of the land can be expected to fluctuate due to many different, not fully predictable, real estate related investment risk factors, including, but not limited to: general tax law changes related to real estate, changes in competition, general area employment base changes, population changes, changes in real estate related interest rates affecting general purchasing power, changes in allowed zoning uses and density, natural disasters such as floods,earthquakes and landslides, and similar factors. The facts and circumstances concerning the values of the Assessment Parcels that are of importance are not confined to those relating to individual Assessment Parcel values because the Bonds are not individually secured by particular Assessment Parcels. The Bonds are secured by all of the unpaid Assessments on all of the Assessment Parcels within the District. Therefore factors which affect all of the Assessment Parcels should be considered. The following are some of the factors which may affect the market for and value of particular Assessment Parcels individually, as well as the market for and value of all Assessment Parcels. Geologic,Topographic and Climatic Conditions Values of Assessment Parcels can be adversely affected by a variety of natural events and conditions, including, without limitation geologic conditions such as earthquakes; topographic conditions such as earth movements and floods; and climatic conditions. The possibility of the occurrence of some of these conditions and events has been taken into account to a limited extent in the design of the District's improvements and has been or will be taken into account to a limited extent in the designs of other public improvements which may be approved by the City or other public agencies. Building codes require that some of these conditions be taken into account to a limited extent in the design of private improvements. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change from time to time leaving previously designed improvements unaffected by more stringent subsequently established criteria. Hi general, design criteria, at the time of their establishment, reflect a balance between the present costs of protection and die future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Also reflecting that balance are decisions not to impose design criteria at all. The City expects that one or more of these conditions may occur from time to time, and, even if design criteria do exist, such conditions may result in damage to property improvements. That damage may entail significant repair or replacement costs, and repair or replacement may never occur. Under any of these circumstances, the value of the Assessment Parcels could depreciate substantially notwithstanding the establishment of design criteria. 27 C Earthquake, Flood and other Nuisances and Hazards. The District is located in an area designated in a Zone B flood designated area of the Federal Emergency Management Agency Community Pane1060257- 006D effective July 7, 1999. This designation references an area that is between limits of the 100-year flood and 500-year flood; reportedly, flood insurance is available but not mandatory with a Zone B designation. According to the Seismic Safety Element of the City's General Plan, the City is located in a seismically active region and buildings in the District could be impacted by a major earthquake originating from the numerous faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking. The Palm Springs planning area has numerous fault traces that are part of the larger San Andreas Fault Zone. Of primary concern are the Banning Fault,the Palm Canyon Fault and the San Jacinto Fault. Ground rupture occurred along the Banning Fault Zone as a result of a magnitude 5.9 earthquake on July 8, 1986. Only minor damage was sustained by any structures within the City. The San Jacinto Fault approaches within 6.5 miles of the City and is considered to be one of the major branches of the San Andreas Fault system, extending from Cajon Pass (near San Bernardino) into Mexico. The San Jacinto Fault Zone is considered to be the most seismically active fault zone in southern California. The Pahn Canyon Fault is exposed in the bedrock in the southeastern portion of the City and has been inferred by researchers as extending northward beneath the City under the alluvium. No evidence is available as to the existence or precise location of the Palm Canyon Fault within the alluvium or regarding its potential activity. In the event of a significant earthquake, any damage to buildings in the District could impair the value of the property and the ability or willingness of the property owners to pay Assessments. The appraisers were not provided with an environmental site assessment report for property within the District. A physical inspection did not reveal obvious evidence of hazardous materials or other nuisances or hazards. Leal Requirements Other events which may affect the value of an Assessment Parcel include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums, and local application of statewide tax and governmental spending limitation measures. See"Proposition 218;Possible Fume Ballot Initiatives"herein. Prepayment of Assessments There is rarely a uniform relationship between the relative value of Assessment Parcels and the proportionate share of debt service on the Bonds to be borne by such Assessment Parcels. One of the factors that may effect a significant change in the relationship between the aggregate Assessment Parcel values and the assessment is the prepayment before final bond maturity of the remaining balance of the Assessments on particular Assessment Parcels. Should the Assessments on Assessment Parcels having a relatively high ratio of assessed value to assessment be prepaid, the security for the assessed Bonds, as evidenced by the ratio of the aggregate remaining Assessment Parcel values to the remaining outstanding Bonds,will be reduced. Other Possible Claims Upon the Value of an Assessment Parcel While an assessment is secured by an Assessment Parcel, the security only extends to the value of such Assessment Parcel that is not subject to prior or parity liens and similar claims with respect to the unpaid Assessment. 28 Other govermnental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the Assessment Parcels and may be secured by liens on a parity with the liens of the Assessments securing the Bonds. As of the date hereof certain additional liens exist with respect to parcels in the District. See "THE DISTRICT - Direct and Overlapping Debt'herein. In general, as long as installments of the assessment are collected on the county tax roll, the installments and all other taxes,Assessments and charges also collected on the tax roll are on a parity with each other. Questions of priority become significant when collection of one or more of the taxes, Assessments or charges is sought by some other procedure, such as foreclosure sale. hi the event of proceedings for foreclosure of delinquent installments of an assessment securing the Bonds, the assessment will have priority over special Assessments levied subsequent to the levy of the Assessments securing the Bonds. Otherwise, in the event of such foreclosure proceedings the installments of the assessment will generally be on a parity with other taxes, Assessments and charges secured by the applicable Assessment Parcel. The assessment will, however, have priority over non-governmental liens on the Assessment Parcel regardless of whether or not the non-governmental liens were in existence at the time of the levy of the assessment. While governmental taxes, Assessments and charges are a common claim against the value of an Assessment Parcel other less common claims may be relevant. One of the most significant in terms of the potential reduction in the value that may be realized to pay the assessment installments is a claim with regard to a hazardous substance. In general, the owners and operators of an Assessment Parcel may be required by law to remedy conditions of the Assessment Parcel relating to released or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws the owner or operator of a property is obligated to remedy a hazardous substance condition 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 Assessment Parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition. The appraised values shown herein do not take into account the possible reduction in marketability and value of any of the Assessment Parcels by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the Assessment Parcel. Further, the City has not undertaken to independently determine if any such conditions exist. Further, it is possible that liabilities may arise in the future with respect to any of the Assessment Parcels resulting from the current existence on the Assessment Parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence on the Assessment Parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of an Assessment Parcel that is realizable upon delinquency. 29 2,�'3 Direct and Overlapping Indebtedness The ability of an owner of land within the District to pay assessment installments could be affected by the existence of other taxes and assessments imposed upon taxable parcels. Presently, the sum of the direct and overlapping debt applicable to the property in the District, is as detailed under the caption "THE DISTRICT - Direct and Overlapping Debt." In addition, the City and other public agencies whose boundaries overlap those of the District, (without the consent of the City), could, impose additional taxes or assessment liens on the property within the District in certain cases without the consent of the owners of the land within the District in order to finance public improvements or services to be located or provided inside of or outside of such area. The lien created on the property within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the landowners to pay the assessment installments and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent assessment installments or the principal of and interest on the Bonds when due. Bankruptcy Proceedings Regardless of the priority of an assessment securing the Bonds over non-govenumental liens, the exercise by the City of the foreclosure and sale remedy or by the County of the tax sale remedy may be forestalled or delayed by bankruptcy, reorganization, insolvency or other similar proceedings affecting the owner of an Assessment Parcel or any other party claiming an interest in an Assessment Parcel. The federal bankruptcy laws provide for an automatic stay of foreclosure and sale or tax sale proceedings thereby delaying such proceedings perhaps for an extended period. Delay in exercise of remedies, especially if the owner owns Assessment Parcels the Assessments of which are significant or if bankruptcy proceedings are instituted with respect to a number of owners owning Assessment Parcels the Assessments of which are significant, may result in periodic assessment installment collections which may be insufficient to pay the debt service on the Bonds as it comes due. Further, should remedies be exercised under the bankruptcy law against the Assessment Parcels, payment of installments of the assessment may be subordinated to bankruptcy law priorities. Therefore, certain claims may have priority over the assessment lien, even though they would not were the bankruptcy law not applicable. Payment of the Assessment Not a Personal Obligation Under the Assessment Bond Law, the owners of Assessment Parcels are not personally liable for the payment of the assessment or the assessment installments. Rather, an assessment is a lien only on an Assessment Parcel. Accordingly, if the value of an Assessment Parcel is not sufficient to fidly secure the assessment on it, the City has no recourse against the owner under the Assessment Bond Law by which the assessment has been levied and the Bonds have been issued. No City Obligation to Pay Debt Service The City has no obligation to advance funds to pay debt service on the Bonds in the event Assessment District Revenues are insufficient for such purpose. 30 Loss of Tax Exemption As discussed in the section herein entitled"LEGAL MATTERS -Tax Matters," interest on the Bonds could become includable in gross income for put-poses of federal income taxation, retroactive to the date of issuance, as a result of acts or omissions of the City subsequent to issuance in violation of the City's covenants applicable to the Bonds. Should interest become includable in gross income,the Bonds are not subject to redemption by reason thereof and may remain outstanding. The Bonds are subject to redemption for other reasons as discussed in the section herein entitled"THE BONDS -Redemption." No Acceleration Provision The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement. Proposition 218; Possible Future Ballot Initiatives Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Over the past 18 years, the voters have exercised this power through the adoption of Proposition 13 and similar measures, the most recent of which was approved as Proposition 218 in the general election held on November 5, 1996. Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives. On November 5, 1996, California voters approved Proposition 218 - Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges - Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local govemrnents shall be deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local govenument may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIB and Article XIBA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and(iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes onto add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairment of contracts. 31 The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218. Further, from time to time, other initiative measures may qualify for the State ballot pursuant to the State's constitutional initiative process and those measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the City, the County or other local districts to increase revenues or to increase appropriations or on the ability of the landowners to complete the development of the land within the District. Payments by FDIC The City's ability to collect interest and penalties specified by State law and to foreclose the lien of a delinquent Assessment installment, may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies has or obtains an interest. On June 4, 1991 the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes, The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9, 1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its proper tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts If any property taxes (including interest) on FDIC owned property are secured by a valid lien(in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. Under the Policy Statement, it is unclear whether the FDIC considers special assessments, such as those levied by the City, to be "real property taxes" which they intend to pay. The Policy Statement provides: "The FDIC is only liable for state and local taxes which are based on the value of the property during the period for which the tax is imposed, notwithstanding the failure of any person, including prior record owners, to challenge an assessment under the procedures available under state law. In the exercise of its business judgment, the FDIC may challenge assessments which do not conform with the statutory provisions, and during the challenge may pay tax claims based on the assessment level deemed appropriate, provided such payment will not prejudice the challenge. The FDIC will generally limit challenges to the current and immediately preceding taxable year and to the pursuit of previously filed tax protests. However, the FDIC may, in the exercise of its business judgment, challenge any prior taxes and assessments provided that (1) the FDIC's records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the FDIC, (3) the challenge will not unduly delay the sale of the property, and(4)there is a reasonable likelihood of a successful challenge." 32 However, the Resolution Trust Corporation, which adopted a similar policy (but which dissolved at the end of 1995 and transferred all of its assets to die FDIC) stated in a letter dated July 2, 1993 to the Honorable Lucille Roybel-Allard, member of the United States House of Representatives from the State of California, that it ". . . will pay Mello-Roos special taxes and other special assessments and related interest where those taxes and assessments were imposed prior to receivership. However, Mello-Roos special taxes and other special assessments that are imposed on property when the institution owning the property is in receivership will not be paid." The City is unable to predict what effect the application of die Policy Statement would have in the event of a delinquency with respect to a parcel in the District in which the FDIC has an interest, although prohibiting the lieu of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any Assessment Parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Account and perhaps,ultimately, a default in payment of the Bonds. The City has not undertaken to determine whether the FDIC currently has, or is likely to acquire, any interest in any of the Assessment Parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. However, the City is not aware of any existing, pending or potential ownership by the FDIC of any Assessment Parcel. 33 LEGAL MATTERS Enforceability of Remedies The remedies available to the Fiscal Agent and the Owners of the Bonds upon an event of default under the Fiscal Agent Agreement,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 will be qualified to the extent that the enforceability of certain legal rights related to the Fiscal Agent Agreement is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. Approval of Legal Proceedings Aleshire &Wynder,LLP,Irvine, California, as Bond Counsel, will render an opinion which states that the Fiscal Agent Agreement and the Bonds are valid and binding obligations of the City and are enforceable in accordance with their terms. The legal opinions of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights and to the exercise of judicial discretion in accordance with general principles of equity. The City has no knowledge of any fact or other information which would indicate that the Fiscal Agent Agreement is not enforceable against the City, except to the extent such enforcement is limited by principles of equity and by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors'rights generally. Certain legal matters will be passed on for the City by the City Attorney and by Aleshire &Wynder, LLP, Irvine, California, as Bond Counsel and by Jones Hall, A Professional Law Corporation, San Francisco, California as Disclosure Counsel. Fees payable to Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. Tax Matters Upon execution and delivery of the Bonds, Aleshire & Wynder, LLP, Bond Counsel, will opine that based on existing statutes, regulations,rulings and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. A copy of the proposed opinion of Bond Counsel is set forth in"APPENDIX E"hereto. The Internal Revenue Code of 1986 (the "Code"), imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The City has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income,possibly from the date of issuance of the 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 issuance of the Bonds may affect the value of, or the tax status of interest on the Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, will not adversely affect the value of, or the tax ' status of interest on, the Bonds. Prospective owners are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. 34 Bond Counsel is further of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Bond Counsel observes, however, that interest on the Bonds is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Prospective purchasers of the Bonds should be aware that(i) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest with respect to the Bonds, (ii)Bonds interest with respect to the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iii) passive investment income, including interest with respect to the Bonds, may be subject to federal income taxation under Section 1375 of the Code for subchapter S corporations having subchapter C earnings and profits at the close of the taxable year and gross receipts more than 25% of which constitute passive investment income, and (iv) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Bonds. The Code contains certain provisions relating to the accrual of original issue discount or premium in the case of purchasers of the Discount Bonds who purchase such Discount Bonds after the initial offering of a substantial amount thereof. Owners who do not purchase such Discount Bonds in the initial offering at the initial offering prices should consult their own tax advisors with respect to the tax consequences of ownership of such Discount Bonds. All holders of the Discount Bonds should consult their own tax advisors with respect to the allowance of a deduction for any loss on a sale or other disposition to the extent that calculation of such loss is based on accrued original issue discount. Certain of the Bonds may be purchased in the initial offering for an amount greater than their principal amount payable at maturity (hereinafter, the "Premium Bonds"). The excess of the tax basis of a purchaser of a Premium Bond (other than a purchaser who holds a Premium Bond as inventory, stock in trade or for sale to customers in the ordinary course of business) over the principal amount of such Premium Bond is "bond premium." Bond premium is amortized for federal income tax purposes over the term of a Premium Bond based on the purchaser's yield to maturity in the Premium Bonds, except that in the case of a Premium Bond callable prior to its stated maturity, the amortization period and the yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium Bond. A purchaser of a Premium Bond is required to decrease his or her adjusted basis in such Premium Bond by the amount of bond premium attributable to each taxable year in which such purchaser holds such Premium Bond. The amount of bond premium attributable to a taxable year is not deductible for federal income tax purposes. Purchasers of Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the amount of bond premium attributable to each taxable year and the effect of bond premium on the sale or other disposition of a Premium Bond, and with respect to the state and local tax consequences of owning and disposing of a Premium Bond. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement 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 those documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Bond or the interest payable with respect thereto if any change occurs or action is taken or omitted upon the advice or approval of counsel other than Bond Counsel. 35 Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from federal gross income, and is exempt from State of California personal income taxes, the ownership or disposition of the Bonds, and the accrual or receipt of interest on the Bonds may otherwise affect an Owner's state or federal tax liability. The nature and extent of these other tax consequences will depend upon each Owner's particular tax status and the Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. [add Circular 230 language] Absence of Litigation The City will famish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Fiscal Agent Agreement, or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Fiscal Agent Agreement is to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof. 36 C ,iaC' CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market The City has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other City rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and their appropriateness as an investment. Should a Bondholder elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain a market for the purchase and sale of the Bonds and is not obligated to repurchase any of the Bonds at the request of the holder thereof. Underwriting Stone & Youngberg LLC (the "Underwriter") is offering the Bonds at the prices set forth on the inside front cover page hereof. 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 purchased the Bonds at a price equal to $ , which amount represents the principal amount of the Bonds, less an original issue discount of $ , less the Underwriters' discomfit of $ The Underwriter will pay certain of their expenses relating to the offering. The Financial Advisor The material contained in this Official Statement was prepared by the City with the assistance of the Financial Advisor, who advised the City as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein has been obtained by the City from sources which are believed to be reliable,but such information is not guaranteed by the Financial Advisor as to accuracy or completeness,nor has it been independently verified. Fees paid to the Financial Advisor are contingent upon the sale and delivery of the Bonds. Continuing Disclosure The City. The City will provide annually certain financial information and data relating to the Bonds and the District by not later than March 1 in each year commencing March 1, 2006 (the "Annual Report"), and to provide notices of the occurrence of certain other enumerated events if deemed by the City to be material. The City will act as Dissemination Agent. The Annual Report will be filed by the Dissemination Agent with each Nationally Recognized Municipal Securities Information Repository certified by the Securities and Exchange Commission (the "Repositories") and a State repository, if any. The notices of material events will be timely filed by the City with the Municipal Securities Rulemaking Board, the Repositories and a State repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events and certain other terms of the continuing disclosure obligation are found in the form of the City's Disclosure Agreement attached in"APPENDIX C —FORMS OF CONTINUING DISCLOSURE CERTIFICATES." The City has never failed to comply timely with any obligation to make a filing under Rule 15c2-12 under the Securities Exchange Act of 1934. 37 1..:? a Ur1L The Property Owner. The Property Owner and the Developer will enter into a Developer Continuing Disclosure Certificate, the form of which is also attached in "APPENDIX C" hereto (the "Developer's Disclosure Undertaking"). The Developer's Disclosure Undertaking will inure solely to the benefit of the District, the Dissemination Agent, the Underwriter and owners or beneficial owners from time to time of the Bonds. Additional Information The summaries and references contained herein with respect to the Fiscal Agent Agreement, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Fiscal Agent Agreement. Copies of the Fiscal Agent Agreement are available for inspection during the period of initial offering on the Bonds at the offices of the Underwriter, Stone & Youngberg LLC, 515 S. Figueroa Street, Suite 1060, Los Angeles, California 90071, telephone (213) 443-5000. Copies of these documents may be obtained after delivery of the Bonds from the City through the Director of Finance, City of Palm Springs, 3200 E. Tahquitz Canyon Way,Palm Springs, California 92262,telephone(760)323-8221. References Any statements in this Official Statement involving matters of opinion,whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Bonds. Execution The execution of this Official Statement by the Finance Director has been duly authorized by the City of Palm Springs. CITY OF PALM SPRINGS By: Finance Director 38 APPENDIX B CITY OF PALM SPRINGS INFORMATION STATEMENT The following information concerning the City of Palm Springs is presented as general background data. The Bonds are payable solely from unpaid Assessments as described in the Official Statement. The Bonds are not an obligation of the City, and the taxing power of the City is not pledged to the payment of the Bonds(except to the limited extent described herein). General Information The City of Palm Springs encompasses 96.2 square miles in Central Riverside County, including approximately 13.5 square miles annexed in 1994. The City is located 108 miles east of downtown Los Angeles and 120 miles west of the Arizona border. Neighboring cormnunities include Palm Desert, Rancho Mirage,Desert Hot Springs and Cathedral City. A major Southern California resort destination, Palm Springs attracts both local vacationers, distant "snowbirds" and permanent retirees. Palm Springs is very much an event-oriented city. The Palm Springs International Film Festival held for the first time in 1990 and hosted by then-Mayor Sonny Bono, has become an annual event. With premieres, parties, conferences and celebrations, this festival epitomizes the Palm Springs lifestyle. Palm Springs area is well known for its championship golf courses. The Bob Hope Chrysler Classic, the Kraft Nabisco Championship, and the Frank Sinatra Celebrity Invitational Golf Tournament are three well-publicized celebrity events. With over 80 golf courses in the Palm Springs area, the Professional Golf Association(PGA)holds tournaments in the area several times throughout its annual tour. There are over 160 hotels and inns within the Palm Springs area offering 6,500 rooms. Accommodating vacationers and visitors plays a major role in the City's economy, providing a significant amount of transient occupancy tax and sales tax. Government Organization The City of Palm Springs was incorporated as a general law city on April 20, 1938, and, operates under the council/manager form of government. It became a charter city on July 12, 1994. The City is governed by a five-member council consisting of four members and a Mayor, each elected at large for four-year alternating terns. Positions of City Manager and City Attorney are filled by appointments of the Council. The City of Palm Springs currently employs approximately 445 staff members including sworn officers and fire personnel. Governmental Services Public Safety and Welfare The City of Palm Springs Police Department consists of 135 sworn police officers aaid non-sworn personnel providing patrol, traffic, animal control and investigations. There are five fire stations located in and operated by the City, staffed by 62 fire personnel. The City also provides parking control in the downtown business district. B-1 Public Services Water is supplied to Palm Springs by the Desert Water Agency. Sewer service is provided by the City. Although the City operates two cogeneration facilities which provide electricity to certain municipally owned facilities, Southern California Edison provides electricity to the citizens of the City of Palm Springs. The City owns and operates the Palm Springs Regional Airport, with 5 major airlines and 3 commuter airlines servicing over 1.4 million passengers in 2004. Community Services Other services provided by the City include building permit and inspection, planning and zoning, landscape and public infrastructure maintenance, street cleaning, traffic signal maintenance, municipal code compliance and rent control. Parks and Recreation The City operates the Library Center, a 33,000 square foot facility with over 150,000 volumes available, as well as extensive computer links. The Village Green, located in the heart of downtown Palm Springs, includes the Historical Society Museum, the Cornelia White historical site and Ruddy's General Store Museum. The Palm Springs Department of Parks and Recreation provides citizens with a variety of park and recreational services on a year round basis. Facilities include two community centers, seven parks, totaling 142 developed acres, an Olympic community pool, twelve tennis courts, the 18-hole Tahquitz Creek golf course and the 18-hole City golf course, a 30,000 square feet skate park and five playgrounds, as well as biking and hiking trails. In addition, the City also owns Frances Stevens Park, which is home to Palm Canyon Theatre, a regional Actors Equity theatre, and an art/festival center. Community Facilities and Services The Coachella Valley has two large school districts and five smaller districts. The City of Palm Springs is served by the Palm Springs Unified School District, with 14 elementary schools, 3 comprehensive high schools, 2 continuation high schools, 1 independent study program, 7 State preschools, 10 Head Start programs, 3 daycare programs, and an extensive adult education program serving the City. In addition, higher education within the Coachella Valley includes the College of the Desert, a local accredited junior college, located 10 miles southeast of Palm Springs, within the City of Palm Desert. Also in the City of Palm Desert, a satellite campus of California State University, San Bernardino (CSUSB) offers curriculum towards a B.A. in various disciplines as well as Bachelor of vocational education; special B.A. in paralegal administration, and 6 masters degree programs, including education and public administration. Teaching credentials are also available. In addition, CSUSB is currently working with local government agencies to select a site for a permanent independent campus in the Coachella Valley. A variety of health services from dentists, physicians and surgeons, chiropractors, and optometrists are available to serve Palm Springs and its adjacent communities. Also available are clinics, medical and dental groups. The Desert Regional Medical Center is located in Palm Springs and contains a total bed capacity of 350 beds. Serving Pahn Springs are one main library, twelve theaters and such attractions as the Palm Springs Desert Museum, the Palm Springs Historical Museum, the Living Desert Reserve, Moorten's Botanical Gardens, and the Palm Springs Aerial Tramway, Rising 8,516 feet to a mountain station, the Aerial Tramway is the longest double funicular tramway in the world. Once at the top, hiking, camping, cross- country skiing and picnicking are available. B-2 Transportation Interstate 10 runs adjacent to Palm Spring's northern City limits. This route provides access to the Southern California freeway system to the west, as well as Arizona to the east. Rail freight service is available from South Pacific Transportation. Bus services are provided by Continental Trailways, Greyhound Bus Lines and Sardine System, both local and distant. Palm Springs International Airport, expanded in 1999, is the only commercial airport in Riverside County and is served by most major airlines. Population The following table provides a comparison of population growth for the City of Palm Springs, surrounding cities and Riverside County between 2001 and 2005. TABLE NO.B-1 CHANGE IN POPULATION CITY OF PALM SPRINGS,SURROUNDING CITIES AND RIVERSIDE COUNTY 2001—2005 PALM SPRINGS SURROUNDING CITIES RIVERSIDE COUNTY Percentage Percentage Percentage Year Population Change Population Change Population Change 2001 43,422 116,840 1,590,473 2002 43,981 1.3% 120,248 2.9% 1,654,220 4.0% 2003 44,564 1.3% 124,957 3.9% 1,726,754 4.4% 2004 45,039 1.1% 128,853 3.1% 1,807,858 4.7% 2005 45,731 1.5% 135,714 5.3% 1,877,000 3.8% %Change Between 2001 -2005 5.3% 16.2% 18.0% Surrounding cities include Cathedral City,Desert Hot Springs,Palm Desert and Rancho Mirage. Source: State of California Department of Finance,Population Research Unit,"Population Estimates for California Cities and Counties." B-3 r)r.