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2004 06 01 RDARedevelopment Agency Agendas are Available on the City's Web Page @ www.la-quinta.org REDEVELOPMENT AGENCY AGENDA CITY COUNCIL CHAMBERS 78-495 Calle Tampico La Quinta, California 92253 Regular Meeting Tuesday, June 1, 2004 - 2:00 P.M. Beginning Resolution No. RA 2004-009 CALL TO ORDER Roll Call: Agency Board Members: Adolph, Osborne, Perkins, Sniff, and Chairperson Henderson PUBLIC COMMENT At this time, members of the public may address the Redevelopment Agency on any matter not listed on the agenda. Please complete a "request to speak" form and limit your comments to three minutes. Please watch the timing device on the podium. CLOSED SESSION NOTE: Time permitting, the Redevelopment Agency Board may conduct Closed Session discussions during the dinner recess. In addition, persons identified as negotiating parties are not invited into the Closed Session meeting when the Agency is considering acquisition of real property. Redevelopment Agency Agenda 1 June 1, 2004 1. CONFERENCE WITH AGENCY'S REAL PROPERTY NEGOTIATOR, MARK WEISS, PURSUANT TO GOVERNMENT CODE SECTION 54956.8 CONCERNING POTENTIAL TERVIS AND CONDITIONS ,OF ' ACQUISITION AND/OR DISPOSITION OF REAL PROPERTY LOCATED AT THE NORTHWEST CORNER OF AVENUE 48 AND DUNE PALMS ROAD (APN: 649-030-034). PROPERTY OWNER/NEGOTIATOR: STAN ROTHBART. 2. CONFERENCE WITH AGENCY'S REAL PROPERTY NEGOTIATOR, JERRY HERMAN, PURSUANT TO GOVERNMENT CODE SECTION 54956.8 CONCERNING POTENTIAL TERMS AND CONDITIONS OF ACQUISITION AND/OR DISPOSITION OF REAL PROPERTY LOCATED EAST OF DUNE PALMS ROAD AND 650 FEET SOUTH OF HIGHWAY 1 1 1, WHICH INCLUDES OR IS A PORTION OF APNs: 649-030-016, -017, AND -040, FOR AN AFFORDABLE HOUSING AGREEMENT. PROPERTY OWNER/NEGOTIATOR: DOUGLAS P. BIGLEY, URBAN PROPERTY COMMUNITIES. RECONVENE AT 3:00 P.M. PUBLIC COMMENT At this time members of the public may address the Agency Board on items that appear within the Consent Calendar or matters that are not listed on the agenda. Please complete a "request to speak" form and limit your comments to three minutes. When you are called to speak, please come forward and state your name for the record. Please watch the timing device on the podium. For all Agency Business Session matters or Public Hearings on the agenda, a completed "request to speak" form should be filed with the City Clerk prior to the Agency beginning consideration of that item. CONFIRMATION OF AGENDA APPROVAL OF MINUTES 1. APPROVAL OF MINUTES OF MAY 17, 2004 2. APPROVAL OF MINUTES OF MAY 18, 2004 Redevelopment Agency Agenda 2 June 1, 2004 +G CONSENT CALENDAR 'N"OTE: ConsentCalendar items are considered to be 'routine in nature and will be approved by one motion. 1 . APPROVAL OF DEMAND REGISTER DATED JUNE 1, 2004. 2. APPROVAL TO AWARD A CONTRACT TO* DENBOER ENGINEERING FOR THE SILVERROCK RESORT GOLF CART BRIDGES PROJECT NO. 2002-07E. BUSINESS SESSION 1. CONSIDERATION OF ADOPTING A RESOLUTION OF THE REDEVELOPMENT AGENCY CERTIFYING A NEGATIVE DECLARATION OF ENVIRONMENTAL IMPACT FOR ENVIRONMENTAL ASSESSMENT 2004-506; AND APPROPRIATION OF $50,000 FROM THE PROJECT AREA NO. 1 HOUSING FUND UNALLOCATED RESERVES FOR LAND SURVEY AND PLANNING STUDIES RELATED TO THE DEVELOPMENT OF PROPERTY LOCATED AT THE NORTHWEST CORNER OF AVENUE 48 AND DUNE PALMS ROAD. A. RESOLUTION ACTION STUDY SESSION - NONE CHAIR AND BOARD MEMBERS' ITEMS - NONE PUBLIC HEARINGS 1. A JOINT PUBLIC HEARING BETWEEN THE CITY COUNCIL OF THE CITY OF LA QUINTA AND THE LA QUINTA REDEVELOPMENT AGENCY TO CONSIDER ADOPTION OF: 1) A RESOLUTION OF THE CITY COUNCIL APPROVING A LOAN BETWEEN THE LA QUINTA REDEVELOPMENT AGENCY AND THE LA QUINTA FINANCING AUTHORITY; AND 2) A RESOLUTION OF THE LA QUINTA REDEVELOPMENT AGENCY APPROVING THE ISSUANCE OF ITS FIRST SUPPLEMENTAL LOAN AGREEMENT, ESCROW DEPOSIT AND TRUST AGREEMENT, OFFICIAL STATEMENT, A PURCHASE CONTRACT, AUTHORIZING THE EXECUTIVE DIRECTOR TO SET THE FINAL TERMS OF THE APPROVAL OF THE AGENCY LOAN, APPROVING THE PAYMENT OF COSTS OF ISSUING THE AGENCY LOAN AND MAKING CERTAIN DETERMINATIONS RELATING THERETO. A. RESOLUTION ACTION Redevelopment Agency Agenda 3 June 1, 2004 3 ADJOURNMENT Adjourn to a regularly -scheduled meeting of the 'Redevelopment Agency to -be� -held on June 15, 2004 commencing with closed session at 2:00 p.m. and open session at 3:00 p.