• Employment and Industry The City of Palm Springs is located in the Riverside-San Berardino Metropolitan Statistical Area (MSA). As of March 2005, six major job categories constitute 75.4% of the work force. They are government (18.3%), service producing (16.6%), professional and business services (10.7%), manufacturing (10.1%), educational and health services (9.9%) and leisure and hospitality (9.8%). The March 2005 unemployment rate in the Riverside-San Berardino MSA was 5.0%. The State of California March 2005 unemployment rate(unadjusted)was 5.7%. TABLE NO.B-2 RIVERSIDE/SAN BERNARDINO MSA WAGE AND SALARY WORKERS BY INDUSTRY t'r (in thousands) Industry 2001 2002 2003 2004 2005 Government 201.0 211.2 217.3 213.8 216.9 Other Services 37.0 38.0 38.3 39.7 39.4 Leisure and Hospitality 105.1 108.7 110.2 117.1 116.4 Educational and Health Services 104.8 111.5 115.5 118.8 118.0 Professional and Business Services 99.1 103.7 111.0 123.3 126.9 Financial Activities 38.2 38.7 40.9 45.0 46.4 Information 14.3 14.2 13.8 13.9 14.0 Transportation,Warehousing and 44.3 45.2 48.2 52.6 55.8 Service Producing Retail Trade 129.9 133.9 138.9 147.5 151.9 Wholesale Trade 42.6 40.9 43.5 43.7 45.4 Manufacturing Nondurable Goods 34.8 33.2 33.2 34.6 340 Durable Goods 86.1 82.1 81.8 84.4 85.9 Goods Producing Construction 84.4 86.7 94.2 104.0 115.6 Natural Resources and Mining 1.2 1.1 1.3 12 1.2 Total Nonfarm 1,022.8 1,049.1 1,088.1 1,139.5 1,167.8 Farm 23.1 21.4 20.4 20.4 20.5 Total(all industries) 1045.2 107Q.5 LIMB iJ52.9 1,18R_3 m Annually,as of March. Source: State of California,Employment Development Department,Labor Market Information Division. B-4 The major employers operating within the City and their respective number of employees as of June 30, 2004 are as follows: TABLE NO.B-3 CITY OF PALM SPRINGS LARGEST EMPLOYERS Name of Employer Number of Employees Product/Service Hotels 2,461 Lodging/Restaurants Palm Springs Unified School District 2,149 Public School System Desert Regional Medical Center 1,431 Medical Facility Agua Caliente Gaming Casino 925 Casino City of Palm Springs 436 Municipal Govenunent Bird Corporation 363 Medical Supplies and Equipment Desert Sun Publishing 371 Newspaper 13 Banks and Savings and'Loans 194 Financial Services County of Riverside 172 Municipal Government Source: City of Palm Springs. Personal Income Personal income information for Palm Springs, Riverside County, the State of California and the United States is summarized in the following table. TABLE NO.B-4 PERSONAL INCOME CITY OF PALM SPRINGS,RIVERSIDE COUNTY, STATE OF CALIFORNIA AND UNITED STATES 1999—2003 Year Palm Springs Riverside County State of California United States 1999 $28,123 $35,145 $39,942 $37,238 2000 32,610 39,293 44,464 39,129 2001 27,271 37,480 43,352 38,365 2002 32,689 38,691 42,484 38,035 2003 32,503 39,321 42,924 38,021 Source: Sales and Marketing Management, "Survey of Buying Power." B-5 Commercial Activity Taxable Transactions by type of business for the City of Palm Springs for 1999 through 2003 are summarized in Table No. B-5. TABLE NO.B-5 CITY OF PALM SPRINGS TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in thousands) 1999-2003 1999 2000 2001 2002 2003 Retail Stores Apparel Stores $ 20,189 $ 19,289 $ 17,021 $ 17,079 $ 18,096 General Merchandise Stores 36,456 41,339 41,323 41,199 42,835 Food Stores 55,808 59,979 55,844 43,548 42,865 Eating/Drinking Places 105,217 115,976 120,171 116,811 123,509 Home Furnishings and Appliances 9,802 11,867 12,217 12,191 12,042 Building Materials and Farm Implements 17,286 22,997 51,947 70,215 90,842 Auto Dealers/Suppliers 66,789 74,409 78,645 65,971 69,344 Service Stations 27,755 40,596 40,189 50,631 65,622 Other retail stores 60.883 67,746 63,839 66.284 65,883 Total Retail Stores 400,185 454,198 481,196 483,829 531,038 All Other Outlets 141,856 147,118 141760 133,431 144,449 Total All Outlets $542 041 $601,316 $623,956 $617 260 a6 L 482 Source: State Board of Equalization,"Taxable Sales in California." B-6 TABLE NO.B-6 CITY Or PALM SPRINGS TOTAL TAXABLE TRANSACTIONS (in thousands) 1999—2003 Total Taxable Retail Sales Retail Sales Transactions Issued Sales Year ($000's) %Change Permits ($000's) %Change Permits 1999 $400,185 918 $542,041 1,970 2000 454,198 13.5% 1,039 601,316 10.9% 2,077 2001 481,196 5.9% 1,079 623,956 3.8% 2,116 2002 483,829 0.6% 1,101 617,260 (1.1)% 2,155 2003 531,038 9.8% 1,123 675,487 9.4% 2,232 Somme: State Board of Equalization,"Taxable Sales in California." The following table summarizes the change in taxable transactions for the City of Palm Springs and surrounding cities. TABLE NO.B-7 CITY OF PALM SPRINGS AND SURROUNDING CITIES CHANGE IN TOTAL TAXABLE TRANSACTIONS (in thousands) 1999—2003 %Change City 1999 2000 2001 2002 2003 1999-2003 PALM SPRINGS $ 542,041 $ 601,316 $ 623,956 $ 617,260 $ 675,487 24.6% Cathedral City 609,829 680,502 707,465 761,564 814,737 33.6% Palm Desert 1,098,211 1,217,986 1,211,069 1,209,385 1,296,730 18.1% Source: State Board of Equalization,"Taxable Sales in California." B-7 Building Activity The following table smmnarizes building activity valuations for the City of Palm Springs for the five fiscal years 2000 through 2004. TABLE NO.B-8 CITY OF PALM SPRINGS BUILDING ACTIVITY AND VALUATION (in thousands) 2000-2004 2000 2001 2002 2003 2004 Total Residential $60,147 $53,129 $50,492 $52,623 $221,429 Total Commercial 16,509 15.033 16,517 21,201 34,832 Total Valuation $76,656 $68 161 $57 002 M824 $256,261 Source: City of Palm Springs. B-8 APPENDIX C FORM OF ISSUER CONTINUING DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE (City) This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and delivered by the City of Palm Springs (the "City") for its Assessment District No. 164 (Mountain Gate II) (the "District") in connection with the issuance of the City's 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate ll) (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and The Bank of New York Trust Company, N.A., as fiscal agent(the "Fiscal Agent"). The City hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5). Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, 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' means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Annual Report Date" means the date that is eight months after the end of the City's fiscal year(currently March 1 based on the City's fiscal year end of June 30). "Dissemination Agent' means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. District" means Assessment District No. 164 (Mountain Gate ll) of the City of Palm Springs. "Listed Events" means any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository' means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Securities and Exchange Commission's Internet site at www,sec.gov. "Official Statement' means the final official statement executed by the City in connection with the issuance of the Bonds. C-1 "Participating Underwriter' means Stone & Youngberg LLC, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository' means each National Repository and each State Repository, if any. "Rule" means 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' means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing by not later than March 1, 2006, with the report for the 2004- 05 fiscal year, provide to the Participating Underwriter and to each Repository an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City 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 City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the City does not provide, or cause the Dissemination Agent to provide, an Annual Report to the Repositories by the Annual Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating Underwriter. (c) The Dissemination Agent shall: (i) determine each year prior to the Annual Report Date the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the City, file a report with the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following documents and information: (a) The City's audited financial statements for the most recently completed fiscal year, together with the following statement: C-2 THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15C2-12, NO FUNDS OR ASSETS OF THE CITY OR THE CITY OF PALM SPRINGS ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND NEITHER THE CITY NOR THE CITY OF PALM SPRINGS IS OBLIGATED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY OF PALM SPRINGS IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS. (b) Total assessed value (per the Riverside County Assessor's records) of all parcels currently subject to outstanding Assessments of the District, showing the total assessed valuation for all land and the total assessed valuation for all improvements. Parcels are considered improved if there is an assessed value for the improvements in the Assessor's records. (c) The total dollar amount of delinquencies in the City for the most recently completed fiscal year and, in the event that such delinquencies exceed 5% of the Assessments for such year, delinquency information for each parcel responsible for more than $5,000 in the payment of the Assessments, amounts of delinquencies, length of delinquency and status of any foreclosure of each such parcel. (d) The amount of prepayments of the Assessments, if any, for the District for most recently completed fiscal year. (e) The principal amount of the Bonds outstanding and the balance in the Reserve Account. (f) In addition to any of the information expressly required to be provided under paragraphs (a) through (e) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. 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 City 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 City shall clearly identify each such other document so included by reference. Section 5. Reportinq of Siqnificant Events. (a) Pursuant to the provisions of this Section 5, the City 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 security. C-3 0 (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, if any, with a copy to the Fiscal Agent(if different than the Dissemination Agent) and the Participating Underwriter. 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 Fiscal Agent Agreement. Section 6. Termination of Reportinq Obligation. The City'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 City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, 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; and (c) the proposed amendment or waiver either(i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. C-4 �r,r�r If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City 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 City to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City 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 Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City 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 City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Developer, the Fiscal Agent, the Bond owners or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and, payment of the Bonds. C-5 Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows: To the Issuer: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Fiscal Agent: The Bank of New York Trust Company, N.A. Attention: Corporate Trust Department 700 South Flower Street, Suite 500 Los Angeles, California 90017 To the Dissemination Agent: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Participating Underwriter: Stone & Youngberg LLC Attention: Municipal Research Department 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. C-6 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palm Springs Name of Bond Issue: 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) Date of Issuance: 2005 NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Bonds as required by the Fiscal Agent Agreement dated as of July 1, 2005 between the City and The Bank of New York Trust Company, N.A. The City anticipates that the Annual Report will be filed by Dated: DISSEMINATION AGENT (Name:) By: Its: C-8 FORM OF DEVELOPER DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE (Developer) This Continuing Disclosure Certificate (this "Disclosure Certificate') is executed and delivered by Century Vintage Homes, a California corporation (the "Developer" or "Century'), in connection with the issuance by the City of Palm Springs (the "City') for its Assessment District No. 164 (Mountain Gate II) (the "District") in connection with the issuance of the City's 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent"). The Developer covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, 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: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person, 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement"means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner's development and financing plans with respect to the City), whereby such Major Owner or Affiliate agrees to provide Annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in the City owned by such Major Owner and its Affiliates and, at the option of the Developer or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof. "Dissemination Agent" means the City, or any successor Dissemination Agent designated in writing by the Developer, and which has filed with the Developer, the City and the Fiscal Agent a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Certificate.: C-9 "District" means Assessment District No. 164 (Mountain Gate II) of the City of Palm Springs. "Listed Events" means any of the events listed in Section 5(a) of this Disclosure Certificate. "Major Owner" means, as of any Report Date, an owner of land in the City responsible in the aggregate for 15% or more of the Assessments of the District actually levied at any time during the then-current fiscal year. "National Repository' means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Securities and Exchange Commission's Internet site at www.sec.gov. "Official Statement" means the final official statement executed by the City in connection with the issuance of the Bonds. "Participating Underwriter' means Stone & Youngberg LLC, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Property' means the property owned by the Developer in the District. "Report Date" means the date that is three months after the end of the City's fiscal year (currently September 30 based on the City's June 30 fiscal year end). "Repository' means each National Repository and each State Repository, if any. "Rule" means 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. "Annual Report" means any Annual Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Assessments" means the outstanding assessments levied on property within the District. "State Repository' means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The Developer shall, or upon written direction shall cause the Dissemination Agent to, not later than the Report Date, commencing September 30, 2005, provide to each Repository a Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Fiscal Agent (if different from the Dissemination Agent), , ,1 the Participating Underwriter and the City. Not later than 15 Business Days prior to the Report Date, the Developer shall provide the Annual Report to the Dissemination Agent. The Developer shall provide a written certification with (or included as a part of) each Annual Report furnished to the Dissemination Agent, the Fiscal Agent (if different from the Dissemination Agent), the Participating Underwriter and the City to the effect that such Annual Report constitutes the Annual Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the City may conclusively rely upon such certification of the Developer and shall have no duty or obligation to review the Annual Report. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the Dissemination Agent does not receive a Annual Report by 15 days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Developer that the Annual Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Developer to determine whether its obligations under this Disclosure Certificate have terminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Developer does not provide, or cause the Dissemination Agent to provide, a Annual Report to the Repositories by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the City and the Participating Underwriter. (c) The Dissemination Agent shall: (i) determine prior to each Report Date the name and address of each National Repository and each State Repository, if any; (ii) to the extent the Annual Report has been furnished to it, file a report with the Developer (if the Dissemination Agent is other than the Developer), the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The Developer's Annual Report shall contain or incorporate by reference the information set forth below: (a) Any significant changes in the information concerning property owned by Century or an affiliate as of the date of the Official Statement and contained in the Official Statement under the headings: "THE DISTRICT — The Developer" and - Status of Development; Financing Plan." (b) With respect to property within the District owned by Century or in which Century or its affiliates has an interest and on which a final subdivision map has been approved, and for both the annual period covered by the report and on a cumulative basis for the period commencing with the date of issuance of the Bonds: (i) the number of lots sold by Developer to end users or builders; (ii) the number of lots held by Developer and available for sale; (iii)the estimated number of lots or parcels owned by Developer on which Developer has constructed dwelling improvements which are at least 90% complete; (iv)the number of lots or parcels C-11 �ps ju owned by Developer on which Developer has an executed sale contract to a homeowner, which sale has not yet closed; and (iv) the number of lots or parcels owned by Developer on which construction of dwelling improvements has not yet begun. (c) Any denial of credit, lines of credit, loans or loss of source of capital that could have a significant impact on Century's ability to pay Assessments or to develop property within the District which is owned by Century or in which Century or an affiliate then has an interest. (d) Any failure by Century to pay when due general property taxes or special taxes or assessments with respect to property within the District owned by Century or in which Century or an affiliate then has an interest. (e) Any previously undisclosed amendments to land use entitlements or environmental conditions or other governmental conditions that are necessary to complete the development of the property within the District which is owned by Century or in which Century or an affiliate has an interest. (h) A description of any material changes in legal structure of, or in the organization of, Century or the affiliates holding title to property in the District. In addition to any of the information expressly required to be provided in Exhibit B, the Developer's Annual Report shall include such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Section 5. Reportinq of Siqnificant Events. (a) The Developer shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Developer and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Developer; (ii) failure to pay any taxes, special taxes or assessments due with respect to the Property; (III) filing of a lawsuit against the Developer or, if known, an Affiliate of the Developer, seeking damages which could have a significant impact on the Developer's ability to pay Assessments or to sell or develop the Property; (iv) material damage to or destruction of any of the improvements on the Property; and (v) any payment default or other material default by the Developer on any loan with respect to the construction of improvements on the Property. (b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer shall as soon as possible determine if such event would be material under applicable Federal securities law. C-12 GI�P^rrr� (c) If the Developer determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Developer shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, if any, with a copy to the Fiscal Agent, the City and the Participating Underwriter. Section 6. Duration of Reportinq Obligation. (a) All of the Developer's obligations hereunder shall commence on the date hereof and shall terminate (except as provided in Section 11) on the earliest to occur of the following: (1) upon the legal defeasance, prior redemption or payment in full of all the Bonds, or (ii) at such time as property owned by the Developer is no longer responsible for payment of 10% or more of the Assessments, or (iii)the date on which the Developer prepays in full all of the Assessments attributable to the Property. The Developer shall give notice of the termination of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5. (b) If a portion of the property in the City owned by the Developer, or any Affiliate of the Developer, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of the Developer hereunder with respect to the property in the City owned by such Major Owner and its Affiliates may be assumed by such Major Owner or by an Affiliate thereof and the Developer's obligations hereunder will be terminated. In order to effect such assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement in form and substance satisfactory to the City and the Participating Underwriter. Section 7. Dissemination Agent. The Developer may, from time to time, appoint or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be . The Dissemination Agent may resign by providing thirty days' written notice to the City, the Developer and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Developer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (provided, however, that the Dissemination Agent shall not be obligated under any such amendment that modifies or increases its duties or obligations hereunder without its written consent thereto): (a) if the amendment or waiver relates to the provisions of sections 3(a), 4 or 5('a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; C-13 (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; and (c) the proposed amendment or waiver either(i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Developer 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 Developer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to the extent indemnified to its satisfaction from any liability, cost or expense, including fees and expenses of its attorneys), and the Participating Underwriter and any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer 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 Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the Developer to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Aqent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Developer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys'fees) of defending against any claim of liability, but excluding liabilities, costs and expenses due to the Dissemination Agent's negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder in accordance with its schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Developer, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. C-14 Section 12, Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows: To the Issuer: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Fiscal Agent: The Bank of New York Trust Company, N.A. Attention: Corporate Trust Department 700 South Flower Street, Suite 500 Los Angeles, California 90017 To the Dissemination Agent: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Participating Underwriter: Stone & Youngberg LLC Attention: Municipal Research Department 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 To the Developer: Century Vintage Homes 1535 South D Street San Bernardino, CA 92408 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Developer(its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. All obligations of the Developer hereunder shall be assumed by any legal successor to the obligations of the Developer as a result of a sale, merger, consolidation or other reorganization. C-15 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palm Springs Name of Bond Issue: 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) Date of Issuance: 2005 NOTICE IS HEREBY GIVEN that Century Vintage Homes (the "Major Owner") has not provided an Annual Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (Developer), dated 2005. The Major Owner anticipates that the Annual Report will be filed by Dated: DISSEMINATION AGENT By: Its: C-17 APPENDIX D ASSESSMENT PARCEL LISTING The following table contains the Assessment Parcels as of December 2004. The information concerning the ownership was obtained from Albert A. Webb Associates and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor, the Underwriter,or the City. Assessment No./ Assessor Parcel No. Property Owner Assessment 0010001/ 669320011-6 Mountain Gate II Palm Springs Ventures $3,295,600.00 0010002/ 669320013-8 Mountain Gate II Palm Springs Ventures 510,400.00 $3,806,000.00 D-1 APPENDIX H DTC AND THE BOOK-ENTRY-ONLY SYSTEM The following description of the Depository Trust Company ("DTC'), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Bonds (the "Issuer') nor the trustee or fiscal agent appointed with respect to the Bonds (the "Trustee') take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b)certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c)redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current `Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current 'Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC and its Participants. The Depository Trust Company("DTC"),New York,NY, will act as securities depository for the Bonds. The Bonds will be issued as folly-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered security certificate will be issued for each maturity of the Braids, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization"within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 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, (respectively, "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 www.dtcc.com. H-I v - Book-Entry-Only System. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Security(`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants'records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 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. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the 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. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor 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 issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date(identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest evidenced by 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 Issuer 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 "sheet name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Issuer or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any,,and interest evidenced by the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer 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. II-2 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The Issuer 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. Discontinuance of DTC Services. In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Issuer determines that DTC will no longer so act and delivers a written certificate to the Trustee to that effect, then the Issuer will discontinue the Book-Entry- Only System with DTC for the Bonds. If the Issuer determines to replace DTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the indenture or fiscal agent agreement executed in connection with the Bonds. If the Issuer fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds will no longer be restricted to being registered in the Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds designates. If the Book-Entry-Only System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii)principal of, and redemption premiums, if any, on, the Bonds will be payable upon surrender thereof at the corporate trust office of the Trustee, (iii) interest on the Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of Bonds received by the Trustee on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Bonds will be transferable and exchangeable as provided in the indenture or fiscal agent agreement executed in connection with the Bonds. H-3 EXHIBIT E FORM OF BOND COUNSEL OPINION Date of Delivery City of Palm Springs 3200 East Tahquitz Way Palm Springs, CA 92262 Re: $ City of Palm Springs 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate I1) Ladies and Gentlemen: We have acted as bond counsel to the City of Palm Springs (the "City"), in connection with the issuance by the City of $ aggregate principal amount of its 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate 11) (the "Bonds"), pursuant to a Resolution of the City Council of the City adopted on June 15, 2005 (the "Resolution") and a Fiscal Agent Agreement, dated as of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent"). We have examined the law and such certified proceedings and other papers we deem necessary to render this opinion. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Fiscal Agent Agreement. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Resolution, the Fiscal Agent Agreement and in certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, that: 1. The City is a charter city of the State of California duly organized and validly existing under the Constitution and laws of the State of California, and the City Charter of the City. 2. The Fiscal Agent Agreement has been duly authorized, executed and delivered by, and constitutes the valid and binding obligation of, the City, enforceable in accordance with its terms. 3. The Bonds constitute the valid and binding limited obligations of the City, payable from and secured by a pledge of the Revenues and any other amounts held in any fund or account established pursuant to the Fiscal Agent Agreement, including proceeds of the sale of the Bonds, and all amounts derived from the investment of such moneys, subject to the application thereof on the terns and conditions as set forth in the Fiscal Agent Agreement. 01003/0061/34960.01 rateorLeuvery Page No. 2 4. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentences are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 that roust be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 5. Interest on the Bonds is exempt from personal income taxation imposed by the State of California. No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering materials relating to the Bonds. Certain requirements and procedures contained or referred to in the Fiscal Agent Agreement may be changed and certain actions may be taken or omitted under the circurnstances and subject to the terms and conditions set forth therein, upon the advice or with the approving opinion of nationally recognized bond counsel, and no opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of any counsel other than ourselves. The opinions expressed herein are based on an analysis of existing law and cover certain matters not directly addressed thereby. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof, and we have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. We have assumed the genuineness of all documents and signatures presented to us. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in such documents. Furthermore, we have assumed compliance with all agreements and covenants contained in the Fiscal Agent Agreement. In addition, the rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. We bring to your attention the fact that our legal opinions are an expression of professional judgment and are not a guarantee of a result. Our engagement with respect to this matter has terminated as of the date hereof, and we do not undertake to advise you of any matters 01003/0061/34960.01 City of Palm Springs Date of Delivery Page No. 3 that may come to our attention subsequent to the date hereof that may affect our legal opinions expressed herein. Respectfully submitted, 01003/006 04960.01 APPENDIX A SUMMARY OF THE FISCAL AGENT AGREEMENT The following is a summary of certain provisions of the Fiscal Agent Agreement and does not purport to be a complete restatement thereof. Reference is hereby made to the Fiscal Agent Agreement for the complete terms hereof. Copies of the Fiscal Agent Agreement are available from the City upon request. DEFINITIONS - Definitions. Unless the context otherwise requires, the terms defined below shall, for all purposes of this Summary, and of any Agreement supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terns herein defined. "Acquisition and Construction Fund" means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. "Act" means the Municipal Improvement Act of 1913, being Division 12 of the California Streets and Highways Code. "Administrative Expense Fund" means the fund of that name established pursuant to the Fiscal Agent Agreement. "Agreement" means the Fiscal Agent Agreement, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Agreement. "Assessment" means the individual assessments levied within the District by the City in proceedings taken pursuant to the resolution of intention to form the District and the Act. "Assessment Revenue Fund" means the fund of that name established and held by the Finance Director pursuant to the Resolution of Issuance and the Agreement. "Auditor" means the auditor/controller of Riverside Comity, or such other official at the County who is responsible for preparing property tux bills. "Authorized Representative"means: (a)with respect to the City, its Mayor, City Manager or Director of Finance & Treasurer, or any other person designated as an Authorized Representative of the City in a Written Certificate of the City signed by its City Manager and filed with the Fiscal Agent; and (b) with respect to the Fiscal Agent, the Senior Vice President, any Vice President, any Assistant Vice President or any Trust Officer of the Fiscal Agent, and when used with reference to any act or document also means any other person authorized to perform such act or sign any document by or pursuant to a resolution of the Board of Directors of the Fiscal Agent or the by-laws of the Fiscal Agent. "Bond Counsel" means Aleshire & Wynder, LLP or any other attorney or firm of attorneys who are nationally recognized as having experience in the issuance of bonds the interest on which is excludable from gross income under Section 103 of the Tax Code. Al � 1 "Bond Law" means the Improvement Bond Act of 1915, as amended, Division 10 of the California Streets and Highways Code. "Bond Year"means each twelve-month period begriming on September 3 in any year and extending to the next succeeding September 2, both dates inclusive; except that the first Bond Year shall begin on the Closing Date and end on September 2, 2005. "Bonds" means the City of Palm Springs 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate Il), issued in the aggregate principal amount of $--$3,806,000 and authorized by, and at any time Outstanding pursuant to,this Agreement. "Business Day"means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California, or in any state in which the Office of the Fiscal Agent is located, are closed. "Citv" means the City of Palm Springs, a charter city and municipal corporation duly organized and existing under the Constitution and laws of the State of California, and any successor thereto. "Closing Date" means the date on which the Bonds are delivered to the Original Purchaser,being July 12, 2005. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to, printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Fiscal Agent and its counsel, including the Fiscal Agent's first annual administrative fee, fees, charges and disbursements of attorneys, financing advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds, and any cost,charge or fee in comiection with the original issuance of the Bonds. "Costs of Issuance Fund"means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. "Depository"means (a) initially,DTC, and(b)any other Securities Depositories acting as Depository pursuant to the Agreement. "District"means Assessment District No. 164(Mountain Gate lI)of the City. "DTC"means The Depository Trust Company, New York,New York, and its successors and assigns. "Event of Default"means any of the events of default specified in the Agreement. "Excess Investment Earnings" means an amount required to be rebated to the United States of America pursuant to Section 148(f) of the Tax Code due to investment of gross proceeds of the Bonds at a yield in excess of the yield on the Bonds. "Federal Securities" means: (a) any direct general obligations of the United States of America(including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), the payment of principal of and interest on A-2 which are unconditionally and fully guaranteed by the United States of America; (b) obligations of any agency or department of the United States of America which represent the full faith and credit of the United States of America or the timely payment of the principal of and interest on which are secured or guaranteed by the full faith and credit of the United States of America; and (c) any obligations issued by the State of California or any political subdivision thereof the payment of and interest and premium (if any) on which are fully secured by Federal Securities described in the preceding clauses (a) or (b), as verified by an independent certified public accountant. "Fiscal Agent" means The Bank of New York Trust Company, N.A., or any successor thereto acting as Fiscal Agent pursuant to the Agreement. "Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the City designated in a Written Certificate of the City delivered to the Fiscal Agent. "Independent Financial Consultant" means any financial consultant or firm of such financial consultants appointed by the City and who, or each of whom: (a) is judged by the City to have experience with respect to the financing of public capital improvement projects; (b) is in fact independent and not under the domination of the City; (c) does not have any substantial interest, direct or indirect, with the City; and (d) is not connected with the City as an officer or employee of the City,but who may be regularly retained to make reports to the City. "Information Services"means Financial Information, Inc.'s"Daily Called Bond Service", 30 Montgomery Street, 10'h Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' `Called Bond Service," 65 Broadway, 16"' Floor, New York, New York 10006; Moody's Investors Service "Municipal and Government," 99 Church Street, 80' Floor, New York, New York 10007, Attention: Municipal News Reports; Standard & Poor's Corporation "Called Bond Record," 25 Broadway, P Floor, New York, New York 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the City may designate in a written request delivered to the Fiscal Agent. "Interest Account" means the account by that name established and held by the Fiscal Agent pursuant to the Agreement. "Interest Payment Date" means March 2 and September 2 in each year, commencing March 2, 2006, so long as any Bonds remain Outstanding. "Office" means the corporate trust office of the Fiscal Agent in Los Angeles, California, or such other or additional offices as the Fiscal Agent may designate in writing to the City from time to time as the corporate trust office for purposes of this Agreement. "Original Purchaser" means Stone & Youngberg, LLC, as the original purchaser of the Bonds. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of the Agreement) all Bonds theretofore, or thereupon being, authenticated and delivered by the Fiscal Agent under the Agreement except (a) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (b) A-3 Bonds with respect to which all liability of the City shall have been discharged in accordance with the Agreement, including Bonds (or portions of Bonds) disqualified under the Agreement; and(c)Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Fiscal Agent pursuant to the Agreement. "Owner."whenever used herein with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books. "Permitted hivestments" means any of the following which at the time of investment are determined by the City (the Fiscal Agent being entitled to rely on direction of investment by the City as such determination) to be legal investments under the laws of the State of California for the moneys proposed to be invested therein: (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export-Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest-bearing demand or time deposits (including certificates of deposit) or deposit accounts in federal or state chartered savings and loan associations or in federal or State of California banks (including the Fiscal Agent and its affiliates), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall be rated in the highest short-term rating category by any Rating Agency or (ii) such demand or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-tern rating category by any Rating Agency, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-tern obligations are rated in the highest short-term rating category by any Rating Agency or whose long-term obligations are rated A or better by each such Rating Agency, which mature not more than 270 days following the date of. investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (a) rated A or better A-4 by any Rating Agency or (b) fully secured as to the payment of principal and interest by Federal Securities; (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of Five Hundred Million Dollars ($500,000,000), which obligations are rated A or better by any Rating Agency; (h) money market fiords (including money market funds for which the Fiscal Agent, its affiliates or subsidiaries provide investment advisory or other management services)which invest in Federal Securities or which are rated in the highest rating category by any Rating Agency; and (i) any investment agreement, repurchase agreement or other investment instrument which represents the general unsecured obligations of a bank, investment banking firm or other financial institution whose long-term obligations are rated A or better by any Rating Agency. "Principal Account" means the account by that name established and held by the Fiscal Agent pursuant to the Agreement. "Rating Agency" means, individually, either (a) Moody's Investors Service, Inc., its successors and assigns, or(b) Standard&Poor's Corporation, its successors and assigns. "Record Date" means: (a) the 15`1' calendar day of the month preceding each hiterest Payment Date, whether or not such day is a Business Day, and (b) any date established by the Fiscal Agent pursuant to the Agreement as a Record Date for the payment of defaulted interest on the Bonds, if any. "Redemption Account" means the account by that name established and held by the Fiscal Agent pursuant to the Agreement. "Redemption Price"means the aggregate amount of principal of and premium(if any) on the Bonds upon the redemption thereof pursuant to the Agreement. "Registration Books" means the records maintained by the Fiscal Agent for the registration of ownership and registration of transfer of the Bonds pursuant to the Agreement. "Reserve Account" means the account by that name established and held by the Fiscal Agent pursuant to the Agreement. "Reserve Requirement" means, as of the date of calculation thereof, an amount equal to the least of(a) 10% of the initial par value of the Bonds, or (b) maximum annual debt service on the Bonds in any Bond Year, or(c) 125%of average annual debt service in any Bond Year. "Revenue Fund" means the fund by that name established and held by the Fiscal Agent pursuant to the Agreement. "Revenues" means, (a) all amounts derived from or with respect to the collection and assessment securing the Bonds, including but not limited to all prepayments and other payments A-5 of principal thereof and interest thereon, and (b) investment income with respect to any moneys held by the Fiscal Agent in the funds and accounts established hereunder. "Securities Depositories"means The Depository Trust Company, and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a written certificate delivered to the Fiscal Agent. "Tax Code"means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced in the Agreement) as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official guidance published, under the Tax Code. "List of Unpaid Assessments" means the list on file with the Finance Director showing the amounts of the unpaid individual Assessments secured by liens upon the respective parcels in the District. "Written Certificate" and "Written Request' of the City mean, respectively, a written certificate or written request signed in die name of the City by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. CREATION OF FUNDS Costs of Issuance Fund. There is established wider the Agreement a separate fund to be known as the "Costs of Issuance Fund," which shall be held by die Fiscal Agent in trust. The moneys in die Costs of Issuance Fund shall be used and withdrawn by the Fiscal Agent from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (a) the person to whore payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund; in each case together with a statement or invoice for each amount requested thereunder. On March 2, 20060ctober 1, 2005, all amounts (if any) remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Fiscal Agent and transferred to the Interest Account and die Costs of Issuance Fund shall be closed. Acquisition and Construction Fund. There is established under the Agreement a separate fund designated as the "Acquisition and Constriction Fund" to be held by the Fiscal Agent. All moneys in the Acquisition and Construction Fund shall be applied by the City to the payment of the costs of the acquisition and construction and public improvements within and/or providing service to the District and of expenses incident thereto (or for malting reimbursements to City or any other person, fine or corporation for such costs theretofore paid by him or it), including, without limitation, architectural and engineering fees and expenses, furniture and equipment, tests and inspections, surveys, land acquisition, insurance premiums and losses during construction not insured against because of deductible amounts. Disbursements from the Acquisition and Construction Fund shall be made by the Fiscal Agent upon receipt of a Certificate of an Authorized Representative of the City stating that (1) the conditions to the release of such funds have been satisfied, (2) the name of the person to whom payment is due, (3) the amount to be paid,and(4)the purpose for which the obligation to be paid was incurred. A-6 When the qualified capital project(s) shall have been acquired, constructed, installed and accepted, and all of such costs of acquisition, construction and installation and incidental expenses have been determined and paid (or all of such costs and expenses have been paid less specified claims which are subject to dispute and for which a retention in the Acquisition and Construction Fund is to be maintained in the full amount of such claims until such dispute is resolved)any remaining balance in the Acquisition and Construction Fund(but less the amount of any such retention)shall be transferred to the Revenue Fund. Adniinistrative Expense Fund, Deposits. There is established under the Agreement a special fiend designated the "Administrative Expense Fund" to be held by the City. All moneys at any time on deposit in the Administrative Expense Fund shall be held by the City in bust for the benefit of the District and applied solely as provided in the Agreement. There shall be deposited in the Administrative Expense Fund the proceeds to the City resulting from the levy of an annual assessment for administrative costs on all parcels within the District in an amount not to exceed 210% of the annual assessment installment due on each of said parcels. The City shall apply moneys on deposit in the Administrative Expense Fund to pay the following expenses: W administrative costs incurred by the City in connection with the division of tracts of property within the District and/or apportionment of Assessments necessitated thereby to the extent that such costs are not paid from moneys deposited in the City by the owner of such tracts; and (ii) costs incurred by the City and not otherwise reimbursed which result from the administration and collection of Assessments, the calculation of rebate payable to the United States of America, the Fiscal Agent's services and costs under this Fiscal Agent Agreement, the cost of the redemption of Bonds, the fees of the City Engineer and related administrative costs. SECURITY OF BONDS; FLOW OF FUNDS,INVESTMENTS Assessment Revenue Fund The City shall establish a separate fluid to be known as the "Assessment Revenue Fund," which shall be established, held and administered by the Finance Director. All moneys received by the City on account of installment payments respecting unpaid assessments, including late charges and penalties, if any, paid in comiection with reinstatement of delinquent assessment installments, proceeds of foreclosure sale payable to the City resulting from foreclosure of the lien of delinquent assessments, and proceeds of payments made to discharge unpaid assessments, whether in whole or in part, shall be deposited in the Assessment Revenue Fund. The Finance Director shall make transfers from the Assessment Revenue Fund, from time to time, as required under the Agreement,to pay the principal of and the interest and redemption premiums,if any, on the Bonds. A-7 When the qualified capital project(s) shall have been acquired, constructed, installed and accepted, and all of such costs of acquisition, construction and installation and incidental expenses have been determined and paid (or all of such costs and expenses have been paid less specified claims which are subject to dispute and for which a retention in the Acquisition and Construction Fund is to be maintained in the full amount of such claims until such dispute is resolved) any remaining balance in the Acquisition and Construction Fund(but less the amoumt of any such retention) shall be transferred to the Revenue Fund. Administrative Expense Fund, Deposits. There is established wider the Agreement a special fimd designated the "Administrative Expense Fund" to be held by the City. All moneys at any time on deposit in the Administrative Expense Fund shall be held by the City in trust for the benefit of the District and applied solely as provided in the Agreement. There shall be deposited in the Administrative Expense Fund the proceeds to the City resulting from the levy of an annual assessment for administrative costs on all parcels within the District in an amount not to exceed 2% of the annual assessment installment due on each of said parcels. The City shall apply moneys on deposit in the Administrative Expense Fund to pay the following expenses: (i) administrative costs incurred by the City in connection with the division of tracts of property within the District and/or apportionment of Assessments necessitated thereby to the extent that such costs are not paid from moneys deposited in the City by the owner of such tracts; and (ii) costs incurred by the City and not otherwise reimbursed which result from the adramistration and collection of Assessments, the calculation of rebate payable to the United States of America, the Fiscal Agent's services and costs under this Fiscal Agent Agreement, the cost of the redemption of Bonds, the fees of the City Engineer and related administrative costs. SECURITY OF BONDS; FLOW OF FUNDS; INVESTMENTS Assessment Revenue Fund The City shall establish a separate fund to be known as the"Assessment Revenue Fund," which shall be established, held and administered by the Finance Director. All moneys received by the City on accoimt of installment payments respecting unpaid assessments, including late charges and penalties, if any, paid in connection with reinstatement of delinquent assessment installments, proceeds of foreclosure sale payable to the City resulting from foreclosure of the lien of delinquent assessments, and proceeds of payments made to discharge unpaid assessments, whether in whole or in part, shall be deposited in the Assessment Revenue Fund. The Finance Director shall make transfers from the Assessment Revenue Fund, from time to time, as required under the Agreement, to pay the principal of and the interest and redemption premiums, if any, on the Bonds. A-7 Collection and Application of Assessments The City shall comply with all requirements of the Act, the Bond Law (as defined in the Official Statement), the resolution of issuance and the Agreement to assure the timely collection of the assessments, including, without limitation, the enforcement of delinquent assessments. Any funds received by the City in and for the District, including,but not limited to, collections of assessments upon the secured tax rolls, collections of delinquent assessments and penalties thereon, through foreclosure proceedings or otherwise, and the prepayment of assessments or portions thereof, shall be deposited in the Assessment Revenue Fund, to be established and maintained by the Finance Director for such purpose. The Finance Director shall make disbursements from the Assessment Revenue Fund to the Fiscal Agent of amounts required to be deposited in the Revenue Fund and the Redemption Account within the Revenue Fund, as the case may be, as provided in the Agreement, not later than one (1) Business Day before such amounts are required by the Fiscal Agent to make the deposits and transfers prescribed by the Agreement. The assessments as set forth on the list of unpaid assessments on file with the Finance Director, together with the interest thereon, shall be payable in annual series corresponding in number to the number of years of maturity of the Bonds issued. An annual proportion of each assessment shall be payable in each year preceding the date of maturity of the Bonds sufficient to pay the Bonds when due and such proportion of each assessment coming due in any year, together with the annual interest thereon, shall be payable in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property. The amount of principal of the bonds maturing or becoming subject to mandatory redemption each year plus the amount of interest payable in that year will be an aggregate amount that is substantially equal each year, except for the moneys falling due on the first maturity or mandatory redemption date of the bonds which shall be adjusted to reflect the amount of interest earned from the date of delivery. All sums received from the collection of the assessments and of the interest and penalties thereon shall be placed in the Assessment Revenue Fund; provided, however, that any prepayments of assessments shall be transferred to the Fiscal Agent for placement in the Redemption Account, and amounts attributable to the administrative costs shall be placed in the Administrative Expense Fund to be held by the City. The Finance Director shall, before the final date on which the Auditor of the County of Riverside ("Auditor") will accept the transmission of the assessments for the parcels within the District for inclusion on the next tax roll,prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the installments of the assessments on the next secured tax roll of the County of Riverside. Pledge and Assignment;Revenue Fund. (a) Subject only to the provisions of the Agreement permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Reserve Account and in any other fund or account established pursuant to the Agreement (except the Rebate Fund and the Administrative Expense Fund) are hereby pledged by the City to secure the payment of the principal of and interest and premium (if any) on the Bonds in accordance with their terms and the provisions of the Agreement. Said pledge constitutes a lien on and security interest in such A-8 assets and attaches, in the Agreement is perfected and is valid and binding from and after delivery of the Bonds by the Fiscal Agent,upon the physical delivery thereof. (b) The City in the Agreement transfers in trust and assigns to the Fiscal Agent, for the benefit of the Owners of the Bonds, all of the Revenues except for budgeted Administrative Expenses which it will deposit in the Administrative Expense Fund. The Fiscal Agent shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the City shall be deemed to be held, and to have been collected or received, by the City and shall forthwith be paid by the City to the Fiscal Agent. (c) All Revenues shall be promptly deposited by the Fiscal Agent upon receipt thereof in a special fund designated as the "Revenue Fund" which the Fiscal Agent shall establish, maintain and hold in trust. All Principal Prepayments received by the Fiscal Agent shall be deposited by the Fiscal Agent in a special account designated as the Redemption Account, which shall be established and held by the Fiscal Agent and used to redeem the Bonds pursuant to the Agreement. All Revenues deposited with the Fiscal Agent shall be held, disbursed, allocated and applied by the Fiscal Agent only as provided in the Agreement. Application of Revenue Fund. The Fiscal Agent shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Fiscal Agent shall establish and maintain in trust separate and distinct from the other funds and accounts established hereunder), the following amounts at the following times in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) On each Interest Payment Date or redemption date, the Fiscal Agent shall deposit in the Interest Account an amount which, together with the amounts then on deposit therein, is required to cause the aggregate amount on deposit in the Interest Account to equal the amount then required to make any payment pursuant to the Agreement. (b) On September 2 of each year, commencing September 2, 2006, the Fiscal Agent shall deposit in the Principal Account an amount which, together with the amounts then on deposit therein, is required to cause the aggregate amount on deposit in the Principal Account to equal the aggregate amount of principal then coming due and payable on the Bonds. (c) In the event that any amount on deposit in the Reserve Account has been withdrawn in order to make a transfer to the Interest Account or the Principal Account pursuant to the Agreement due to a delinquency in the payment of assessments which secure the Bonds, upon the receipt by the Fiscal Agent of Revenues derived from the collection of such assessments, the Fiscal Agent shall deposit a portion of such Revenues in the Reserve Account in an amount equal to the amount so withdrawn. For purposes of determining the amount required to be deposited into the Reserve Account pursuant to this paragraph, the Fiscal Agent may conclusively rely upon a Written Certificate of the City identifying such amount. (d) Following the foregoing transfers on each September 2, the Fiscal Agent shall transfer all remaining amorists to the City. A-9 Application oflnterestAccount. Subject to the provisions of this Agreement, all amounts in the Interest Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying interest on the Bonds as it shall become due and payable, including upon the redemption of any Bonds. Any amounts on deposit in the Interest Account on any Interest Payment Date and not required to pay interest then due and payable on the Bonds shall be retained in the Interest Account and credited towards the payment of interest on the Bonds next coming due. Application of principal Account. Subject to the provisions of the Agreement, all amounts in the Principal Account shall be used and withdrawn by the Fiscal Agent solely to pay the principal of the Bonds upon the stated maturity thereof or in the case of term bonds, the mandatory sinking find redemption dates thereof. Application of Reserve Account. Amounts in the Reserve Account shall be used and withdrawn by the Fiscal Agent solely for the following purposes: (a) for the purpose of making transfers to the Interest Account and the Principal Account, in such order of priority, on any date which the principal of or interest on the Bonds becomes due and payable hereunder, in the event of any deficiency at any time in any of such accounts, or at any time upon the Written Request of the City for the retirement of all the Bonds then Outstanding; and (b) in the event of a mandatory redemption of the Bonds pursuant to the Agreement due to the redemption of Assessment Bonds from Principal Prepayments, the resulting excess in the Reserve Account shall be transferred to the Redemption Account and applied (i) as a credit towards the prepayment of the assessments relating to such redemption of the Assessment Bonds, and (ii) to the mandatory redemption of the Bonds pursuant to the Agreement on the date fixed for such redemption. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Account in excess of the Reserve Requirement on the Business Day preceding each Interest Payment Date shall be withdrawn from the Reserve Account by the Fiscal Agent and deposited in the Interest Account. Application of Redemption Account. Subject to the provisions of the Agreement, all amounts deposited in the Redemption Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of redeeming Bonds pursuant to the Agreement. Investment of Moneys. Except as otherwise provided in the Agreement, all moneys in any of the funds or accounts established and held by the Fiscal Agent pursuant to the Agreement shall be invested by the Fiscal Agent solely in Permitted Investments, as directed in writing by the City two (2) Business Days prior to the making of such investment. Permitted Investments may be purchased at such prices as the City shall determine. All Permitted Investments shall be acquired subject to any limitations or requirements as may be established by the Written Request of the City filed with the Fiscal Agent. Moneys in all funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Agreement. Absent timely written direction from the City, the Fiscal Agent shall invest any finds held by it in Permitted Investments described in clause (h) of the definition thereof. All interest, profits and other income received A-10 from the investment of moneys in any fund or account established and held by the Fiscal Agent pursuant to the Agreement shall be deposited in the Revenue Fund;provided, however, that all interest,profits and other income received from the investment of moneys in the Reserve Account shall be retained therein until such time as the amount on deposit in the Reserve Account equals the full amount of the Reserve Requirement. Permitted Investments acquired as an investment of moneys in any fund established under the Agreement shall be credited to such fund. The Fiscal Agent or any of its affiliates may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Fiscal Agent shall sell or present for redemption, any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Fiscal Agent shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to the Agreement. For purposes of investment, the Fiscal Agent may commingle moneys in any of the finds and accounts established under the Agreement. The City acknowledges that to the extent regulations of the Comptroller of the Currency grant the City the right to receive brokerage continuations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Fiscal Agent shall furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Fiscal Agent. The Fiscal Agent or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Fiscal Agent under the Agreement. Valuation and Disposition of Investments. The City covenants that all investments of amounts deposited in any fund or account created by or pursuant to the Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Tax Code), shall be acquired and disposed of and valued by the City at Fair Market Value; provided, however, that investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code), shall be valued by the City at their present value(within the meaning of Section 148 of the Tax Code). PARTICULAR COVENANTS Punctual Payment. The City shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Agreement, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Agreement and received by the City or the Fiscal Agent. Extension of Payment of Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Agreement shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. A-11 Against Encumbrances. The City shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Agreement while any of the Bonds are Outstanding, except the pledge and assignment created by the Agreement. Subject to this limitation, the City expressly reserves the right to enter into one or more other agreements for any of its corporate purposes, and reserves the right to issue other obligations for such purposes. Power to Issue Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the Bonds and to enter into the Agreement and to pledge and assign the Revenues and other assets purported to be pledged and assigned, respectively, under the Agreement in the manner and to the extent provided in the Agreement. The Bonds and the provisions of the Agreement are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Fiscal Agent (subject to the provisions of the Agreement) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Agreement against all claims and demands of all persons whomsoever. Accounting Records and Financial Statements. The Fiscal Agent shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds, the Revenues, the Bonds and all funds and accounts established by it pursuant to the Agreement. Such books of record and account shall be available for inspection by the City, during regular business hours and upon reasonable prior notice and under reasonable circumstances as agreed to by the Fiscal Agent. Waiver of Laws. The City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the Agreement or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the City to the extent permitted by law. Tax Covenants Rebate Fund. (a) Rebate Fund. The Fiscal Agent shall, pursuant to the Agreement, establish and maintain with respect to the Bonds issued thereunder (other than any Bonds exempt from the requirements of Section 148 of the Code related to rebate of arbitrage earnings as shall be specified in writing to the Fiscal Agent by the City) a fund separate from any other find or account established and maintained under the Agreement designated as the"Rebate Fnmd." Upon the written direction of the City, there shall be deposited in the Rebate Fund such amomzts as are required to be deposited therein pursuant to the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Fiscal Agent in trust, to the extent required to satisfy the Rebate Requirement (as defined in the Tax Certificate), for payment to the United States of America. All amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by the Agreement and the Tax Certificate (which is incorporated herein by reference). The Fiscal Agent shall be deemed conclusively to have complied with such provisions if it follows the Written Request of the City, and shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate. A-12 (b) Private Activity Bond Limitation. The City shall assure that the proceeds of the Bonds are not used so as to cause the Bonds to satisfy the private business tests of Section 141(b) of the Tax Code or the private loan financing test of Section 141(c) of the Tax Code. (c) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed"within the meaning of Section 149(b) of the Tax Code. (d) No Arbitrage. The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the Bond proceeds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Tax Code. (e) Rebate of Excess Investment Earnings to United States. The City shall calculate or cause to be calculated Excess Investment Earnings with respect to the Bonds which are required to be rebated to the United States of America pursuant to Section 148(Q of the Tax Code, and shall pay the full amount of such Excess Investment Earnings to the United States of America in such amounts, at such times and in such manner as may be required pursuant to the Tax Code. (e) Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date. Continuing Disclosure. The City covenants and agrees in the Agreement that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate, which shall be executed by an authorized representative of the City and delivered on the Closing Date. Notwithstanding any other provision of the Agreement, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered a default by the City under the Agreement or under the Bonds; however, any Participating Underwriter (as such terns is defined in the Continuing Disclosure Certificate) or any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Events of Default. The following events shall be Events of Default: (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed,by proceedings for redemption,by acceleration, or otherwise. (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable. (c) Failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in the Agreement or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Fiscal Agent, or the A-13 Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 60 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The City shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Notice of Event of Default. Immediately upon beconring aware of the occurrence of an Event of Default, the Fiscal Agent shall give notice of such Event of Default to the City by telephone confirmed in writing. Remedies. hi each and every such case during the occurrence and continuation of an Event of Default, if requested in writing by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding the Fiscal Agent shall, exercise any and all remedies available pursuant to law for the equal benefit and protection of all Bond Owners similarly situated, including but not limited to the following: (a) The Fiscal Agent shall have the right to enforce any and all remedies granted to it a default with respect to which shall have occasioned the occurrence of an Event of Default under the Agreement; (b) The Fiscal Agent shall have the right by mandamus, suit, action or proceeding, to compel the City and its members, officers, agents or employees to perform each and every tern, provision and covenant contained in the Agreement and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by law; or (c) The Fiscal Agent shall have the right by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Bond Owners' rights under the Agreement. Application of Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Revenues and any other funds then held or thereafter received by the Fiscal Agent under any of the provisions of the Agreement shall be applied by the Fiscal Agent as follows and in the following order: (a) To the payment of any expenses of the Fiscal Agent and payment of reasonable fees, charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Agreement; (b) To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Agreement, as follows: A-14 First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference. Fiscal Agent to Represent Bond Owners. The Fiscal Agent is irrevocably appointed in the Agreement (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Fiscal Agent) as Fiscal Agent and true and lawful attorney-in-fact of the Owners of the Bonds for the pm-pose of exercising and prosecuting on their behalf such rights and remedies as may be available to the Owners under the provisions of the Bonds, the Agreement and applicable provisions of any law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Fiscal Agent to represent the Bond Owners, the Fiscal Agent in its discretion may at the written request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding and upon being indemnified therefor, the Fiscal Agent shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Agreement, or in aid of the execution of any power therein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Fiscal Agent, such Owners under the Bonds, the Agreement or any law; and upon instituting such proceeding, the Fiscal Agent shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged tinder the Agreement, pending such proceedings. All rights of action tinder the Agreement or the Bonds or otherwise may be prosecuted and enforced by the Fiscal Agent without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such snit, action or proceeding instituted by the Fiscal Agent shall be brought in the name of the Fiscal Agent for the benefit and protection of the Owners of such Bonds, subject to the provisions of the Agreement. Bond Owners' Direction of Proceedings. Anything in the Agreement to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Fiscal Agent, and upon indemnification of the Fiscal Agent to its satisfaction, to direct the method of conducting all remedial proceedings taken by the Fiscal Agent hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Agreement, and that the Fiscal Agent shall have the right to decline to follow any such direction which in the opinion of the Fiscal Agent would be unjustly prejudicial to Bond Owners not parties to such direction. A-15 Limitation on Bond Owners'Right to Sue. No Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Agreement or any applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Fiscal Agent written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, shall have made written request upon the Fiscal Agent to exercise the powers hereinbefore granted or to institute such slut, action or proceeding in its own name; (c) such Owner or said Owners shall have tendered to the Fiscal Agent indemmnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Fiscal Agent shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to,the Fiscal Agent. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Agreement or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Agreement or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, the Agreement or any applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Agreement. Covenant to Commence Foreclosure Proceedings. In the event any assessment or installment thereof or any interest thereon is not paid when due, the City shall order the institution of a court action to foreclose the lien of the unpaid assessment,provided that(1)the delinquency on any assessed parcel is in excess of$-1-3,000, or(2) the balance in the Reserve Fluid is less than the Reserve Requirement. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. In the event (1) or (2) above apply, any assessment or installment thereof,including any interest thereon, is not paid when due it will order and cause to be commenced, within 150 days of the date of receipt of notice from the County Auditor of delinquencies in the payment of any installments on any assessments, and thereafter diligently prosecute, an action in the Riverside County Superior Court to foreclose the lien of any and all such delinquent installments or of any interest thereon. Absolute Obligation of City. Nothing in the Agreement or in the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest our the Bonds to the respective Owners of the Bonds at their respective dales of maturity, or upon call for redemption, as provided in the Agreement, but only out of the Revenues and other assets therein pledged therefor and received by the City or the Fiscal Agent, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Terinination of Proceedings. In case any proceedings taken by the Fiscal Agent or any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Fiscal Agent or the Bond Owners, then in every such case the City, the Fiscal Agent and the Bond Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights under the Agreement, severally and respectively, and all rights,remedies,powers and duties of the City, A-16 the Fiscal Agent and the Bond Owners shall continue as though no such proceedings had been taken. Retnedies Not Exclusive. No remedy conferred upon or reserved to the Fiscal Agent or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given under the Agreement or now or hereafter existing at law or in equity or otherwise. No Waiver of Default. No delay or omission of the Fiscal Agent or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by the Agreement to the Fiscal Agent or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient. THE FISCAL AGENT Duties and Liabilities of-Fiscal Agent. Duties of Fiscal Agent Generally. The Fiscal Agent shall, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Agreement. The Fiscal Agent 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 Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. Removal of Fiscal Agent. The City may remove the Fiscal Agent at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Fiscal Agent (i) if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or (ii) if at any tirne the Fiscal Agent shall cease to be eligible in accordance with the Indenture, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Fiscal Agent or its property shall be appointed, or any public officer shall take control or charge of the Fiscal Agent or of its property or affairs for the propose of rehabilitation, conservation or liquidation. In each case such removal shall be accomplished by the giving of 30 days' written notice of such removal by the City to the Fiscal Agent, whereupon the City shall appoint a successor Fiscal Agent by an instrument in writing. Resign tion of Fiscal Agent. The Fiscal Agent may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the City, and to the Bond. Owners notice of such resignation at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Fiscal Agent by an instrument in writing. The Fiscal Agent shall not be relieved of its duties until such successor Fiscal Agent has accepted appointment. Appointment of Successor Fiscal Agent. Any removal or resignation of the Fiscal Agent and appointment of a successor Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent. If no qualified successor Fiscal Agent shall have A-17 been appointed and have accepted appointment within forty-five (45) days following giving notice of removal or notice of resignation as aforesaid, the resigning Fiscal Agent or any Bond Owner (on behalf of himself and all other Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Fiscal Agent, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Fiscal Agent pursuant to the terms of the Agreement. Any Fiscal Agent appointed in succession to the Fiscal Agent shall (i) be a company or bank having trust powers, (ii) have a corporate trust office in the State of California, (iii) have (or be part of a bank holding company system whose bank holding company has) a combined capital and surplus of at least Fifty Million Dollars ($50,000,000), and (iv) be subject to supervision or examination by federal or state authority. If such bank or company publishes a report of condition at least amorally, pursuant to law or to the requirements of any supervising or exmiining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or company 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 Fiscal Agent shall cease to be eligible in accordance with the provisions of the Agreement, the Fiscal Agent shall resign immediately. Liability of Fiscal Agent, The recitals of facts in the Agreement and in the Bonds contained shall be taken as statements of the City, and the Fiscal Agent shall not be responsible for the correctness of the same, or make any representations as to the validity or sufficiency of the Agreement or of the Bonds or shall incur any responsibility in respect thereof, other than as expressly stated in the Agreement in connection with the respective duties or obligations in the Agreement or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Fiscal Agent makes no representations as to the validity or sufficiency of the Agreement or of any Bonds, or in respect of the security afforded by the Agreement and the Fiscal Agent shall incur no responsibility in respect thereof. The Fiscal Agent shall be under no responsibility or duty with respect to: (i) the issuance of the Bonds for value; (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Fiscal Agent; or (iii) the application of any moneys paid to the City or others in accordance with the Agreement. The Fiscal Agent shall not be liable in connection with the performance of its duties, except for its own negligence or willful misconduct. The Fiscal Agent shall not be liable for any action taken or omitted 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 Agreement. The Fiscal Agent may become the Owner of Bonds with the same rights it would have if it were not Fiscal Agent, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. The Fiscal Agent shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. The Fiscal Agent 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 of the Bonds at the time Outstanding relating to the time, method A-18 and place of conducting any proceeding for any remedy available to the Fiscal Agent, or exercising any trust or power conferred upon the Fiscal Agent under the Agreement. The Fiscal Agent 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 Agreement. The Fiscal Agent shall not be deemed to have knowledge of any default or Event of Default under the Agreement, other than default in the payment of principal of or interest or redemption premium (if any) thereon, unless and until it shall have actual knowledge thereof, or shall have received written notice thereof, at its Office or otherwise. Except as otherwise provided in the Agreement, the Fiscal Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terns, conditions, covenants or agreements in the Agreement or of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default thereunder. The Fiscal Agent shall not be responsible for the validity or effectiveness of any collateral given to or held by it. The Fiscal Agent 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 Bonds. Right to Rely on Documents. The Fiscal Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, 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 panties. The Fiscal Agent may consult with counsel, who may be Bond Counsel or other counsel of or to the City, with regard to legal questions, and the opinion of such counsel shall be fall and complete authorization and protection in respect of any action taken or suffered by it under the Agreement in good faith and in accordance therewith. The Fiscal Agent 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 satisfactorily established, if disputed. Preservation and Inspection of Documents. All documents received by the Fiscal Agent under the provisions of the Agreement shall be retained in its possession and shall be subject during business hours and upon reasonable prior written notice to the inspection of the City and their agents and representatives duly authorized in writing. Compensation and Indemnification. The City shall pay or cause to be paid to the Fiscal Agent from time to time all reasonable compensation for all services rendered under the Agreement, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Agreement. MODIFICATION OR AMENDMENT Amendments Permitted. (a) The Agreement and the rights and obligations of the City and of the Owners of the Bonds and of the Fiscal Agent may be modified or amended from time to time and at any time by an agreement or agreements supplemental hereto, which the City and the Fiscal Agent may enter A-19 into with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Fiscal Agent. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or extend the time of payment, without the consent of the Owner of each Bond so affected, or(ii)reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Revenues and other assets pledged under the Agreement prior to or on a parity with the lien created by the Agreement or deprive the Owners of the Bonds of the lien created by the Agreement on such Revenues and other assets (except as expressly provided in the Agreement), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Bond Owners to approve the particular form of any supplemental agreement, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Fiscal Agent of any supplemental agreement pursuant to this subsection(a), the Fiscal Agent shall mail a notice (the form of which shall be furnished to the Fiscal Agent by the City), by first class mail postage prepaid, setting forth in general terns the substance of such supplemental agreement, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or airy defect therein, shall not, however, in any way impair or affect the validity of any such supplemental agreement. (b) The Agreement and the rights and obligations of the City, of the Fiscal Agent and the Owners of the Bonds may also be modified or amended from time to time and at any time by an agreement or agreements supplemental hereto, which the City and the Fiscal Agent may enter into without the consent of any Bond Owners, for any one or more of the following purposes: (i) to add to the covenants and agreements of the City in the Agreement contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power in the Agreement reserved to or conferred upon the City; (ii) to make such provisions for the propose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Agreement; (iii) to modify, amend or supplement the Agreement in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (iv) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners hereunder, in the opinion of Bond Counsel filed with the City and the Fiscal Agent. Effect of Supplemental Agreement. Upon the execution of any supplemental agreement, the Agreement shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Agreement of the City, the Fiscal Agent and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of A-20 any such supplemental agreement shall be deemed to be part of the terms and conditions of the Agreement for any and all purposes. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any supplemental agreement may, and if the City so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Fiscal Agent as to any modification or amendment provided for in such supplemental agreement, and, in that case, upon demand on the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Fiscal Agent a suitable notation shall be made on such Bonds. If the supplemental agreement shall so provide, new Bonds so modified as to conform, in the opinion of the City and the Fiscal Agent, to any modification or amendment contained in such supplemental agreement, shall be prepared and executed by the City and authenticated by the Fiscal Agent, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Fiscal Agent, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same interest rate and maturity. Amendment of Particular Bonds. Nothing shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by such Owner. Opinion of Counsel. In executing any supplemental agreement the Fiscal Agent may request and rely upon an opinion of counsel to the effect that all conditions precedent for the execution of such supplemental agreement have been satisfied and that the execution of such supplemental agreement will not adversely affect the tax-exempt status of interest on the Bonds. DEFEASANCE Discharge of Agreement. The Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable under the Agreement by the City: (a) by paying or causing to be paid the principal of and interest on the Bonds, as and when the same become due and payable; (b) by depositing with the Fiscal Agent, in trust (pursuant to an escrow agreement), at or before maturity, money or securities in the necessary amount (as provided in the Agreement) to pay or redeem all Bonds then Outstanding; or (c) by delivering to the Fiscal Agent, for cancellation by it, all of the Bonds then Outstanding, If the City also pays or causes to be paid all other sums payable by the City including without limitation any compensation due and owing the Fiscal Agent hereunder, then and in that case, at the election of the City (evidenced by a Written Certificate of the City, filed with the Fiscal Agent, signifying the intention of the City to discharge all such indebtedness and the Agreement), and notwithstanding that any Bonds shall not have been surrendered for payment, the Agreement and the pledge of Revenues and other assets made under the Agreement and all covenants, agreements and other obligations of the City raider the Agreement shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, and upon receipt of a Written Certificate of an Authorized A-21 Representative of the City and an opinion of Bond Counsel, each to the effect that all conditions precedent provided for relating to the discharge and satisfaction of the obligations of the City have been satisfied, the Fiscal Agent shall cause an accounting for such period or periods as may be requested by the City to be prepared and filed with the City and shall execute and deliver to the City all such instnunents as may be necessary or desirable to evidence such discharge and satisfaction, and the Fiscal Agent shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Agreement, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the City. The provisions of this section are subject to the compliance by the City of all of the conditions relating to the issuance of refunding obligations. Discharge of Liability on Bonds. Upon the deposit with the Fiscal Agent, in trust, at or before maturity, of money or securities in the necessary amount to pay or redeem any or all Outstanding Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in the Agreement or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, then all liability of the City in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Fiscal Agent as aforesaid for their payment, subject, however,to the provisions of the Agreement. The City may at any time surrender to the Fiscal Agent for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds,upon such sin-render and cancellation, shall be deemed to be paid and retired. Deposit of Money or Securities with Fiscal Agent. Whenever in the Agreement it is provided or permitted that there be deposited with or held in trust by the Fiscal Agent money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Fiscal Agent in the funds and accounts established pursuant to the Agreement and shall be-- (a) Lawful money of the United States of America, in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to mat uity and in respect of which notice of such redemption shall have been given as provided in the Agreement or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) Non-callable Federal Securities described in clause (a) of the definition thereof, the principal of, premium, if any, and interest on which when due, in the opinion or report of an independent accountant selected by the City, which opinion shall be addressed to the City and the Fiscal Agent, will provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the A-22 Agreement or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice; provided, in each case, that the Fiscal Agent shall have been irrevocably instructed (by the terns of the Agreement or by Written Request of the City) to apply such funds to the payment of such principal and interest with respect to such Bonds. Escrows established to provide for the discharge of Bonds must be sufficient, without reinvestment, to pay all principal and interest as scheduled thereon, including to the date of redemption. Payment of Bands After Discharge of Agreement. Notwithstanding any provisions of the Agreement, any moneys held by the Fiscal Agent in trust for the payment of the principal of, or interest on, any Bonds and remaining unclaimed for two (2) years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Agreement), if such moneys were so held at such date, or two (2) years after the due date for such interest or principal, or date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the City free from the trusts created by the Agreement upon receipt of an indemnification agreement acceptable to the City and the Fiscal Agent indenmifying the Fiscal Agent with respect to claims of Owners of Bonds which have not yet been paid, and all liability of the Fiscal Agent with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Fiscal Agent may (at the cost of the City) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Fiscal Agent with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. Liability of City Limited to Revenues. Notwithstanding anything in the Agreement or in the Bonds contained, neither the City nor any member thereof shall be required to advance any moneys derived from any source other than the Revenues and other assets pledged under the Agreement for any of the purposes in this Agreement mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Agreement. Nevertheless, the City may, but shall not be required to, advance for any of the purposes of the Agreement any funds of the City which may be made available to it for such purposes. A-23 DRAFTAS OF.IIINF. 14,2005 :e c s� � .� NEW ISSUE—BOOK-ENTRY-ONLY NOT RATED u ' � _ (See"CONCLUDING INFORMATION-No Rating on the Bonds; Secondary Market"herein) yIn the opinion ofAleshire & ITynder, LLP, Irvine, California, Bond Counsel, based on existing statutes, regulations, rulings and court decisions and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income far federal income tax purposes and is exempt from State of California personal income taxes. In the opinion of Bond Counsel, interest is not a specific preference item for purposes of the federal y ° individual or corporate alternative minimum taxes, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion w regarding other federal or State tax consequences relating to the ownership or disposition of, or the accrual or receipt of the interest on the Bonds. See "LEGAL MATTERS—Tax Matters"herein. � u u y E ° u RIVERSIDE COUNTY STATE OF CALIFORNIA � u � m � p $398069000 4 Z CITY OF PALM SPRINGS r y U 2005 LIMITED OBLIGATION IMPROVEMENT BONDS ' ASSESSMENT DISTRICT NO. 164 ° (MOUNTAIN GATE II) N Y� Dated: Date of Delivery Due: September 2 as Shown on the Inside Front Cover. The cover page contains certain information for quick reference only. It is not a summary of the issue. Potential ?r ° ° investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks. See "BONDHOLDERS' RISKS" herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. u u " o Yp City of Palm Springs 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) m ° (the`Bonds") are being issued by the City of Palm Springs (the"City")pursuant to a Fiscal Agent Agreement, dated as • , of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and The Bank of New York Trust Company, N.A., as fiscal agent(the"Fiscal Agent")to: (i) finance the costs of acquisition of certain public improvements serving Mp property within Assessment District No. 164 (the "District") of the City, (it) fund capitalized 'interest on the Bonds ° through September 2, 2006, (iii) pay costs related to the issuance of the Bonds, and (iv) make a deposit to a Reserve ° o Account. � w 4 The Bonds are being issued pursuant to provisions of the Improvement Bond Act of 1915, being Division 10 of the r u California Streets and Highways Code (the"Bond Law"). The Bonds are payable from assessments levied pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the "1913 Act"). ,°, ZSee"SOURCES OF PAYMENT FOR THE BONDS"and"BONDHOLDERS'RISKS"herein. Interest on the Bonds is payable semiannually on March 2 and September 2 each year, commencing March 2, 2006 "' " •� each, an "Interest Payment Date" until maturity or earlier redemption. The Bonds are subject to optional, special ❑ +� .. ( Y )� tY P � J P P mandatory and mandatory sinking payment redemption as described herein. See"THE BONDS -Redemption"herein. w v � w The Bonds are offered when, as and if issued subject to the approval as to their legality by Aleshire & Wynder, LLP, ° Irvine, California, Bond Counsel and certain other conditions. Certain legal matters will be passed on for the City by wthe City Attorney and Jones Hall,A Professional Law Corporation, San Francisco, California,Disclosure Counsel. It is w anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC on or about C) •u July 12.2005. .c � r• G 4 su, a u NONE t5% Y0l1NGftCRG 1.LC T The date of this Official Statement is , 2005. �)- v ��J $398069000 CITY OF PALM SPRINGS 2005 LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) MATURITY SCHEDULE (Base CUSIP'� $ Serial Bonds Maturity Date Principal Interest Reoffering September 2 Amount Rate Yield CUSIP- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Term Bond maturing September 2, ,Price % CUSIP'�_ Copyright 2005, American Bankers Association. CUSIPO data herein is provided by Standard & Poor's CUSIP Service Bureau. This data in not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIPO numbers are provided for convenience of reference only. Neither the Agenc}-Oty nor the Underwriter takes any responsibility for the accuracy of such numbers. GENERAL INFORMATION ABOUT TIIIS OFFICIAL STATEMENT Use oj'Offzcial Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City in any press release and in any oral statement made with the approval of an authorized officer of the City or any other entity described or referenced herein, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward-looking statements." Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward- looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the City, the Financial Advisor or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwrite has submitted the following statement for inclusion in this Official Statement: The Underwriter has 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 Underwriter does not guarantee the accuracy or completeness of such information. Injormation Subject to Change. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS IIAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. CITY OF PALM SPRINGS, CALIFORNIA CITY COUNCIL Ronald Oren,Mayor Michael McCulloch,Mayor Pro-Tem Ginny Foat, Council Member Christopher Mills, Council Member Stephen Pougnet, Council Member CITY STAFF David H. Ready, City Manager Troy L.Butzlaff,Assistant City Manager Craig A. Graves,Director of Finance and Treasurer Dave Barakian,Director of Public Works/City Engineer Marcos Fuller, Senior Civil Engineer John S.Raymond,Director of Community,&Economic Development James Thompson, City Cleric PROFESSIONAL SERVICES Bond Counsel Aleshire&Wynder, LLP Irvine, California Disclosure Counsel Jones Hall, A Professional Law Corporation San Francisco, California Financial Advisor Harrell& Company Advisors, LLC Orange, California Underwriter Stone&Youngberg LLC Los Angeles, California Assessment Engineer Albert A. Webb Associates Riverside, California Appraiser Harris Realty Appraisal Newport Beach, California Market Absorption Consultant Empire Economics Capistrano Beach, California Fiscal Agent The Bank of New York Trust Company,N.A. Los Angeles, California TABLE OF CONTENTS INTRODUCTION......................................................I Other Possible Claims Upon the Value of an The Issuer..................................................................I Assessment Parcel................................................28 The District................................................................I Direct and Overlapping Indebtedness......................30 Security and Sources of Repayment for the Bonds....I Bankruptcy Proceedings..........................................30 Purpose......................................................................2 Payment of the Assessment Not a Personal PropertyValues..........................................................2 Obligation.............................................................30 Legal Matters.............................................................2 No City Obligation to Pay Debt Service..................30 Professionals Involved in the Offering......................3 Loss of Tax Exemption............................................31 Offering of the Bonds................................................3 No Acceleration Provision.......................................31 Information Concerning this Official Statement........3 Proposition 218;Possible Future Ballot Initiatives.31 THE BONDS...............................................................5 Payments by FDIC..................................................32 General Provisions.....................................................5 LEGAL MATTERS..................................................34 Book-Entry-Only System..........................................6 Enforceability of Remedies.....................................34 Redemption................................................................6 Approval of Legal Proceedings...............................34 Scheduled Debt Service on the Bonds.......................8 Tax Matters..............................................................34 Estimated Uses of Funds............................................9 Absence of Litigation..............................................36 SOURCES OF PAYMENT FOR THE BONDS.....10 CONCLUDING INFORMATION..........................37 Repayment of the Bonds..........................................10 No Rating on the Bonds; Secondary Market...........37 Reserve Account......................................................II Underwriting...........................................................37 THE CITY OF PALM SPRINGS............................12 The Financial Advisor.............................................37 Continuing Disclosure.............................................37 TIIE DISTRICT.......................................................12 Additional Information............................................38 General.....................................................................12 References...............................................................38 Status of Development;Financing Plan...................13 Execution.................................................................38 Description of the Bond-Funded Improvements......15 APPENDIX A-SUMMARY OF THE FISCAL Estimated Improvement Costs.................................16 AGENT AGREEMENT Acquisition Agreement............................................17 The Developer.........................................................17 APPENDIX B—CITY OF PALM SPRINGS Appraised Values.....................................................20 INFORMATION STATEMENT Absorption Study.....................................................20 APPENDIX C—FORMS OF CONTINUING No Delinquencies in Property Tax Payments...........20 DISCLOSURE CERTIFICATES Total Effective Tax Rate ..........................................21 Direct and Overlapping Debt...................................22 APPENDIX D—ASSESSMENT PARCEL Annual Levy............................................................24 LISTING BONDHOLDERS'RISKS.......................................25 APPENDIX E—FORM OF BOND COUNSEL General.....................................................................25 OPINION Foreclosure and Sale Proceedings...........................25 APPENDIX F—APPRAISAL REPORT Depletion of Reserve Account.................................26 Valuation of Property in the District........................26 APPENDIX G—ABSORPTION STUDY Factors Affecting Parcel Value and Aggregate APPENDIX H—DTC AND TIIE BOOK- Values....................................................................27 ENTRY-ONLY SYSTEM Prepayment of Assessments.....................................28 OFFICIAL STATEMENT $3,806,000 CITY OF PALM SPRINGS 2005 LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) This Official Statement which includes the cover page and appendices (the "Official Statement') is provided to furnish certain information concerning the sale of the City of Palm Springs 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) (the "Bonds"), in the aggregate principal amount of$3,806,000. INTRODUCTION The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terns and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meaning as in the Fiscal AgentAgreement(defined below). The Issuer The City of Palm Springs (the "City") was incorporated as a general law city on April 20, 1938. It became a charter city on July 12, 1994. The City encompasses 96.2 square mules in Central Riverside Cormty. The City is located 108 miles east of downtown Los Angeles and 120 miles west of the Arizona border. Neighboring communities include Palm Desert, Rancho Mirage, Desert Hot Springs and Cathedral City(see"APPENDIX B -CITY OF PALM SPRINGS INFORMATION STATEMENT"herein). The District The land within Assessment District No. 164 (Mountain Gate II) (the "District') is comprised of a 31.4 acre site under development with single family detached homes located on the northeast corner of North Palm Canyon Drive and Chino Canyon Creek. The District is an extension of the Mountain Gate I residential community, which is located adjacent and to the east of the property. The District is segregated into two contiguous zones designated 1 and 2 (each, a"Zone" and collectively, the "Project'). The District is expected to have two component residential product lines, The Ventana Collection in Zone 1 and The El Dorado Collection in Zone 2, with a total of 196 single-family homes. The City has approved Tract Nos. 32028 and 32028-1 and Tract Maps for both tracts were recorded on December 2, 2004. For additional description of the District, see"THE DISTRICT"herein. Security and Sources of Repayment for the Bonds The Bonds are to be secured under the Fiscal Agent Agreement, dated as of July 1, 2005 (the "Fiscal Agent Agreement'), between the City and The Bank of New York Trust Company, N.A., Los Angeles, California, as fiscal agent (the "Fiscal Agent') (see "APPENDIX A- SUMMARY OF THE FISCAL AGENT AGREEMENT" herein) and pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the "1913 Act') and the Improvement Bond Act of 1915 (Division 10 of the California Streets and Highways Code) (the "Bond Law") (collectively, the "Assessment Bond Law"). 1 The Bonds are limited obligations of the City secured by a first lien on the unpaid assessments (the "Assessments")levied within the District by the City pursuant to the Assessment Bond Law and the funds pledged therefor under the Fiscal Agent Agreement. Assessments levied on the property in the District are estimated to be sufficient, if paid timely, to pay the aggregate amount of the principal and interest on the Bonds. See"SOURCES OF PAYMENT FOR THE BONDS" and"BONDHOLDERS'RISKS"herein. The City has covenanted to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of Assessments. For a more detailed description of the foreclosure covenant see "SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds - Covenant to Continence Foreclosure Proceedings." The Bonds are limited obligations of the City payable solely from the proceeds of unpaid Assessments levied on the Assessment Parcels (see "SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds" herein) within the District and other funds pledged under the Fiscal Agent Agreement. The Bonds do not constitute a debt or liability of the State of California or of any political subdivision thereof, other than the City. The City shall only be obligated to pay the principal of the Bonds, and the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State of California or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds, except to the limited extent described herein. See "SOURCES OF PAYMENT FOR THE BONDS" and "BONDHOLDERS'RISKS" herein. Purpose Proceeds from the Bonds will be used to (i) finance the costs of acquisition of certain public improvements of benefit to property within the District, (ii) fund capitalized interest on the Bonds through September 2, 2006, (iii) pay costs related to the issuance of the Bonds, and (iv) make a deposit to a Reserve Accotuit (see"THE BONDS—Estimated Uses of Funds"herein). Property Values An appraisal report (the "Appraisal Report") dated May 20, 2005 was prepared by Harris Realty Appraisal, Newport Beach, California (the "Appraiser") in connection with the Bonds. The purpose of the Appraisal was to ascertain the market value of the fee simple estate for the assessed property in the District with May 1, 2005 as the date of value. Subject to the assumptions contained in the Appraisal Report, the Appraiser estimated that the fee simple interest in the property in the District had an estimated aggregate value of $18,200,000 ($10,000,000 for Zone 1 and $8,200,000 for Zone 2). This estimate included the effect of the lien of the Assessments. See "BONDIOLDERS' RISKS," "APPENDIX F - APPRAISAL REPORT," and"THE DISTRICT—Appraised Values." Legal Matters The legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Aleshire & Wynder, LLP, Irvine, California, as Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, are described more fully under the heading "LEGAL MATTERS" herein. Certain legal matters will be passed on for the City by Jones Hall,A Professional Law Corporation, San Francisco, California, as Disclosure Counsel and by the City Attorney. 2 Professionals Involved in the Offering The Bank of New York Trust Company, N.A., Los Angeles, California, will serve as the fiscal agent, paying agent, registrar, authentication and transfer agent for the Bonds and perform the functions required of it under the Fiscal Agent Agreement for the payment of the principal of and interest and any premhmi on the Bonds and all activities related to the redemption of the Bonds. Aleshire & Wynder, LLP, Irvine, California, has served as Bond Counsel. Jones Hall, A Professional Law Corporation, San Francisco, California, has served as Disclosure Counsel. Harrell & Company Advisors, LLC, Orange, California, Financial Advisor, advised the City as to the financial structure and certain other financial matters relating to the Bonds. Harris Realty Appraisal,Newport Beach, California,prepared the Appraisal attached hereto as "APPENDIX F." Empire Economics, Capistrano Beach, California, prepared the Absorption Study attached hereto as "APPENDIX G." Payment of the fees of Bond Counsel,Disclosure Counsel and the Financial Advisor are contingent on the sale and delivery of the Bonds. Offering of the Bonds Authority for Issuance. The Bonds are issued by the City pursuant to the Assessment Bond Law and Resolution No. adopted by the City Council on Tune 15, 2005 (the "Resolution"). The Bonds are being sold to Stone & Youngberg LLC (the "Underwriter"), pursuant to a Bond Purchase Agreement authorized by the Resolution. Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to then legality by Aleshire & Wynder, LLP, Irvine, California, as Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery on or about July 12, 2005 through the facilities of The Depository Trust Company. Information Concerning this Official Statement This Official Statement speaks only as of its date. The information set forth herein has been obtained by the City with the assistance of Harrell & Company Advisors, LLC, (the "Financial Advisor") from sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor,or-Disclosure Counsel or Underwriter. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended as such and are not to be construed as representations of fact. Preliminary Official Statement Deemed Final. The information set forth herein is in a form deemed final, as of its date, by the City for the purpose of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended(except for the omission of certain information permitted to be ornitted under the Rule). The information herein is subject to revision, amendment and completion in a Final Official Statement. The information and expressions of opinion herein are subject to change without notice and the delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the information or opinions set forth herein or in the affairs of the City since the date hereof. 3 Availability of Legal Documents. The summaries and references contained herein with respect to the Fiscal Agent Agreement and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Fiscal Agent Agreement. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Underwriter: Stone & Youngberg LLC, 515 S. Figueroa Street, Suite 1060, Los Angeles, California 90071, telephone (213) 443-5000. Copies of these documents may be obtained after delivery of the Bonds at the corporate trust office of the Fiscal Agent, The Bank of New York Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017 or from the City at 3200 E.Trhquitz Canyon Way,Palm Springs, California 92262, telephone(760) 32342-3 b8229. 4 THE BONDS General Provisions Repayment of the Bonds. The Bonds will be issued in Authorized Denominations and will be dated the date of delivery thereof and will mature as set forth on the inside front cover page. "Authorized Denominations"means $5,000 or any integral multiples thereof, except for one odd bond, if any. Interest is payable on the Bonds at the rates per annum set forth on the inside front cover page hereof, payable on March 2, 2006 and on each September 2 and March 2 thereafter (the "Interest Payment Dates"). Interest with respect to the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30- day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (ii) a Bond is authenticated on or before Augss February 15, 20052006, in which event interest thereon will be payable from the Closing Date, or(iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full,payable on each Interest Payment Date. Interest shall be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special Record Date to be established by the Fiscal Agent for the payment of such defaulted interest to be fixed by the Fiscal Agent, notice of which shall be given to such Owner by first class mail not less than ten days prior to such special Record Date. Interest shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds filed with the Fiscal Agent prior to any Record Date, interest on such Bonds shall be paid to such Owner on each succeeding Interest Payment Date (unless such request has been revoked in writing)by wire transfer of immediately available funds to an account in the United States designated in such written request. The principal of the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Fiscal Agent. Payment of principal of any Bond shall be made only upon presentation and surrender of such Bond at the Office of the Fiscal Agent. See "Book-Entry-Only System" below. 'Fransfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Fiscal Agent. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Fiscal Agent shall authenticate and shall deliver a new Bond or Bonds for a like aggregate principal amount, in any authorized denomination. The Fiscal Agent shall require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Fiscal Agent for a like aggregate principal amount of Bonds of the same maturity of other authorized denominations. The City may charge a reasonable sura for each new Bond issued, and the Fiscal Agent shall require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. 5 The Fiscal Agent shall not be obligated to make any transfer or exchange of Bonds during the period established by the Fiscal Agent for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. Book-Entry-Only System The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the namme of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. Purchasers of beneficial interests in the Bonds will not receive physical certificates. For information on DTC and its book-entry system, see "APPENDIX H." Redemption Optional Redemption*. The Bonds maturing on or after September 2, 20-16--2013 are subject to optional redemption prior to maturity at the option of the City on any Interest Payment Date on or after September 2, 30-152012, as a whole or in part from any source of available fiords at a redemption price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest thereon to the date fixed for redemption as follows: Redemption Dates Redemption Prices September 2,24152012 and March 2,304-62013 102.0% September 2,20 1-62 0 13 and March 2,-2W2014 101.0% September 2,24k72014 and each Interest Payment Date thereafter 100.0% The F-triane—e Director of Finance shall notify the Fiscal Agent of Bonds to be called for redemption 45 days prior to redemption whenever sufficient funds are available therefor in the Assessment Revenue Fund to be established and held by the F=Ra+K--c Director of Finance of the City pursuant to the Fiscal Agent Agreement. Special Mandatory Redemption from Prepayments*. The Bonds are subject to redemption prior to maturity on any Interest Payment Date on or after September 2, 2006 in whole or in part, and by lot, from amounts constituting prepayments of unpaid Assessments at a redemption price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the principal amount of Bonds to be redeemed)together with accrued interest thereon to the date fixed for redemption as follows: Redemption Dates Redemption Prices September 2, 2006 through September 1, 2012 103.0% y epternbcr 2�2 OkE1t{rroetg{r-Marelr-3,-20-}5 1-02:5% September 2,2015 2012 and thereafter As Provided for Optional Redemption *Prelim nary,subject to chame. 6 Mandatory Sinking Payment Redemption of Bonds. The Bonds maturing September 2, , (the "Term Bonds") are subject to mandatory redemption, without premium, prior to their maturity date, in part by lot on September 2, in each year commencing September 2, from mandatory sinking payments made by the City at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption in the aggregate principal amounts and on September 2 in the respective years as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Term Bonds may be purchased by the City and tendered to the Fiscal Agent, and (ii) if some but not all of the Term Bonds have been redeemed pursuant to optional redemption or special mandatory redemption provisions described above, the total amount of all fixture sinking payments shall be reduced by the aggregate principal amount of the Term Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis integral multiples of$5,000 as determined by the City. SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, Redemption Date September 2 Principal Amount Notice of Redemption. While the Bonds are subject to DTC's book-entry system, the Fiscal Agent will be required to give notice of redemption only to DTC as provided in the letter of representations executed by the City and received and accepted by DTC. DTC and the Participants will have sole responsibility for providing any such notice of redemption to the beneficial owners of the Bonds to be redeemed. Any failure of DTC to notify any Participant, or any failure of Participants to notify the Beneficial Owner of any Bonds to be redeemed, of a notice of redemption or its content or effect will not affect the validity of the notice of redemption, or alter the effect of redemption. The Fiscal Agent on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the corporate trust office of the Fiscal Agent for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption and with regard to optional redemption in the event that finds required to pay the Redemption Price are not on deposit under the Fiscal Agent Agreement at the time the notice of redemption is sent, a statement to the effect that the redemption is conditioned upon the receipt of the appropriate funds required to pay the redemption price by the Fiscal Agent on or prior to the redemption date. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. The City may direct the Fiscal Agent to rescind the notice of redemption if inadequate funds are on deposit in the Redemption Fund 5 days prior to the redemption date. 7 Selection of Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds, the Fiscal Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption, by lot in any manner which the Fiscal Agent in its sole discretion shall deem appropriate. For proposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations, except for one odd bond, if any, and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Scheduled Debt Service on the Bonds The following is the scheduled annual Debt Service on the Bonds. Bond Year Ending Principal Interest Annual Debt Service Se ptE ryAx�3D(3-5 September 2, 2006 September 2, 2007 September 2, 2008 September 2, 2009 September 2, 2010 September 2, 2011 September 2, 2012 September 2, 2013 September 2, 2014 September 2, 2015 September 2, 2016 September 2, 2017 September 2, 2018 September 2, 2019 September 2, 2020 September 2, 2021 September 2, 2022 September 2, 2023 September 2, 2024 September 2, 2025 September 2, 2026 September 2, 2027 September 2, 2028 September 2, 2029 September 2, 2030 Total 8 Estimated Uses of Funds Under the provisions of the Fiscal Agent Agreement, the Fiscal Agent will receive the proceeds from the sale of the Bonds and will apply them as follows: Constriction and Acquisition Fund Reserve Account o> Revenue Fund(2) Underwriter's Discount Original Issue Discount Costs of Issuance Fund(3) Total Uses n) Bond proceeds to be deposited into the Reserve Account, which equals the Reserve Requirement. See "SOURCES OF PAYMENT FOR THE BONDS—Reserve Account." (Z) Represents capitalized interest on the Bonds through September 2,2006. Costs of Issuance includes Bond Counsel fee,Disclosure Counsel fee,Fiscal Agent fees,Financial Advisor fee, Appraiser fee,printing costs and other miscellaneous costs of issuance. 9 SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds General. The Bonds are issued upon and are secured by the unpaid Assessments against properties within the District (the "Assessment Parcels"), together with interest thereon (collectively, the "Assessment District Revenues"). The Assessment District Revenues constitute a source for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are secured by a first lien on the moneys in the Assessment Revenue Fund (the "Assessment Revenue Fund") created pursuant to the Fiscal Agent Agreement. Principal of and interest on the Bonds are payable exclusively out of the Assessment Revenue Fund which is held by the City and amotmts held in any other fiord or account under the Fiscal Agent Agreement. The unpaid Assessments levied on the Assessment Parcels are collected in annual installments, together with interest on the declining balances, on the tax roll of the County of Riverside on which general taxes on real property are collected. The annual Assessment installments, together with interest thereon, are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do general taxes. The Assessment Parcels are subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes, subject to the foreclosure covenants discussed below. These annual Assessment installments together with interest are to be paid into the Assessment Revenue Fund, and are used to pay the principal of and interest on the Bonds as they become due and payable. The Bonds are limited obligations of the City payable solely from the proceeds of unpaid Assessments levied on the Assessment Parcels within the District. The Bonds shall not be deemed to constitute a debt or liability of the State of California or of any political subdivision thereof, other than the City. Neither the faith and credit nor the taxing power of the City, except to the limited extent described herein, the State of California or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. Covenant to Commence Foreclosure Proceedings. The Assessment Bond Law provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of the unpaid assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory under the Assessment Bond Law, However, in the Fiscal Agent Agreement, the City has covenanted that, in the event any assessment or installment thereof, or any interest thereon is not paid when due, the City shall order the institution of a court action to foreclose the lien of the unpaid assessment, provided that (1) the delinquency on such assessed parcel is in excess of $3,000; or (2) the balance in the Reserve Account is less than the Reserve Requirement. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. In the event (1) or (2) herein apply, any assessment or installment thereof, including any interest thereon, is not paid when due, the City will order and cause to be commenced, within 150 days of the date of receipt of notice fi-om the County Auditor of delinquencies in the payment of any installments on any assessments, and thereafter diligently prosecute, an action in the Riverside County Superior Court to foreclose the lien of any and all such delinquent installments or of any interest thereon. In the event court foreclosure proceedings are necessary, there may be a delay in payments to Bondholders pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See`BONDHOLDERS'RISKS" and"Repayment of the Bonds—General" herein. 10 Priority of Lien. Each assessment (and any reassessment thereof) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. The lien is subordinate to all fixed special assessment liens imposed upon the same property prior to the date that the assessments became a lien on the property assessed, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. The lien is co-equal to and independent of the lien for general taxes and any community facilities district (Mello-Roos district) special taxes, including general taxes and conununity facilities district special taxes levied or imposed subsequent to the date the assessment lien securing the Bonds was imposed on land in the District. The direct and overlapping debt of property within the District as of 2005 is shown hider the heading"THE DISTRICT-Direct and Overlapping Debt." Sales of Tax-Defaulted Property Generally. Property securing delinquent assessment installments which is not sold pursuant to the judicial foreclosure proceedings described above may be sold, subject to redemption by the property owner, in the same mariner and to the same extent as real property sold for nonpayment of general County property taxes. On or before June 30 of the year in which such delinquency occurs, the property becomes tax-defaulted. This initiates a five-year period during which the property owner may redeem the property. At the end of the five-year period the property becomes subject to sale by the County Treasurer and Tax Collector. Except in certain circumstances, as provided in the Assessment Bond Law, the purchaser at any such sale takes such property subject to all unpaid Assessments, interest and penalties, costs, fees and other charges which are not satisfied by application of the sales proceeds and subject to all public improvement Aassessments which may have priority. Reserve Account The Fiscal Agent shall establish, maintain and hold in trust a special fiord designated the "Reserve Account." The City shall cause the Reserve Account to be administered in accordance with Part 16 of the Bond Law; provided that proceeds from redemption or sale of properties, with respect to which payment of delinquent Assessments and interest thereon was made from the Reserve Account, shall be credited to the Reserve Account. Amounts in the Reserve Account shall be used and withdrawn by the Fiscal Agent solely for the following purposes: (a) for the purpose of making transfers to the Interest Account and the Principal Account, in such order of priority, on any date which the principal of or interest on the Bonds becomes due and payable, in the event of any deficiency at any time in any of such accounts, or at any time upon the Written Request of the City for the retirement of all the Bonds then Outstanding; and (b) in the event of a mandatory redemption of the Bonds from Principal Prepayments, the resulting excess in the Reserve Account shall be transferred to the Redemption Account and applied(i) as a credit towards the prepayment of the aAssessments relating to such redemption of the Bonds, and (ii)to the mandatory redemption of the Bonds on the date fixed for such redemption. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Account in excess of the Reserve Requirement on the Business Day preceding each Interest Payment Date shall be withdrawn from the Reserve Account by the Fiscal Agent and deposited in the Interest Account. There will be deposited into the Reserve Account from the proceeds of the Bonds an amount equal to $ which equals the initial Reserve Requirement. The Reserve Requirement is defined in the Fiscal Agent Agreement as the amount, as of any date of calculation, equal to the least of(i) maximum annual debt service, (ii) one hundred twenty-five percent (125%) of average annual debt service, or (iii) ten percent(10%) of the initial principal amount of the Bonds. 11 THE CITY OF PALM SPRINGS The City was incorporated as a general law city on April 20, 1938 and became a charter city on July 12, 1994. The City operates ruder the Council/Manager form of government. The City encompasses 96.2 square mules in central Riverside County. It is approximately 108 miles east of downtown Los Angeles and 120 west of the Arizona border. Neighboring communities include Pahn Desert, Rancho Mirage, Desert Hot Springs and Cathedral City. See "APPENDIX B - CITY OF PALM SPRINGS INFORMATION STATEMENT"herein. THE DISTRICT The information set forth herein regarding ownership of real property in the District, the property owners within the District and any proposed development of property in the District was provided by the Developer and others and has not been independently verified. Neither the City, the Financial Advisor nor the Underwriter makes any representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District. No assurance can be given that additional development within the District will occur, or that it will occur in a timely manner. The information should not be construed to suggest that the Bonds or the Assessments that will be used to pay the Bonds are personal obligations of the property owners within the District. The owners ofproperty within the District will not be personally liable forpayments of the Assessments to be applied to pay the principal of and interest on the Bands. Accordingly, no property owner's ftriancial statements have been included in this Official Statement. Furthermore, no representation is made that the property owners will have.funds available to complete any further development within the District. General The land within the District encompasses approximately 31.4 gross acres located on the northeast comer of North Palm Canyon Drive (State Highway 111) and Chino Canyon Creek. Undeveloped land is located north, west, and east of the property. The District is an extension of the Mountain Gate I residential community,which is located adjacent and to the east of the property. For purpose of allocating the Assessments, the District is further segregated into two zones designated 1 and 2 (each, a "Zone" and collectively, the"Project'). 0 he Aistriet s ex eeted-to--haveConstruction is underway in two component residential product lines, The Ventana Collection in Zone 1 and The El Dorado Collection in Zone 2, with a total of 196 single-family homes. All homes will be accessible through a Rated entrance. The City has approved a subdivision of 196 single family residential lots and property in the District is divided into Tract Nos. 32028 with 115 buildable lots and Tract No. 32028-1 with the remaining 81 buildable lots. Final Tract Maps for both Tract No. 32028 and 32028-1 were recorded on December 2, 2004. Homes in the District are being developed by Century Vintage Homes (the"Developer") and the property is awned by Mountain Gate H Palm Springs Ventures LLC ("Property Owner"), a Delaware limited liability company. The majority of the infrastructure improvements for development of the lots, including the improvements to be financed with proceeds of the Bonds are expected to be complete by the fourth quarter of 2005. Sixty-seven pry-sale-lots are in various stages of constriction, all-64 of which are either under contract or reserved as of May--5Anril 26, 2005. See "Status of Development; Financing Plan" below. 12 The topography of the District and the surrounding land area is relatively level. The neighborhood is generally located between the I-10 freeway to the north, Vista Chino Drive to the south, the San Jacinto mountains to the west and Gene Autry Drive to the east. The neighborhood is characterized as being in transition from vacant land to single family detached residences. There is sporadic industrial/commercial use along Radio Road and Indian Canyon Drive. In addition to the first phase of the Mountain Gate development completed in 2004, fthe property immediately southeast of the District consists of a 516- unit condoininium complex built in 1982. Properties further to the southeast are small tracts of modest homes ranging in sizes from 1,273 to 1,850 square feet built in the early 1960's. The District is bounded on the north by Palm Canyon Drive(State Hwy 111), the major transportation corridor into the City from the I-10 freeway. Status of Development; Financing Plan The Developer has provided the following information with respect to development within the District. No assurance can be given that all information is complete. No assurance can be given that development of the property will be completed, or that it will be completed in a timely manner. Since the ownership of the parcels is subject to change, the development plans outlined below may not be continued by the subsequent owner if the parcels are sold, although development by any subsequent owner will be subject to the approvals, policies and requirements of the City. No assurance can be given that the plans or projections detailed below will actually occur. The property in the District comprises 31.37 gross acres and includes entitlements for 196 detached single-family homes. The Developer plans to establish two separate collections of single family residences, marketed as "The Ventana Collection" in Zone 1 and "The El Dorado Collection" in Zone 2. The Ventana Collection consists of 115 homes that are expected to be offered in six phases with home sizes ranging from 1,208 to 1,843 square feet on a minimum lot size of 5,500 square feet. The Developer's estimated base selling prices range fi-om $309,990 to $368,990 as of May 5, 2005. The El Dorado Collection consists of 81 homes that are expected to be offered in six phases with home sizes ranging from 2,083 to 3,005 square feet on a minimum lot size of 6,000 square feet. The Developer's estimated base selling prices range from$389,990 to$530,465 as of May 5, 2005. Cmnatruction Rough grading on the site commenced in January 2005, and as of the date of the appraisal, May 2101, 2005, the entire site is graded from rough graded lots to blue-top lots with infrastructure under construction. Sewer main and laterals have been completed for the entire development. According 10 the Developer, two hundred feet of water lines were installed and storm drain construction began May 5, 2005. Underground utilities were scheduled to begin in mid-Mav 2005,ihefe xcre lots with-slabs; €7-4emcs in various stage of eoustruction and __ rain lots. The Developer began construction of the first phase of 29 production homes in mid-March 2005 and anticipates that the homes in this first phase would will be available for move-in by September 2005—aM-h,ffle&-44lne. The second phase +vouli1-of 38 production homes began unit construction in April 2005 and the Developer anticipates they will be available for move-in by October 2005. As shown in the table below, 67 of the 74 homes released Tor sale are either under contract or under reservation. The following table summarizes the product types proposed by the Developer to be constructed within the District and, of the 67 units under construction, the number of units under contract or with reservations as of April 26. 2005. The base sale prices reflects the actual pricing for Phase 1 in each development. 13 The Ventana Collection Number of Product Number Square Estimated Base Lots Sold-Under Number of T1VPe of Lots Footage Sale Price Range Contract(n Lots Reserved 101 7 1,208 $309,990- $338,990 2 3 102 26 1,400 $319,990-$343,990 3 8 103 55 1,626 $329,990-$358,990 3 16 104 27 1,843 $344,990-$368,990 7 5 115 15 32 The El Dorado Collection Number of Product Number Square Estimated Base Lots Under Number of Z Pe of Lots Footage Sale Price Range Contract Lots Reserved«� 201G x> 20 2,083 $389,990-$444,990 4 3 202F ALT(3) 4 2,168 $419,990-$424,990 = 1 202 4 2,223 $419,990-$424,990 - - 202 ALT 9 2,454 $424,990-$444,990 2 - 202G1 ALT ' 26 2,454 $424,990-$444,990 3 3 202G1 tad 10 2,506 $434,990-$479,335 - 1 202GIX 1 2,697 $494,335 = 203 6 2,778 $469,990-$474,990 - - 203G(2) 1 3,005 $530,465 81 9 8 (n As of April 26,2005. e2) Includes optional guest casita. (3) Includes optional pool and spa package in front of property. o) Includes optional guest casita with bathroom amenities. (s) Includes optional bonus room. Source: Century Vintage I3omes. The development of the land within the District will require significant expenditures of funds by the Developer. According to the Developer, infrastructure improvements for development of the lots, including the improvements to be financed with proceeds of the Bonds are expected to be complete in the fourth quarter of 2005. A,, of May 3, 2005, it L)c R^t, . s;irtrate t e�a�-tt t-al ce ^' r e r 4 ��tel�and acr}u .moo �t3d d4ev�lepme lien�ons wHon rinancin�,-, and carryia.- costs) well equal alsp �tEly-$4 3 a:^ 'ram QF�vhich the Dcv@IEepor-1,^a c"x3�ed ahaproximately '` � NvNch inchul�d-1 ' o h d tee and a,rn �s 14 As of May 5, 2005, the Developer estimated that its total construction cost (including land acquisition, land development, home financing, and carrying costs) would equal approximately $70.6 million, $6.3 million of which had been incurred. Of this total cost, approximately$1.8 million will be funded through equity contributions by the Developer, and $2— 3 million will be reimbursed with the proceeds of the Bonds. The funding of the remaining $6Fr765.8 million of development and construction costs is anticipated to come from a series of cormnercial loans. The Developer has secured loans in the amount of $64.736.9 million from Indy Mac Bank, F.S.B. As of—Ma}­-_'� April 30, 2005, $34,8-5 million in loan proceeds had been disbursed. Although the Developer has additional construction loan commitments pending with Iudv Mac Bank, lino assurance can be given that the Developer will be able to secure the necessary financing to permit the remaining property and home development as currently planned, or that any development financing ultimately obtained will be sufficient for the development of the project as currently planned. Description of the Bond-Funded Improvements The City retained the firm of Albert A. Webb Associates (the"District Engineer")to prepare a report (the "Engineer's Report") which contains, among other things, a description of the public improvements proposed to be financed by the District (the"Improvements"), and the amount and method of assessment levied on each parcel in the District. A full copy of the Report of the District Engineer may be obtained from the City. The Improvements generally consist of street improvements, sewer and water improvements, landscaping and electric utility improvements, water and sewer facility fees, and cabling and connection fees. The Engineer's Report describes the Improvements as follows: ZONE Plans and Specifications The cost of approved plans for the improvements to be acquired. Sewer Sewer improvements including 8-inch diameter sewer main and 4-inch diameter sewer laterals, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Water Water improvements including water mains and I-inch diameter water service lines, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Landscaping Landscape improvements including parkway landscaping, together with appurtenances and appurtenant work, on the northeasterly side of Palm Canyon Drive (State Hwy 111). Underground Existing Power Lilies Includes but is not limited to undergrounding existing overhead electric power lines (Southern California Edison) within the public right-of-way and easements in the District, appurtenances and appurtenant work. Water and Sewer Fees Includes water facility fees for the Desert Water Agency and sewer facility fees for the City of Palm Springs. 15 ZONE 2 Plans and Specifications The cost of approved plans for the improvements to be acquired. Sewer Sewer improvements including 8-inch diameter sewer main and 4-inch diameter sewer laterals, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Water Water improvements including water mains and 1-inch diameter water service lines, together with appurtenances and appurtenant work, all in the interior public right-of-way to serve each residential lot. Landscapia Landscape improvements including parkway landscaping, together with appurtenances and appurtenant work, on the northeasterly side of Palm Canyon Drive(State Hwy 111). Underground Existing Power Lilies Includes but is not limited to tmdergrounding existing overhead electric power lines (Southern California Edison) within the public right-of-way and easements in the District, appurtenances and appurtenant work. Water and Sewer Fees Includes water facility fees for the Desert Water Agency and sewer facility fees for the City of Palm Springs. All of the improvements will be constructed by the Developer under the Acquisition Agreement (defined below). The Water Improvements will be constructed and conveyed to the Desert Water Agency under a Water Facilities Agreement dated as of December 1, 2004 between the City and the Desert Water Agency and approved and agreed to by the Property Owner. Estimated Improvement Costs The data shown below is the estimated costs of the Improvements contained in the Engineer's Report prepared by Albert A.Webb Associates. Zone 1 Zone 2 The Ventana Collection The El Dorado Collection Construction Costs M $1,047,428 $1,045,762 Development Fees t'r 509,220 358,668 Engineering Costs 175,599 167,727 Total Improvement Costs 1,732,247 1,572,157 Less: Contribution by Property Owner (98,003) (143,892) Deposit to Construction and Acquisition Fund $1,634,244 $1,428,265 Water and sewer main constriction, landscaping, and electric utility improvements, as described above under "Description of the Bond-Funded Improvements." Water facility fees,water meter fees and sewer facility fees. 16 Acquisition Agreement The City and the Developer have entered into an Acquisition and Funding Agreement dated as of December 1, 20032004 (the "Acquisition Agreement") relating to the acquisition of the Improvements providing in general that (a) the City will issue the Bonds to finance a portion of the cost of acquiring the Improvements; (b) the Developer will proceed with due diligence to complete the construction of the Improvements; and (c) the Developer will agree to sell the Improvements to the City and the City agrees to accept and acquire the Improvements at a cost not to exceed the actual cost. Pursuant to the Acquisition Agreement, the Developer will pay any costs of the Improvements in excess of amounts available from Bond proceeds. The Developer The information contained in this section has been obtained from the Developer. No assurance can be given that the planned development will occur or that the planned development will occur in a timely manner. No representation is made as to the accuracy or adequacy of with information provided by the Developer. The property within the District will be developed by the Developer.-and is Th&tw*peity iklrin-113 iet4-s-owned by Mountain Gate II Palm Springs Ventures, LLC, a Delaware Limited Liability Company ("Mountain Gate II LLC") and its development management company, Century Vintage Homes ("Century," or the "Developer"). Century also developed the homes in the first phase of the Mountain Gate development. Final escrow in that phase of Mountain Gate closed in July 2004. Century was formed in 1994 as the result of the merger of two home building companies, Century Homes Comrnurrities and Crowell Industries, Inc., and is one of the Inland Empire's largest builders of a€ferdable-single-family homes for the first-time, first move-up, retirement and resort conummity home buyer. Century's operations include location, acquisition and development of land and the design, construction, marketing and sales of homes. The sales price of Century's homes available for sale currently ranges from the mid $100,000's to the high $600,000's with the average price being approximately $2-1�000385,000 as of December 1-003Juue 2005. Century has constructed and sold over 4,400 homes, typically in new home communities, since its inception in 1994. The two companies that merged to combine Century have built and sold over 20,000 homes through their various joint venture entities and company owned projects over their nearly forty years of operations. Century operates primarily in San Bernardino and Riverside Comities but has projects in other areas. Its administrative offices are located at Fairway Commerce Center, 1535 South "D" Street, Suite 200, San Bernardino, California 92408. Century's website address is www.centuryvintagehomes.com. Information on the website is not deemed accurate or complete. 17 Provided below is a partial listing of regional projects and developments undertaken by the Developer and their principal participants in the past three years and the date of completion of those projects. Proiect Number of Units Jurisdiction Completion Date Mountain View II 383 Desert Hot Springs Under construction Mountain Gate It 196 Paten Springs Under construction Fair Oaks Ranch Country View Estates 138 Banning Under construction Mountain View Country Estates 436 Desert Hot Springs Under construction Gavilan Springs Country Estates II 60 Riverside County Under construction San Jacinto Country Ranch Estates 69 San Jacinto Under construction Wildwood II 71 Yucaipa Under construction Mountain Gate 308 Palm Springs Completed in 2004 Foxfire Ranch—Santa Barbara II 284 Victorville Completed in 2004 Encanto 11 at Villa Montego 79 Indio Completed in 2004 Monticello III by Heritage Palms County Club 71 Indio Completed in 2004 Shadow Hills Master Plan Phase I 169 Indio Completed in 2004 Las Brisas North 189 Indio Completed in 2004 Shadow Hills Villa Estates 100 Indio Completed in 2004 The Encantos at Villa Montego 341 Indio Completed in 2004 Gavilan Springs Country Estates 112 Riverside County Completed in 2004 University Heights Country View Estates 53 San Bernardino Completed in 2004 Foxfire Ranch—Santa Barbara 85 Victorville Completed in 2004 Las Brisas at Villa Montego 29 Indio Completed in 2003 The Fairways at Indian Patens 209 Indio Completed in 2003 Monticello by Heritage Palms C.C. 66 Indio Completed in 2003 Las Brisas at Rancho Indio 130 Indio Completed in 2003 The Tournament Collection at PGA West 70 La Quinta Completed in 2003 Duna Fairways at La Quints,Resort 81 La Quinta Completed in 2003 The Classics at Monticello 86 La Quints Completed in 2003 The Heritage at Monticello 120 La Quinta Completed in 2003 La Terraza at Rancho Mirage 45 Rancho Mirage Completed in 2003 Foxfire Ranch—Capistrano 8 Victorville Completed in 2003 Wildwood Canyon Country Estates 62 Yucaipa Completed in 2003 Starlight Estates at IPCC 53 Indian Patens Completed in 2002 Colony Cove Estates at Indian Wells 11 Indio Completed in 2002 Aliso II 30 Indio Completed is 2002 The "Century" team was formed by John Pavelak in 1971 and was called John Pavelak Construction Company. The company built and sold speculation and contract homes throughout the Inland Empire of Riverside and San Bernardino Counties. Century Homes was formed as a joint venture between two custom homebuilders, John Pavelak and Chester Squibb, each of whom wanted to focus on building affordable single-family home communities. These two individuals brought with them a combined 35 years of building industry experience. 18 In 1984 Century formed a joint venture with Harry Crowell of Crowell Industries, a 22-year veteran builder of 11,000 homes throughout California. In June 1994, a new entity was created to form the current operating entity, Century Crowell Communities. The two principals of Century Crowell have over 70 combined years of experience in homebuilding, and numerous industry achievements including Entrepreneur of the year (John Pavelak) and past Building Industry Association chapter and Southern California president(Harry Crowell). John Pavelak, President, Chief Executive Officer, Co-Chairman of the Board. Mr. Pavelak founded John Pavelak Construction Company in 1971. This was the forerunner company to Century Homes Communities created in 1976 with Charles Squibb, another prominent builder. The new entity brought together a combined 35 years of building experience and developed the philosophy of building quality and aftlardablc moderately priced single-family home communities throughout the Inland Empire. Nine years later Mr.Pavelak became sole owner when he purchased Mr. Squibb's interest in the company. John Pavelak continued as the driving force behind Century Homes and its innovative construction and marketing techniques. fin 1984 Century Homes commenced joint venturing projects with Crowell Industries. In 1994 after a decade of successful partnering, the two companies merged their expertise and combined their financial strength to create Century Crowell Communities. Mr. Pavelak is a seasoned real estate professional. He received "Entrepreneur of the Year" from Inc. Magazine in 1991 and"Man of the Year"by the city of Rialto in 1988. In 1996 he captured the"Builder of the Year" award from the Building Industry Association, the highest recognition for individuals and corporations who have contributed to the industry with excellence and distinction. Barry Crowell, Co-Chairman of the Board. Mr. Crowell, President of Crowell Industries, also is owner and an officer and director of various other corporations related to the real estate industry. He has been involved in the construction business since the early 1960's. In 1982 Mr. Crowell received the "Builder of the Year Award" from the Building Industry Association of Southern California and was also the recipient of the"Humanitarian Award" from the Arthritis Foundation. Gary Weintraub, Senior Vice President of Operations. Mr. Weintraub, who joined John Pavelak early in Century's formative years, is a 25-year veteran of commercial and residential real estate development and an original member of the Jahn Pavelak Construction Company. He heads trp—all construction activities, oversees the customer service department, the purchasing department, and works closely with the sales and marketing departments. Knowledgeable in all areas of construction and land development activities, he directs and coordinates professional outside consultants (architects, engineers and land planners) and managers of the various Century projects. He also works closely with various governmental agencies. Anthony "Tony" Scimia, Senior Vice President of Marketing and Sales. Mr. Scimia is highly aeeonpliali d-twenty-year new home sales and marketing veteran. Prior to joining Century, he was with Lewis Homes and Walker Lee New Homes Division. Having joined Century in 1984, he has been with the company for nearly 20 years; and in his current capacity for 14 years. Mr. Scimia manages sales personnel, market analysts, and works closely with Mr. Pavelak on forward planning and acquisitions. Honors bestowed on Mr. Scimia are the coveted Laurel award, the 1994 Marketing Director of the Year, and 1999 Lifetime Achievement award. Mr. Scimia's progressive aftltudc}and-real estate expertise ranges from competitive market positioning to conducting feasibilities of new residential real estate. His vas4 knowledge of various market segments range from first-time buyers, move up, luxury resort, and active adult buyer profiles. Mr. Scimia has conducted and attended numerous new home sales marketing educational conferences. A founding member of the Inland Empire Sales and Marketing Council, he has served on the Board of Directors for five years and he holds a California real estate license. 19 Appraised Values The City caused the preparation of an appraisal of the property within the District, dated May 20, 2005 (the "Appraisal Report") by Harris Realty Appraisal (the "Appraiser"), Newport Beach, California. The findings in the Appraisal Report are subject to a number of assumptions and qualifications which are described therein including assumptions of good title, absence of hazardous substances and possession of all required governmental approvals. The Appraiser assumes no responsibility for building permits, zoning changes, engineering or other services or duty connected with the legal use of the property. In-addition to the Report also assuffi�-Improvemcnts financed " ree ads of bh Bonds are in place on the-date-el' valuation. It is a specific assumption of the Appraisal Report that the cost of the Improvements eligible for reimbursement by the District are included in the Developer's summary of costs to bring the land within the District from its "as is" condition to a finished lot ready to issue building permit condition and that the cost of the eligible Improvements are funded with the sale of the Bonds. For a description of certain of the assumptions made in the Appraisal Report, see "APPENDIX F - APPRAISAL REPORT." For a description of certain risks that might affect the assumptions made in the Appraisal Report, see "BONDHOLDERS' RISKS - Valuation of Property in the District." The Appraisal Report provides an estimated"as is"value of the subject properties a&A+mina the proposed Distiiat financing is in place, of$18,200,000 ($10,000,000 for Zone 1 and $8,200,000 for Zone 2). The date of value, for which the opinions of value are expressed in the Appraisal Report, is May 1, 2005. Based upon an "as is" value of $18,200,000 and outstanding principal amount of Bonds equal to $3,806,000, the appraised value-to-lien ratio is 4.8 to 1 overall, 4.9 to 1 for Zone 1 and 4.6 to 1 for Zone 2. This does not take into account overlapping assessment and other liens on the property in the District. See"Total Effective Tax Rate"and"Direct and Overlapping Debt"below. In considering the Appraisal Report and the estimates of value contained therein, it should be noted that the Appraisal Report is based upon a number of standard and special assumptions which affect the estimates as to value. Because the Appraisal Report sets forth the Appraiser's opinion as to value only as of May 1, 2005, it does not reflect any changes to value that might have occurred since that date or which may occur in the future. See"THE DISTRICT- Status of Development; Financing Plan"herein. Absorption Study A Market Feasibility and Absorption Analysis dated March 2005 (the "Absorption Study") was prepared by Empire Economics, Capistrano Beach, California. According to the Absorption Study,housing units in the District are projected to be absorbed as follows: 50 units between September-December 2005, when escrow closings for the first phases of construction commence, 90 units in 2006 when additional product becomes available and 56 units in 2007 as the projects are closed out. See"APPENDIX G-ABSORPTION STUDY." No Delinquencies in Property Tax Payments As of May 1, 2005, the Property Owner is current on all ad valorem property tax on its property within the District. The Property Owner has represented that they have paid all previous assessments on other projects when due and their properties have not been the subject of any foreclosure actions. 20 Total Effective Tax Rate CITY OF PALM SPRINGS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) ESTIMATED FISCAL YEAR 2006/07 TAX OBLIGATION FORA SAMPLE DEVELOPED PROPERTY ZONE I—THE VENTANA COLLECTION Value(Based on Product Type A with IIome Size of 1,208 Square Feet) Estimated Sales Price(I"Phase) $309,990 Less Homeowner's Exemption (7,000) Assessed Value $302,990 Property Taxes Percent of AV Projected Amount Ad Valorem Property Taxes: General Purpose 1.00000% $3,029.90 Palm Springs Unified School District 0.05715 173.16 Desert Water Agency 0.06000 181.79 Desert Community College District Debt Service 0.01994 60.42 Total Ad Valorem Tax 1.13709% $3,445.27 Assessments,Special Taxes and Parcel Charges: Palm Springs AD No. 164(D $1,388.29 City of Patin Springs CFD No. 2005-1 f' 350.00 PROTECTED TOTAL PROPERTY TAX $5,183.56 Projected Total Effective Tax Rate as a%of Estimated Sales Price 1.71% (') Includes an estimated$75 for administration in addition to the assessment for debt service. (2) The Developer anticipates future annexation into the City's CFD No. 2005-1 (Public Safety). The annual special tax levv is estimated by the City to be approximately$350. Source: City of Palm Springs. 21 CITY OF PALM SPRINGS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE Il) ESTIMATED FISCAL YEAR 2006/07 TAX OBLIGATION FOR A SAMPLE DEVELOPED PROPERTY ZONE 2—TIIE ELDORADO COLLECTION Value(Based on Product Type A with Home Size of 2,083 Square Feet) Estimated Sales Price(1S1 Phase) $389,990 Less IIomeowner's Exemption (7,000) Assessed Value $382,990 Property Taxes Percent of AV Projected Amount Ad Valorem Property Taxes: General Purpose 1.00000% $3,829.90 Palm Springs Unified School District 0.05715 218.88 Desert Water Agency 0.06000 229.79 Desert Community College District Debt Service--Proposed 0.01994 76.37 Total Ad Valorem Tax 1.13709% $4,354.94 Assessments, Special Taxes and Parcel Charges: Patin Springs AD No. 164 0) $1,716.62 City of Pahn Springs CFD No. 2005-1 (2) 350.00 PROJECTED TOTAL PROPERTY TAX $6,421.56 Projected Total Effective Tax Rate as a%of Estimated Sales Price 1.68% (1) Includes an estimated$75 for administration in addition to the assessment for debt service. (2) The Developer anticipates future annexation into the City's CFD No. 2005-1 (Public Safety). The annual special tax teal is estimated by the Citv to be approximatelv$350. Source: City of Palm Springs. Direct and Overlapping Debt Set forth below is the direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc., as of 2005. The Debt Report is included for general information purposes only. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose bomidaries overlap the boundaries of the District in whole or in part. Such long-term obligations are not payable from unpaid Assessments nor are they necessarily obligations secured by property within the District. In many cases, long-tern obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Presently, the Assessment Parcels are subject to $ of direct and overlapping tax and assessment debt and overlapping lease obligation debt, including the Bonds. To repay the direct and overlapping tax and assessment debt and overlapping lease obligation debt, the property owners of the land within the District must pay the annual Assessments and the general property tax levy. 22 In addition, other public agencies whose boundaries overlap those of the District could, without the consent of the City, and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the real property within the District in order to finance public improvements or services to be located or famished inside of or outside of the District. The lien created on the real property within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the Assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the property owners to pay the Assessments and increases the possibility that foreclosure proceeds, if any, will not be adequate to pay delinquent Assessments. CITY OF PALM SPRINGS ASSESSMENT DISTRICT NO. 164 (MOUNTAIN GATE II) DIRECT AND OVERLAPPING DEBT Source: California Municipal Statistics,Inc. 23 Annual Levy The Finance--Director of Finance is required each Fiscal Year to determine the amount of Assessment Installments needed to pay debt service on the Bonds and administrative expenses of the District for such year. The A-itranee-Director of Finance is expected to incur administrative expenses for the levy and collection of the Assessment Installments, foreclosure proceedings, Fiscal Agent fees and arbitrage rebate calculations. A certified list of all parcels subject to the unpaid Assessments, including the amount of the annual Assessment Installments to be levied on each such parcel, is filed by the City with the County Auditor on or before the tenth day of August of that tax year. The annual Assessment Installments are payable and are collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable and have the same priority, become delinquent at the sane tines and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property. Annual Assessment Installments are due in two equal installments. Annual Assessment Installments levied become delinquent on the following December loth and April loth. Currently a 10% penalty is added to delinquent taxes. When received, the annual Assessment Installments are required to be deposited in the Assessment Revenue Fund to be held by the Director of Finance and transferred by the fiutoec-Director of Finance to the Fiscal Agent as provided in the Fiscal Agent Agreement. 24 BONDHOLDERS' RISKS General BEFORE PURCHASING ANY OF TIIE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SHOULD CAREFULLY CONSIDER,AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS, WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH THE PURC14ASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE. The purchase of the Bonds involves investment risk. If a risk factor materializes to a sayficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters. Debt service on the Bonds is payable from installment payments of principal and interest on nmpaid Assessments on the Assessment Parcels. The principal of the Assessments is the aggregate of the amounts of the individual Assessments levied against the Assessment Parcels. The individual Assessment on a parcel will be paid in annual installments, together with interest on the unpaid balance, unless the unpaid balance is subsequently prepaid. The annual installments of principal and interest with respect to an Assessment Parcel will be collected on the County tax roll at the same time and in the same manner as general real property taxes are collected. The annual instalhments of principal and interest with the respect to all Assessment Parcels were, at the time of initial levy of the Assessments, equal in the aggregate to the annal debt service on the Bonds. Foreclosure and Sale Proceedings The City Council is obligated under certain conditions to institute foreclosure and sale proceedings against Assessment Parcels which have delinquent assessment installments, and may do so in other circumstances even if not so obligated. However, the City has determined, because of the administrative costs involved, not to implement foreclosure proceedings unless and until the applicable delinquent amount (including interest thereon) exceeds $3,000 for any one property or on all delinquent parcels if the balance in Reserve Account is below the Reserve Requirement (see "SOURCES OF PAYMENT FOR THE BONDS — Repayment of the Bonds - Covenant to Commence Foreclosure Proceedings"herein). Foreclosure proceedings are instituted by the bringing of an action in the superior court of the comity in which the Assessment Parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same marmer as other civil actions. Upon judgment of foreclosure the Assessment Parcel may be offered for sale at a minimum price. The initially established minimum price will be sufficient to cover the amormt of the delinquent installments and rrpaid interest together with penalties, costs, fees and charges and the costs of execution and sale. The buyer in a foreclosure sale takes the parcel subject to the remaining assessment installments and regular taxes. However, in the event an Assessment Parcel does not sell for the minimum price the court may modify its judgment and reduce or eliminate the minimum price. In order to do so, however, written notice of a hearing on the matter of reducing or eliminating the minhmun price is required to be given to the owners of the Bonds. If at the hearing the court determines that such a sale will not result in an ultimate loss to the owners of the Bonds, or if the owners of 75% of the outstanding Bonds by principal amount consent and the sale will not result in an ultimate loss to the non-consenting owners of Bonds, the court may reduce or eliminate the minimum price at which an Assessment Parcel may be sold. Further, if the owners of 75% 25 of the outstanding Bonds by principal amount consent, the court may reduce or eliminate the minimum price at which an Assessment Parcel may be sold even if sale below the minimum price will result in an ultimate loss to non-consenting owners of Bonds, provided that the court makes certain additional determinations specified by statute including the reasonable unavailability of any other remedy acceptable to the owners of 75% or more of the outstanding Bonds by principal amount. Upon sale of the Assessment Parcel for less than the minimum price the remaining unpaid balance of the assessment on the Assessment Parcel will be reduced by the difference between the minimum price and the sale price. By such a reduction the aggregate principal amount of the outstanding Bonds may further exceed the aggregate principal amount of the unpaid Assessments. Depletion of Reserve Account Upon the issuance of the Bonds, the Reserve Account will contain an amount equal to $ _ the initial "Reserve Requirement." T ;-arina z-represents the Whenever there are insufficient fiords in the Revenue Fund to pay the next maturing installment of principal and interest on the Bonds, the amounts necessary to make up the deficiency, to the extent available, will be transferred from the Reserve Account to the Revenue Fund. Amounts so transferred will be reimbursed to the Reserve Account if, and when, available from the payments of delinquent installments and from the proceeds of redemption or sale of delinquent parcels which caused the withdrawal. The Reserve Requirement is subject to reduction if, and when, the unpaid balance of the Assessment on an Assessment Parcel is prepaid. Upon prepayment of an Assessment, there will be a mandatory redemption of the Bonds (see "THE BONDS - Redemption" herein). The Reserve Requirement will be reduced to an-amount equal to maxinnurn annual elcht s zEc on the Bonds to rornain outstanding-the Reserve Requirement following such mandatory redemption. A reduction in the Reserve Requirement caused by prepayment of an assessment and the mandatory redemption of Bonds is a permanent reduction. The Reserve Account may be invested, and the investment earnings may be retained in the Reserve Account, to the extent necessary to maintain the amount therein at the Reserve Requirement. No sources of finds other than such investment earnings and any recoveries of delinquent Assessments are available to replenish deficiencies in the Reserve Account. Accordingly, there is no assurance that the amount in the Reserve Account will, at any particular time,be sufficient to pay, when due, debt service on the Bonds nor that the Reserve Accotmt will be fully reimbursed for any amounts expended for debt service. Valuation of Property in the District The value of the land within the District is a critical factor in determining the investment quality of the Bonds. If there is a default in the payment of the Assessments, the City's only remedy is to commence foreclosure proceedings on the delinquent taxable property in an attempt to obtain funds to pay the delinquent Assessment. The City cornmissioned the Appraisal Report to detLm inne-estimate the value of the property in the District. The Appraisal Report states that as of May 1, 2005, the value of the land plus improvements in the District was $18,200,000. The City makes no representation as to the accuracy of the Appraisal Report and the Appraisal Report is subject to certain assumptions, limiting conditions and stipulations contained in the Appraisal Report. See"APPENDIX F-APPRAISAL REPORT." Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of the "collateral" supporting the willingness of property owners to pay their special taxes and assessments (and, in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually a market value as determined by an appraiser) 26 and the denominator of which is the "lien" of the assessments or special taxes. A value-to-lien ratio should not, however, be viewed as a guarantee of credit-worthiness. Land values are more volatile in the early stages of a development, and are especially sensitive to economic cycles. A downturn of the economy may depress land values and hence the value-to-lien ratios, thereby increasing risk to investors and lenders. Further, the value-to-lien ratio cited for a bond issue is based on the aggregate value of all parcels in the District. Individual parcels in an assessment district may fall above or below the average, sometimes even below a 1:1 ratio. (With a ratio below 1:1, the land is worth less than the debt on it.) Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may impede the foreclosure action. Finally, local agencies may form overlapping community facilities districts or assessment districts. Debt issuance by another entity can dilute value-to-lien ratios. See"IT-IE DISTRICT—Direct and Overlapping Debt." Factors Affecting Parcel Value and Aggregate Values Prospective purchasers of the Bonds should not assume that the land could be sold for its original sales price or its fair market value at a foreclosure sale for delinquent Assessments. The future value of the land can be expected to fluctuate due to many different, not fully predictable, real estate related investment risk factors, including, but not limited to: general tax law changes related to real estate, changes in competition, general area employment base changes, population changes, changes in real estate related interest rates affecting general purchasing power, changes in allowed zoning uses and density, natural disasters such as floods, earthquakes fires,and-landslides, and similar factors. The facts and circtuastances concerning the values of the Assessment Parcels that are of importance are not confined to those relating to individual Assessment Parcel values because the Bonds are not individually secured by particular Assessment Parcels. The Bonds are secured by all of the unpaid Assessments on all of the Assessment Parcels within the District. Therefore factors which affect all of the Assessment Parcels should be considered. The following are some of the factors which may affect the market for and value of particular Assessment Parcels individually, as well as the market for and value of all Assessment Parcels. Geologic,Topographic and Climatic Conditions Values of Assessment Parcels can be adversely affected by a variety of natural events and conditions, including, without limitation geologic conditions such as earthquakes; topographic conditions such as earth movements and floods; and climatic conditions. The possibility of the occurrence of some of these conditions and events has been taken into account to a limited extent in the design of the District's improvements and has been or will be taken into account to a limited extent in the designs of other public improvements which may be approved by the City or other public agencies. Building codes require that some of these conditions be taken into account to a limited extent in the design of private improvements. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change from time to time leaving previously designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria, at the time of then- establishment, reflect a balance between the present costs of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Also reflecting that balance are decisions not to impose design criteria at all. The City expects that one or more of these conditions may occur from time to time, and, even if design criteria do exist, such conditions may result in damage to property improvements. That damage may entail significant repair or replacement costs, and repair or replacement may never occur. Under any of these circumstances, the value of the Assessment Parcels could depreciate substantially notwithstanding the establishment of design criteria. 27 Earthquake, Flood and other Nuisances and Hazards. The District is located in an area designated in a Zone B flood designated area of the Federal Emergency Management Agency Community Panel 060257- 006D effective July 7, 1999. This designation references an area that is between limits of the 100-year flood and 500-year flood; reportedly, flood insurance is available but not mandatory with a Zone B designation. According to the Seismic Safety Element of the City's General Plan, the City is located in a seismically active region and buildings in the District could be impacted by a major earthquake originating from the munerous faults in the area. Seismic hazards encompass both potential surface rupture and ground shiking. The Palm Springs planning area has munerous fault traces that are part of the larger San Andreas Fault Zone. Of primary concern are the Banning Fault,the Palm Canyon Fault and the San Jacinto Fault. Ground rupture occurred along the Banning Fault Zone as a result of a magnitude 5.9 earthquake on July 8, 1986. Only minor damage was sustained by any structures within the City. The San Jacinto Fault approaches within 6.5 miles of the City and is considered to be one of the major branches of the San Andreas Fault system, extending from Cajon Pass (near San Bernardino) into Mexico. The San Jacinto Fault Zone is considered to be the most seismically active fault zone in southern California. The Palm Canyon Fault is exposed in the bedrock in the southeastern portion of the City and has been inferred by researchers as extending northward beneath the City under the alluvium. No evidence is available as to the existence or precise location of the Palm Canyon Fault within the alluvium or regarding its potential activity. In the event of a significant earthquake, any damage to buildings in the District could impair the value of the property and the ability or willingness of the property owners to pay Assessments. The aAppraisers worcwas not provided with an environmental site assessment report for property within the District. A physical inspection did not reveal obvious evidence of hazardous materials or other nuisances or hazards. Legal Requirements Other events which may affect the value of an Assessment Parcel include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums, and local application of statewide tax and governmental spending limitation measures. See"Proposition 218; Possible Future Ballot Initiatives"herein. Prepayment of Assessments There is rarely a uniform relationship between the relative value of Assessment Parcels and the proportionate share of debt service on the Bonds to be borne by such Assessment Parcels. One of the factors that may effect a significant change in the relationship between the aggregate Assessment Parcel values and the assessment is the prepayment before final bond maturity of the remaining balance of the Assessments on particular Assessment Parcels. Should the Assessments on Assessment Parcels having a relatively high ratio of assessed value to assessment be prepaid, the security for the assessed-Bonds, as evidenced by the ratio of the aggregate remaining Assessment Parcel values to the remaining outstanding Bonds, will be reduced. Other Possible Claims Upon the Value of an Assessment Parcel While an aAssessment is secured by an Assessment Parcel, the secuity only extends to the value of such Assessment Parcel that is not subject to prior or parity liens and similar claims with respect to the unpaid Assessment. 28 Other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the Assessment Parcels and may be secured by liens on a parity with the liens of the Assessments securing the Bonds. As of the date hereof certain additional liens exist with respect to parcels in the District. See "THE DISTRICT - Direct and Overlapping Debt"herein. In general, as long as installments of the aAssessment are collected on the county tax roll, the installments and all other taxes,Aassessments and charges also collected on the tax roll are on a parity with each other. Questions of priority become significant when collection of one or more of the taxes, Assessments or charges is sought by some other procedure, such as foreclosure sale. In the event of proceedings for foreclosure of delinquent installments of an assessment securing the Bonds, the aAssessment will have priority over special Aassessments levied subsequent to the levy of the Assessments securing the Bonds. Otherwise, in the event of such foreclosure proceedings the installments of the aAssessment will generally be on a parity with other taxes, Aassessments and charges secured by the applicable Assessment Parcel. The aAssessment will, however, have priority over non-governmental liens on the Assessment Parcel regardless of whether or not the non-governmental liens were in existence at the time of the levy of the aAssessment. While governmental taxes, Aassessments and charges are a common claim against the value of an Assessment Parcel other less common claims may be relevant. One of the most significant in terms of the potential reduction in the value that may be realized to pay the aAssessment+Installments is a claim with regard to a hazardous substance. In general, the owners and operators of an Assessment Parcel may be required by law to remedy conditions of the Assessment Parcel relating to released or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws the owner or operator of a properly is obligated to remedy a hazardous substance condition 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 Assessment Parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition. The appraised values shown herein do not take into account the possible reduction in marketability and value of any of the Assessment Parcels by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the Assessment Parcel. Further, the City has not undertaken to independently determine if any such conditions exist. Further, it is possible that liabilities may arise in the future with respect to any of the Assessment Parcels resulting from the current existence on the Assessment Parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence on the Assessment Parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of an Assessment Parcel that is realizable upon delinquency. 29 Direct and Overlapping Indebtedness The ability of an owner of land within the District to pay aAssessment ilnstallments could be affected by the existence of other taxes and assessments imposed upon ia�,- —pare;lsthe Assessment Parcels. Presently, the stun of the direct and overlapping debt applicable to the property in the District, is as detailed render the caption "THE DISTRICT - Direct and Overlapping Debt." In addition, the City and other public agencies whose boundaries overlap those of the District, (without the consent of the City), could, impose additional taxes or assessment liens on the property within the District in certain cases without the consent of the owners of the land within the District in order to finance public improvements or services to be located or provided inside of or outside of such area. The lien created on the property within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the assessments. The Developer anticipates future annexation of property in the District into the City's CFD No. 2005-1 (Public Safety). The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the landowners to pay the assessment installments and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent assessment installments or the principal of and interest on the Bonds when due. Bankruptcy Proceedings Regardless of the priority of an assessment securing the Bonds over non-govemmnental liens, the exercise by the City of the foreclosure and sale remedy or by the County of the tax sale remedy may be forestalled or delayed by bankruptcy, reorganization, insolvency or other similar proceedings affecting the owner of an Assessment Parcel or any other party claiming an interest in an Assessment Parcel. The federal bankruptcy laws provide for an automatic stay of foreclosure and sale or tax sale proceedings thereby delaying such proceedings perhaps for an extended period. Delay in exercise of remedies, especially if the owner owns Assessment Parcels the Assessments of which are significant or if bankruptcy proceedings are instituted with respect to a number of owners owning Assessment Parcels the Assessments of which are significant, may result in periodic assessment installment collections which may be insufficient to pay the debt service on the Bonds as it comes due. Further, should remedies be exercised under the bankruptcy law against the Assessment Parcels, payment of installments of the assessment may be subordinated to bankruptcy law priorities. Therefore, certain claims may have priority over the assessment lien, even though they would not were the bankruptcy law not applicable. Payment of the Assessment Not a Personal Obligation Under the Assessment Bond Law, the owners of Assessment Parcels are not personally liable for the payment of the aAssessment or the aAssessment iInstallments. Rather, an assessment is a lien only on an Assessment Parcel. Accordingly, if the value of an Assessment Parcel is not sufficient to fully secure the assessment on it, the City has no recourse against the owner under the Assessment Bond Law by which the assessment has been levied and the Bonds have been issued. No City Obligation to Pay Debt Service The City has no obligation to advance funds to pay debt service on the Bonds in the event Assessment District Revenues are insufficient for such purpose. 30 Loss of Tax Exemption As discussed in the section herein entitled"LEGAL MATTERS -Tax Matters,"interest on the Bonds could become includable in gross income for purposes of federal income taxation, retroactive to the date of issuance, as a result of acts or omissions of the City subsequent to issuance in violation of the City's covenants applicable to the Bonds. Should interest become includable in gross income,the Bonds are not subject to redemption by reason thereof and may remain outstanding. The Bonds are subject to redemption for other reasons as discussed in the section herein entitled"THE BONDS -Redemption." No Acceleration Provision The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement. Proposition 218; Possible Future Ballot Initiatives Under the California Constitution, the power of initiative is reserved to the voters for the propose of enacting statutes and constitutional amendments. Over the past 18 ycars, the rotors have cxere�a"��^ POWCn-44oug-.rt}c a 1e1 t ern sf f+F p s tip n�l� ami s �i }ar rrtc�strrc Ekc�rr est rec . .� ,atr its afro as Proposition 218 in the eneral election held on November 5, 19)&-Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives. On November 5, 1996, California voters approved Proposition 218 - Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges - Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school di&h 11 e no power to levy general taxcs. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. T le e rrIll`: be-4t3-mc-casc, 4he drificultyF-a-local-agency vl-I }rive �n-inrrp stung,-ine3-casing on ektc-nt}in� such asscssntc+tt�-fc�s-sand-chute Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairment of contracts. 31 The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218. Further, from time to time, other initiative measures may qualify for the State ballot pursuant to the State's constitutional initiative process and those measures could be adopted by California voters. The adoption of any such initiative might place limitations on the ability of the State, the City, the Comity or other local districts to increase revenues or to increase appropriations or on the ability of the landowners to complete the development of the land within the District. Payments by FDIC The City's ability to collect interest and penalties specified by State law and to foreclose the lien of a delinquent Assessment installment, may be limited in certain respects with regard to properties in which the Internal Revenue Service, the Drug Enforcement Agency, the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal agencies has or obtains an interest. On June 4, 1991 the FDIC issued a Statement of Policy Regarding the Payment of State and Local Real Property Taxes. The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9, 1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its proper tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution's affairs, unless abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. Under the Policy Statement, it is unclear whether the FDIC considers special assessments, such as those levied by the City, to be "real property taxes" which they intend to pay. The Policy Statement provides: "The FDIC is only liable for state and local taxes which are based on the value of the property during the period for which the tax is imposed, notwithstanding the failure of any person, including prior record owners, to challenge an assessment under the procedures available under state law. In the exercise of its business judgment, the FDIC may challenge assessments which do not conform with the statutory provisions, and during the challenge may pay tax claims based on the assessment level deemed appropriate, provided such payment will not prejudice the challenge. The FDIC will generally limit challenges to the current and immediately preceding taxable year and to the pursuit of previously filed tax protests. However, the FDIC may, in the exercise of its business judgment, challenge any prior taxes and assessments provided that (1) the FDIC's records (including appraisals, offers or bids received for the purchase of the property, etc.) indicate that the assessed value is clearly excessive, (2) a successful challenge will result in a substantial savings to the FDIC, (3) the challenge will not unduly delay the sale of the property, and(4)there is a reasonable likelihood of a successful challenge." 32 However, the Resolution Trust Corporation, which adopted a similar policy (but which dissolved at the end of 1995 and transferred all of its assets to the FDIC) stated in a letter dated July 2, 1993 to the Honorable Lucille Roybel-Allard, member of the United States House of Representatives from the State of California, that it ". . . will pay Mello-Roos special taxes and other special assessments and related interest where those taxes and assessments were imposed prior to receivership. However, Mello-Roos special taxes and other special assessments that are imposed on property when the institution owning the property is in receivership will not be paid." The City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to a parcel in the District in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed on at a judicial foreclosure sale would likely reduce the number of or eliminate the persons willing to purchase such a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any Assessment Parcel owned by the FDIC. Such an outcome would cause a draw on the Reserve Account and perhaps, ultimately, a default in payment of the Bonds. The City has not undertaken to determine whether the FDIC currently has, or is likely to acquire, any interest in any of the Assessment Parcels, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. However, the City is not aware of any existing, pending or potential ownership by the FDIC of any Assessment Parcel. 33 LEGAL MATTERS Enforceability of Remedies The remedies available to the Fiscal Agent and the Owners of the Bonds upon an event of default Linder the Fiscal Agent Agreement, 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 will be qualified to the extent that the enforceability of certain legal rights related to the Fiscal Agent Agreement is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. Approval of Legal Proceedings Aleslure&Wynder, LLP, Irvine, California, as Bond Counsel, will render an opinion which states that the Fiscal Agent Agreement and the Bonds are valid and binding obligations of the City and are enforceable in accordance with their terms. The legal opinions of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights and to the exercise of judicial discretion in accordance with general principles of equity. The City has no knowledge of any fact or other information which would indicate that the Fiscal Agent Agreement is not enforceable against the City, except to the extent such enforcement is limited by principles of equity and by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors'rights generally. Certain legal matters will be passed on for the City by the City Attorney and by Aleshire & Wynder, LLP, Irvine, California, as Bond Counsel and by Jones Hall, A Professional Law Corporation, San Francisco, California as Disclosure Counsel. Fees payable to Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. Tax Matters Upon execution and delivery of the Bonds, Aleshne & Wynder, LLP, Bond Counsel, will opine that based on existing statutes, regulations,rulings and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. A copy of the proposed opinion of Bond Counsel is set forth in"APPENDIX E"hereto. The Internal Revenue Code of 1986 (the "Code"), imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The City has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income,possibly from the date of issuance of the 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 issuance of the Bonds may affect the value of, or the tax status of interest on the Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, will not adversely affect the value of, or the tax status of interest on, the Bonds. Prospective owners are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. 34 Bond Counsel is further of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative miniman taxes. Bond Counsel observes, however, that interest on the Bonds is included in adjusted eturent earnings in calculating corporate alternative minimum taxable income. Prospective purchasers of the Bonds should be aware that (i)with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest with respect to the Bonds, (ii)Bonds interest with respect to the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iii) passive investment income, including interest with respect to the Bonds, may be subject to federal income taxation under Section 1375 of the Code for subchapter S corporations having subchapter C earnings and profits at the close of the taxable year and gross receipts more than 25% of which constitute passive investment income, and (iv) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Bonds. The Code contains certain provisions relating to the accrual of original issue discount or premium in the case of purchasers of the Discount Bonds who purchase such Discount Bonds after the initial offering of a substantial amount thereof. Owners who do not purchase such Discotmt Bonds in the initial offering at the initial offering prices should consult their own tax advisors with respect to the tax consequences of ownership of such Discount Bonds. All holders of the Discount Bonds should consult their own tax advisors with respect to the allowance of a deduction for any loss on a sale or other disposition to the extent that calculation of such loss is based on accrued original issue discount. Certain of the Bonds may be purchased in the initial offering for an amount greater than their principal amount payable at maturity (hereinafter, the "Premium Bonds"). The excess of the tax basis of a purchaser of a Premium Bond (other than a purchaser who holds a Premium Bond as inventory, stock in trade or for sale to customers in the ordinary course of business) over the principal amount of such Premium Bond is "bond premium." Bond premium is amortized for federal income tax proposes over the tern of a Premium Bond based on the purchaser's yield to maturity in the Premiu n Bonds, except that in the case of a Premium Bond callable prior to its stated maturity, the amortization period and the yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium Bond. A purchaser of a Premium Bond is required to decrease his or her adjusted basis in such Premiums Bond by the amount of bond premium attributable to each taxable year in which such purchaser holds such Premium Bond. The amount of bond prernium attributable to a taxable year is not deductible for federal income tax purposes. Purchasers of Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the amount of bond premium attributable to each taxable year and the effect of bond premium on the sale or other disposition of a Premium Bond, and with respect to the state and local tax consequences of owning and disposing of a Premium Bond. Certain agreements, requirements and procedures contained or referred to in the "Frus4-Fiscal Agent Agreement 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 those documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Bond or the interest payable with respect thereto if any change occurs or action is taken or omitted upon the advice or approval of counsel other than Bond Counsel. 35 Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from federal gross income, and is exempt from State of California personal income taxes, the ownership or disposition of the Bonds, and the accrual or receipt of interest on the Bonds inay otherwise affect an Owner's state or federal tax liability. The nature and extent of these other tax consequences will depend upon each Owner's particular tax status and the Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. I-add-G,irLutar--3A-ltaaguagej Absence of Litigation The City will furnish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Fiscal Agent Agreement, or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Fiscal Agent Agreement is to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof. 36 CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market The City has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other City rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and then- appropriateness as an investment. Should a Bondholder elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain a market for the purchase and sale of the Bonds and is not obligated to repurchase any of the Bonds at the request of the holder thereof. Underwriting Stone & Youngberg LLC (the "Underwriter") is offering the Bonds at the prices set forth on the inside front cover page hereof. 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 purchased the Bonds at a price equal to $ which amount represents the principal amount of the Bonds, less an original issue discount of $ , less the Underwriters' discount of $ The Underwriter will pay certain of their expenses relating to the offering. The Financial Advisor The material contained in this Official Statement was prepared by the City with the assistance of the Financial Advisor, who advised the City as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein has been obtained by the City from sources which are believed to be reliable, but such information is not guaranteed by the Financial Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financial Advisor are contingent upon the sale and delivery of the Bonds. Continuing Disclosure The City. The City will provide annually certain financial information and data relating to the Bonds and the District by not later than March 1 in each year commencing March 1, 2006 (the "Annual Report"), and to provide notices of the occurrence of certain other enumerated events if deemed by the City to be material. The City will act as Dissemination Agent. The Annual Report will be filed by the Dissemination Agent with each Nationally Recognized Municipal Securities Information Repository certified by the Securities and Exchange Commission (the "Repositories") and a State repository, if any. The notices of material events will be timely filed by the City with the Municipal Securities Rulemaking Board, the Repositories and a State repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events and certain other terms of the continuing disclosure obligation are found in the form of the City's Disclosure Agreement attached in"APPENDIX C -FORMS OF CONTINUING DISCLOSURE CERTIFICATES." The City has never failed to comply timely with any obligation to make a filing under Rule 15c2-12 under the Securities Exchange Act of 1934. 37 The Property Owner. The Property Owner and the Developer will enter into a Developer Continuing Disclosure Certificate, the form of which is also attached in "APPENDIX C" hereto (the "Developer's Disclosure Undertaking"). The Developer's Disclosure Undertaking will inure solely to the benefit of the District, the Dissemination Agent, the Underwriter and owners or beneficial owners from time to time of the Bonds. Additional Information The summaries and references contained herein with respect to the Fiscal Agent Agreement, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Fiscal Agent Agreement. Copies of the Fiscal Agent Agreement are available for inspection during the period of initial offering on the Bonds at the offices of the Underwriter, Stone & Youngberg LLC, 515 S. Figueroa Street, Suite 1060, Los Angeles, California 90071, telephone (213) 443-5000. Copies of these documents may be obtained after delivery of the Bonds from the City through the Director of Finance, City of Palm Springs, 3200 E. Tahquitz Canyon Way,Palm Springs, California 92262,telephone(760) 323-52-2-18229. References Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Bonds. Execution The execution of this Official Statement by the l4aanec—Director of Finance has been duly authorized by the City of Palm Springs. CITY OF PALM SPRINGS By: Finance Director of Finance 38 APPENDIX B CITY OF PALM SPRINGS INFORMATION STATEMENT The following information concerning the City of Palm Springs is presented as general background data. The Bonds are payable solely from unpaid Assessments as described in the Official Statement. The Bonds are not an obligation of the City, and the taxing power of the City is not pledged to the payment of the Bonds (except to the limited extent described herein). General Information The City of Palm Springs encompasses 96.2 square miles in Central Riverside County, including approximately 13.5 square miles annexed in 1994. The City is located 108 miles east of downtown Los Angeles and 120 miles west of the Arizona border. Neighboring cormnunities include Palm Desert, Rancho Mirage, Desert Hot Springs and Cathedral City. A major Southern California resort destination, Palm Springs attracts both local vacationers, distant "snowbirds" and permanent retirees. Palm Springs is very much an event-oriented city. The Palm Springs International Film Festival held for the first time in 1990 and hosted by then-Mayor Sonny Bono, has become an annual event. With premieres, parties, conferences and celebrations, this festival epitomizes the Palm Springs lifestyle. Palm Springs area is well known for its championship golf courses. The Bob Hope Chrysler Classic, the Kraft Nabisco Championship, and the Frank Sinatra Celebrity Invitational Golf Tournament are three well-publicized celebrity events. With over 80 golf courses in the Palm Springs area, the Professional Golf Association(PGA)holds tournaments in the area several times throughout its annual tour. There are over 160 hotels and inns within the Palm Springs area offering 6,500 rooms. Accommodating vacationers and visitors plays a major role in the City's economy, providing a significant amount of transient occupancy tax and sales tax. Government Organization The City of Palm Springs was incorporated as a general law city on April 20, 1938, and, operates trader the council/manager form of government. It became a charter city on July 12, 1994. The City is governed by a five-member council consisting of four members and a Mayor, each elected at large for four-year alternating terms. Positions of City Manager and City Attorney are filled by appointments of the Council. The City of Palm Springs currently employs approximately 445 staff members including sworn officers and fire personnel. Governmental Services Public Safety and Welfare The City of Palm Springs Police Department consists of 135 sworn police officers and non-sworn personnel providing patrol, traffic, animal control and investigations. There are five fire stations located in and operated by the City, staffed by 62 fire personnel. The City also provides parking control in the downtown business district. B-1 Public Services Water is supplied to Palm Springs by the Desert Water Agency. Sewer service is provided by the City. Although the City operates two cogeneration facilities which provide electricity to certain municipally owned facilities, Southern California Edson provides electricity to the citizens of the City of Palm Springs. The City owns and operates the Palm Springs Regional Airport, with 5 major airlines and 3 commuter airlines servicing over 1.4 million passengers in 2004. Community Services Other services provided by the City include building permit and inspection, planning and zoning, landscape and public infrastructure maintenance, sheet cleaning, traffic signal maintenance, municipal code compliance and rent control. Parrs and Recreation The City operates the Library Center, a 33,000 square foot facility with over 150,000 volumes available, as well as extensive computer links. The Village Green, located in the heart of downtown Palm Springs, includes the Historical Society Museum, the Cornelia White historical site and Ruddy's General Store Museum. The Palm Springs Department of Parks and Recreation provides citizens with a variety of park and recreational services on a year round basis. Facilities include two community centers, seven parks, totaling 142 developed acres, an Olympic community pool, twelve temris courts, the 18-hole Tahquitz Creek golf course and the 18-hole City golf course, a 30,000 square feet skate park and five playgrounds, as well as biking and hiking trails. In addition, the City also owns Frances Stevens Park, which is home to Palm Canyon Theatre, a regional Actors Equity theatre, and an art/festival center. Community Facilities and Services The Coachella Valley has two large school districts and five smaller districts. The City of Palm Springs is served by the Palm Springs Unified School District, with 14 elementary schools, 3 comprehensive high schools, 2 continuation high schools, 1 independent study program, 7 State preschools, 10 Head Start programs, 3 daycare programs, and an extensive adult education program serving the City. In addition, higher education within the Coachella Valley includes the College of the Desert, a local accredited junior college, located 10 miles southeast of Palm Springs, within the City of Palm Desert. Also in the City of Palm Desert, a satellite campus of California State University, San Bernardino (CSUSB) offers curicudurn towards a B.A. in various disciplines as well as Bachelor of vocational education; special B.A. in paralegal administration, and 6 masters degree programs, including education and public administration. Teaching credentials are also available. In addition, CSUSB is currently working with local government agencies to select a site for a permanent independent campus in the Coachella Valley. A variety of health services from dentists, physicians and surgeons, chiropractors, and optometrists are available to serve Palm Springs and its adjacent communities. Also available are clinics, medical and dental groups. The Desert Regional Medical Center is located in Palm Springs and contains a total bed capacity of 350 beds. Serving Palm Springs are one main library, twelve theaters and such attractions as the Palm Springs Desert Museun, the Palm Springs Historical Museum, the Living Desert Reserve, Moorten's Botanical Gardens, and the Palm Springs Aerial Tramway. Rising 8,516 feet to a mountain station, the Aerial Tramway is the longest double funicular tramway in the world. Once at the top, hiking, camping, cross- country skiing and picnicking are available. B-2 Transportation Interstate 10 runs adjacent to Palm Spring's northern City limits. This route provides access to the Southern California freeway system to the west, as well as Arizona to the east. Rail freight service is available from South Pacific Transportation. Bus services are provided by Continental Trailways, Greyhound Bus Lines and Stmline System, both local and distant. Palm Springs International Airport, expanded in 1999, is the only commercial airport in Riverside County and is served by most major airlines. Population The following table provides a comparison of population growth for the City of Palm Springs, surrounding cities and Riverside County between 2001 and 2005. TABLE NO.B-1 CHANGE IN POPULATION CITY OF PALM SPRINGS,SURROUNDING CITIES AND RIVERSIDE COUNTY 2001—2005 PALM SPRINGS SURROUNDING CITIES RIVERSIDE COUNTY Percentage Percentage Percentage Year Population Change Population Change Population Change 2001 43,422 116,840 1,590,473 2002 43,981 1.3% 120,248 2.9% 1,654,220 4.0% 2003 44,564 1.3% 124,957 3.9% 1,726,754 4.4% 2004 45,039 1.1% 128,853 3.1% 1,807,858 4.7"% 2005 45,731 1.5% 135,714 5.3% 1,877,000 3.8% %Change Between 2001 -2005 5.3% 16.2% 18.0% Surrounding cities include Cathedral City,Desert IIot Springs,Palm Desert and Rancho Mirage. Source: State of California Department of Finance,Population Research Unit, "Population Estitnates for California Cities and Counties." B-3 Employment and Industry The City of Palm Springs is located in the Riverside-San Bernardino Metropolitan Statistical Area (MSA). As of March 2005, six major job categories constitute 75.4% of the work force. They are government (18.3%), service producing (16.6%), professional and business services (10.7%), manufacturing (10.1%), educational and health services (9.9%) and leisure and hospitality (9.8%). The March 2005 unemployment rate in the Riverside-San Bernardino MSA was 5.0%. The State of California March 2005 unemployment rate(unadjusted) was 5.7%. TABLE NO.B-2 RIVERSIDE/SAN BERNARDINO MSA WAGE AND SALARY WORKERS BY INDUSTRY (in thousands) Industry 2001 2002 2003 2004 2005 Government 201.0 211.2 217.3 213.8 216.9 Other Services 37.0 38.0 38.3 39.7 39.4 Leisure and Hospitality 105.1 108.7 110.2 117.1 116.4 Educational and Health Services 104.8 111.5 115.5 118.8 118.0 Professional and Business Services 99.1 103.7 111.0 123.3 126.9 Financial Activities 38.2 38.7 40.9 45.0 46.4 Information 14.3 14.2 13.8 13.8 14.0 Transportation,Warehousing and 44.3 45.2 48.2 52.6 55.8 Service Producing Retail Trade 129.9 133.9 138.9 147.5 151.9 Wholesale Trade 42.6 40.9 43.5 43.7 45.4 Manufacturing Nondurable Goods 34.8 33.2 33.2 34.6 34.0 Durable Goods 86.1 82.1 81.8 84.4 85.9 Goods Producing Construction 84.4 86.7 94.2 104.0 115.6 Natural Resources and Mining 1.2 1.1 1.3 1.2 1.2 Total Nonfarm 1,022.8 1,049.1 1,088.1 1,139.5 1,167.8 Fame 23.1 21.4 20.4 20.4 20.5 Total(all industries) 1 045.9 1_,Q0 5 1,108.5 T 1 1,188.3 Annually, as of March. Source: State of California,Employment Development Department,Labor Market Information Division. B-4 The major employers operating within the City and their respective number of employees as of June 30, 2004 are as follows: TABLE NO.B-3 CITY OF PALM SPRINGS LARGEST EMPLOYERS Name of Employer Number of Employees Product/Service Hotels 2,461 Lodging/Restaurants Palm Springs Unified School District 2,149 Public School System Desert Regional Medical Center 1,431 Medical Facility Agua Caliente Gaming Casino 925 Casino City of Palm Springs 436 Municipal Government Bird Corporation 363 Medical Supplies and Equipment Desert Sun Publishing 371 Newspaper 13 Banks and Savings and Loans 194 Financial Services Comity of Riverside 172 Municipal Government Source: City of Palm Springs. Personal Income Personal income information for Palm Springs, Riverside Comity, the State of California and the United States is summarized in the following table. TABLE NO.B-4 PERSONAL INCOME CITY OF PALM SPRINGS,RIVERSIDE COUNTY, STATE OF CALIFORNIA AND UNITED STATES 1999—2003 Year Palm Springs Riverside County State of California United States 1999 $28,123 $35,145 $39,942 $37,238 2000 32,610 39,293 44,464 39,129 2001 27,271 37,480 43,352 38,365 2002 32,689 38,691 42,484 38,035 2003 32,503 39,321 42,924 38,021 Source: Sales and Marketing Management, "Survey of Buying Power." B-5 Commercial Activity Taxable Transactions by type of business for the City of Palm Springs for 1999 through 2003 are summarized in Table No. B-5. TABLE,NO.B-5 CITY OF PALM SPRINGS TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in thousands) 1999-2003 1999 2000 2001 2002 2003 Retail Stores Apparel Stores $ 20,189 $ 19,289 $ 17,021 $ 17,079 $ 18,096 General Merchandise Stores 36,456 41,339 41,323 41,199 42,835 Food Stores 55,808 59,979 55,844 43,548 42,865 Eating/Drinking Places 105,217 115,976 120,171 116,811 123,509 Home Furnishings and Appliances 9,802 11,867 12,217 12,191 12,042 Building Materials and Farm Implements 17,286 22,997 51,947 70,215 90,842 Auto Dealers/Suppliers 66,789 74,409 78,645 65,871 69,344 Service Stations 27,755 40,596 40,189 50,631 65,622 Other retail stores 60,883 67,746 63,839 66,284 65,883 Total Retail Stores 400,185 454,198 481,196 483,829 531,038 All Other Outlets 141,856 147,118 142,760 133,431 144,449 Total All Outlets $542991 $L01,316 $623 9 6 $517,260 M75,4K Source: State Board of Equalization,"Taxable Sales in California." B-6 TABLE NO.B-6 CITY OF PALM SPRINGS TOTAL TAXABLE TRANSACTIONS (in thousands) 1999—2003 Total Taxable Retail Sales Retail Sales Transactions Issued Sales Year ($000's) %Change Permits ($000's) %Change Permits 1999 $400,185 918 $542,041 1,970 2000 454,198 13.5% 1,038 601,316 10.9% 2,077 2001 481,196 5.9% 1,079 623,956 3.8% 2,116 2002 483,829 0.6% 1,101 617,260 (1.1)% 2,155 2003 531,038 9.8% 1,123 675,487 9.4% 2,232 Source: State Board of Equalization,"Taxable Sales in California " The following table summarizes the change in taxable transactions for the City of Palm Springs and surrounding cities. TABLE NO.B-7 CITY OF PALM SPRINGS AND SURROUNDING CITIES CHANGE IN TOTAL TAXABLE TRANSACTIONS (in thousands) 1999—2003 %Change City 1999 2000 2001 2002 2003 1999-2003 PALM SPRINGS $ 542,041 $ 601,316 $ 623,956 $ 617,260 $ 675,487 24.6% Cathedral City 609,829 680,502 707,465 761,564 814,737 33.6% Palm Desert 1,098,211 1,217,986 1,211,069 1,209,385 1,296,730 18.1% Source: State Board of Equalization,"Taxable Sales in California." B-7 Building Activity The following table summarizes building activity valuations for the City of Palm Springs for the five fiscal years 2000 through 2004. TABLE NO.B-S CITY OF PALM SPRINGS BUILDINGACTIVITY AND VALUATION (in thousands) 2000-2004 2000 2001 2002 2003 2004 Total Residential $60,147 $53,128 $50,492 $52,623 $221,429 Total Commercial 16,509 15,033 16,517 21,201 34,832 Total Valuation n6,656 $68, $67 $7 &24 $25A261 Source: City of Palm Springs. B-8 APPENDIX C FORM OF ISSUER CONTINUING DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE (City) This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and delivered by the City of Palm Springs (the "City") for its Assessment District No. 164 (Mountain Gate II) (the "District") in connection with the issuance of the City's 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent"). The City hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5). Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, 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 Reporf' means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Annual Report Date" means the date that is eight months after the end of the City's fiscal year (currently March 1 based on the City's fiscal year end of June 30). "Dissemination Agent' means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. District" means Assessment District No. 164 (Mountain Gate II) of the City of Palm Springs. "Listed Events" means any of the events listed in Section 5(a) of this Disclosure Certificate. C-1 "National Repository' rt*s4P.f^ T,ation Repositor��tor-purposes-a€tie-Rule—Fn#er��aa#ien-a„;� Notional-Repositories-as-ova-partac-��lar shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule, as they may be designated from time to tome pursuant to the Rule. Any filing under this Disclosure Certificate with a National Repository may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.diselosureusa.orq unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. "Official Statement" means the final official statement executed by the City in connection with the issuance of the Bonds. "Participating Underwriter' means Stone & Youngberg LLC, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository' means each National Repository and each State Repository, if any. "Rule" means 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' means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing by not later than March 1, 2006, with the report for the 2004- 05 fiscal year, provide to the Participating Underwriter and to each Repository an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City 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 City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the City does not provide, or cause the Dissemination Agent to provide, an Annual Report to the Repositories by the Annual Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating Underwriter. (c) The Dissemination Agent shall: C-2 (i) determine each year prior to the Annual Report Date the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the City, file a report with the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following documents and information: (a) The City's audited financial statements for the most recently completed fiscal year, together with the following statement: THE CITY'S ANNUAL FINANCIAL STATEMENT IS PROVIDED SOLELY TO COMPLY WITH THE SECURITIES EXCHANGE COMMISSION STAFF'S INTERPRETATION OF RULE 15C2-12. NO FUNDS OR ASSETS OF THE CITY OR THE CITY OF PALM SPRINGS ARE REQUIRED TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND NEITHER THE CITY NOR THE CITY OF PALM SPRINGS IS OBLIGATED TO ADVANCE AVAILABLE FUNDS TO COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON THE FINANCIAL CONDITION OF THE CITY OF PALM SPRINGS IN EVALUATING WHETHER TO BUY, HOLD OR SELL THE BONDS. (b) Total assessed value (per the Riverside County Assessor's records) of all parcels currently subject to outstanding Assessments of the District, showing the total assessed valuation for all land and the total assessed valuation for all improvements. Parcels are considered improved if there is an assessed value for the improvements in the Assessor's records. (c) The total dollar amount of delinquencies in the City for the most recently completed fiscal year and, in the event that such delinquencies exceed 5% of the Assessments for such year, delinquency information for each parcel responsible for more than $5,000 in the payment of the Assessments, amounts of delinquencies, length of delinquency and status of any foreclosure of each such parcel. (d) The amount of prepayments of the Assessments, if any, for the District for most recently completed fiscal year. (e) The principal amount of the Bonds outstanding and the balance in the Reserve Account. (f) In addition to any of the information expressly required to be provided under paragraphs (a) through (e) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. 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 City 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 C-3 available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 5. Reportinq of Siqnificant Events. (a) Pursuant to the provisions of this Section 5, the City 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 security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, if any, with a copy to the Fiscal Agent (if different than the Dissemination Agent) and the Participating Underwriter. 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 Fiscal Agent Agreement. Section 6. Termination of Reportinq Obliqation. The City'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 City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Aqent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in C-4 legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, 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; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of the Fiscal Agent or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City 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 City to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City 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 Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. C-5 Section 11. Duties, Immunities and Liabilities of Dissemination Aqent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which 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. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Developer, the Fiscal Agent, the Bond owners or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows: To the Issuer: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Fiscal Agent: The Bank of New York Trust Company, N.A. Attention: Corporate Trust Department 700 South Flower Street, Suite 500 Los Angeles, California 90017 To the Dissemination Agent: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Participating Underwriter: Stone & Youngberg LLC Attention: Municipal Research Department 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. C-6 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palm Springs Name of Bond Issue: 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate ll) Date of Issuance: , 2005 NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Bonds as required by the Fiscal Agent Agreement dated as of July 1, 2005 between the City and The Bank of New York Trust Company, N.A. The City anticipates that the Annual Report will be filed by Dated: DISSEMINATION AGENT (Name:) By: Its: C-8 FORM OF DEVELOPER DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE (Developer) This Continuing Disclosure Certificate (this "Disclosure Certificate") is executed and delivered by Century Vintage Homes, a California corporation (the "Developer" or "Century"), in connection with the issuance by the City of Palm Springs (the "City") for its Assessment District No. 164 (Mountain Gate 11) (the "District") in connection with the issuance of the City's 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of July 1, 2005 (the "Fiscal Agent Agreement"), by and between the City and The Bank of New York Trust Company, N.A., as fiscal agent (the "Fiscal Agent"). The Developer covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the holders and beneficial owners of the Bonds. Section 2. Definitions. In addition to the definitions set forth above and in the Fiscal Agent Agreement, 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: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person, 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, control means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement"means an undertaking of a Major Owner, or an Affiliate thereof, for the benefit of the holders and beneficial owners of the Bonds containing terms substantially similar to this Disclosure Certificate (as modified for such Major Owner's development and financing plans with respect to the City), whereby such Major Owner or Affiliate agrees to provide Annual reports and notices of significant events, setting forth the information described in sections 4 and 5 hereof, respectively, with respect to the portion of the property in the City owned by such Major Owner and its Affiliates and, at the option of the Developer or such Major Owner, agrees to indemnify the Dissemination Agent pursuant to a provision substantially in the form of Section 11 hereof. "Dissemination Agent' means the City, or any successor Dissemination Agent designated in writing by the Developer, and which has Filed with the Developer, the City and the Fiscal Agent a written acceptance of such designation, and which is experienced in providing dissemination agent services such as those required under this Disclosure Certificate. C-9 "District" means Assessment District No. 164 (Mountain Gate II) of the City of Palm Springs. "Listed Events" means any of the events listed in Section 5(a) of this Disclosure Certificate. "Major Owner" means, as of any Report Date, an owner of land in the City responsible in the aggregate for 15% or more of the Assessments of the District actually levied at any time during the then-current fiscal year. "National Repository' rneaas-arFy-Nationatly-Resogriz-ed Muatc+p"eow-44e&4nf9rmation Repesitery�er-purpase�.��'",e-,°'Ei!c��R.t+en-en-the ^�:at;�.al-RepesFtori,,Tae ef� feula� date-is-available-on-the-Securities--and-Exchange-Cammissian's-Internet-sit.—at-www-.sec.gov, shall mean any Nationally Recoqnized Municipal Securities Information Repository for purposes of the Rule, as they may be desiqnated from time to tome pursuant to the Rule. Any filinq under this Disclosure Certificate with a National Repository may be made solely by transmittinq such filinq to the Texas Municipal Advisory Council (the "MAC") as provided at http://www,disclosureusa.orq unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. "Official Statement' means the final official statement executed by the City in connection with the issuance of the Bonds. "Participating Underwriter" means Stone & Youngberg LLC, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Property" means the property owned by the Developer in the District. "Report Date" means the date that is three months after the end of the City's fiscal year (currently September 30 based on the City's June 30 fiscal year end). "Repository' means each National Repository and each State Repository, if any. "Rule" means 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. "Annual Report" means any Annual Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "Assessments" means the outstanding assessments levied on property within the District. "State Repository' means any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. C-10 Section 3. Provision of Annual Reports. (a) The Developer shall, or upon written direction shall cause the Dissemination Agent to, not later than the Report Date, commencing September 30, 2005, provide to each Repository a Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Fiscal Agent (if different from the Dissemination Agent), the Participating Underwriter and the City. Not later than 15 Business Days prior to the Report Date, the Developer shall provide the Annual Report to the Dissemination Agent. The Developer shall provide a written certification with (or included as a part of) each Annual Report furnished to the Dissemination Agent, the Fiscal Agent (if different from the Dissemination Agent), the Participating Underwriter and the City to the effect that such Annual Report constitutes the Annual Report required to be furnished by it under this Disclosure Certificate. The Dissemination Agent, the Fiscal Agent, the Participating Underwriter and the City may conclusively rely upon such certification of the Developer and shall have.no duty or obligation to review the Annual Report. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may incorporate by reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the Dissemination Agent does not receive a Annual Report by 15 days prior to the Report Date, the Dissemination Agent shall send a reminder notice to the Developer that the Annual Report has not been provided as required under Section 3(a) above. The reminder notice shall instruct the Developer to determine whether its obligations under this Disclosure Certificate have terminated (pursuant to Section 6 below) and, if so, to provide the Dissemination Agent with a notice of such termination in the same manner as for a Listed Event (pursuant to Section 5 below). If the Developer does not provide, or cause the Dissemination Agent to provide, a Annual Report to the Repositories by the Report Date as required in subsection (a) above, the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and appropriate State Repository, if any, in substantially the form attached hereto as Exhibit A, with a copy to the Fiscal Agent (if other than the Dissemination Agent), the City and the Participating Underwriter. (c) The Dissemination Agent shall: (i) determine prior to each Report Date the name and address of each National Repository and each State Repository, if any; (ii) to the extent the Annual Report has been furnished to it, file a report with the Developer (if the Dissemination Agent is other than the Developer), the City and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The Developer's Annual Report shall contain or incorporate by reference the information set forth below: (a) Any significant changes in the information concerning property owned by Century or an affiliate as of the date of the Official Statement and contained in the Official Statement under the headings: "THE DISTRICT — The Developer" and Status of Development; Financing Plan." C-11 (b) With respect to property within the District owned by Century or in which Century or its affiliates has an interest and on which a final subdivision map has been approved, and for both the annual period covered by the report and on a cumulative basis for the period commencing with the date of issuance of the Bonds: (i) the number of lots sold by Developer to end users or builders; (ii) the number of lots held by Developer and available for sale; (iii) the estimated number of lots or parcels owned by Developer on which Developer has constructed dwelling improvements which are at least 90% complete; (iv) the number of lots or parcels owned by Developer on which Developer has an executed sale contract to a homeowner, which sale has not yet closed; and (iv) the number of lots or parcels owned by Developer on which construction of dwelling improvements has not yet begun. (c) Any denial of credit, lines of credit, loans or loss of source of capital that could have a significant impact on Century's ability to pay Assessments or to develop property within the District which is owned by Century or in which Century or an affiliate then has an interest. (d) Any failure by Century to pay when due general property taxes or special taxes or assessments with respect to property within the District owned by Century or in which Century or an affiliate then has an interest. (e) Any previously undisclosed amendments to land use entitlements or environmental conditions or other governmental conditions that are necessary to complete the development of the property within the District which is owned by Century or in which Century or an affiliate has an interest. (h) A description of any material changes in legal structure of, or in the organization of, Century or the affiliates holding title to property in the District. In addition to any of the information expressly required to be provided in Exhibit B, the Developer's Annual Report shall include such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Section 5. Reportinq of Siqnificant Events. (a) The Developer shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds, if material: (i) bankruptcy or insolvency proceedings commenced by or against the Developer and, if known, any bankruptcy or insolvency proceedings commenced by or against any Affiliate of the Developer; (ii) failure to pay any taxes, special taxes or assessments due with respect to the Property; (iii) filing of a lawsuit against the Developer or, if known, an Affiliate of the Developer, seeking damages which could have a significant impact on the Developer's ability to pay Assessments or to sell or develop the Property; (iv) material damage to or destruction of any of the improvements on the Property; and C-12 (v) any payment default or other material default by the Developer on any loan with respect to the construction of improvements on the Property. (b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the Developer determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Developer shall, or shall cause the Dissemination Agent to, promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, if any, with a copy to the Fiscal Agent, the City and the Participating Underwriter. Section 6. Duration of Reportinq Obligation. (a) All of the Developer's obligations hereunder shall commence on the date hereof and shall terminate (except as provided in Section 11) on the earliest to occur of the following: (i) upon the legal defeasance, prior redemption or payment in full of all the Bonds, or (ii) at such time as property owned by the Developer is no longer responsible for payment of 10% or more of the Assessments, or (iii) the date on which the Developer prepays in full all of the Assessments attributable to the Property. The Developer shall give notice of the termination of its obligations under this Disclosure Certificate in the same manner as for a Listed Event under Section 5. (b) If a portion of the property in the City owned by the Developer, or any Affiliate of the Developer, is conveyed to a Person that, upon such conveyance, will be a Major Owner, the obligations of the Developer hereunder with respect to the property in the City owned by such Major Owner and its Affiliates may be assumed by such Major Owner or by an Affiliate thereof and the Developer's obligations hereunder will be terminated. In order to effect such assumption, such Major Owner or Affiliate shall enter into an Assumption Agreement in form and substance satisfactory to the City and the Participating Underwriter. Section 7. Dissemination Aqent. The Developer may, from time to time, appoint or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be . The Dissemination Agent may resign by providing thirty days' written notice to the City, the Developer and the Fiscal Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Developer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (provided, however, that the Dissemination Agent shall not be obligated under any such C-13 amendment that modifies or increases its duties or obligations hereunder without its written consent thereto): (a) if the amendment or waiver relates to the provisions of sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, 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; and (c) the proposed amendment or waiver either(i) is approved by holders of the Bonds in the manner provided in the Fiscal Agent Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Developer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Developer 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 Developer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, the Fiscal Agent shall (upon written direction and only to the extent indemnified to its satisfaction from any liability, cost or expense, including fees and expenses of its attorneys), and the Participating Underwriter and any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer 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 Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the Developer to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Aqent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Developer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the reasonable costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities, costs and expenses due to the Dissemination Agent's negligence or willful misconduct or failure to perform its duties hereunder. The Dissemination Agent shall be paid compensation for its services provided hereunder in accordance with its schedule of fees as amended from time to time, which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable legal fees and advances made or incurred by the Dissemination Agent in the C-14 performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Developer, the Fiscal Agent, the Bond owners, or any other party. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12, Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows: To the Issuer: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Fiscal Agent: The Bank of New York Trust Company, N.A. Attention: Corporate Trust Department 700 South Flower Street, Suite 500 Los Angeles, California 90017 To the Dissemination Agent: City of Palm Springs Attention: Finance Director 3200 East Tahquitz Canyon Way Palm Springs, California 92662 To the Participating Underwriter: Stone & Youngberg LLC Attention: Municipal Research Department 515 South Figueroa Street, Suite 1060 Los Angeles, California 90071 To the Developer: Century Vintage Homes 1535 South D Street San Bernardino, CA 92408 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Developer(its successors and assigns), the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. All obligations of the Developer hereunder shall be assumed by any legal successor to the obligations of the Developer as a result of a sale, merger, consolidation or other reorganization. C-15 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palm Springs Name of Bond Issue: 2005 Limited Obligation Improvement Bonds Assessment District No. 164 (Mountain Gate II) Date of Issuance: 2005 NOTICE IS HEREBY GIVEN that Century Vintage Homes (the "Major Owner") has not provided an Annual Report with respect to the above-named bonds as required by that certain Continuing Disclosure Certificate (Developer), dated 2005. The Major Owner anticipates that the Annual Report will be filed by Dated: DISSEMINATION AGENT By: Its: C-17 APPENDIX D ASSESSMENT PARCEL LISTING The following table contains the Assessment Parcels as of December 2004. The information concerning the ownership was obtained from Albert A. Webb Associates and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor, the Underwriter, or the City. Assessment No./ Assessor Parcel No. Property Owner Assessment 0010001/ 669320011-6 Mountain Gate II Palm Springs Ventures $3,295,600.00 0010002/ 669320013-8 Mountain Gate II Palm Springs Ventures 510,400.00 $3,806,000.00 D-1 APPENDIX H DTC AND THE BOOK-ENTRY-ONLY SYSTEM The following description of the Depository Trust Company ("DTC'), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Bonds (the `Issuer') nor the trustee or fiscal agent appointed with respect to the Bonds (the "Trustee') take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c)redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current `Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC and its Participants. The Depository Trust Company ("DTC"), New York,NY, 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 security certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization"within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 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, (respectively, "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 ("hndirect Participants"). DTC has Standard&Poor's highest rating:AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. H-1 Book-Entry-Only System. Purchases of the Bonds raider 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 Security("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants'records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 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. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by air authorized representative of DTC. The deposit of the 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 tone. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor 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 Ormiibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date(identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest evidenced by 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 Issuer 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 Issuer or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest evidenced by the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer 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. H-2 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The Issuer 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. Discontinuance of DTC Services. In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Issuer determines that DTC will no longer so act and delivers a written certificate to the Trustee to that effect, then the Issuer will discontinue the Book-Entry- Only System with DTC for the Bonds. If the Issuer determines to replace DTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terns of the indenture or fiscal agent agreement executed in connection with the Bonds. If the Issuer fails to identify another qualified securities depository to replace the incuunbent securities depository for the Bonds, then the Bonds will no longer be restricted to being registered in the Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds designates. If the Book-Lntry-Only System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums, if any, on, the Bonds will be payable upon surrender thereof at the corporate trust office of the Trustee, (iii) interest on the Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of Bonds received by the Trustee on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Bonds will be transferable and exchangeable as provided in the indenture or fiscal agent agreement executed in connection with the Bonds. H-3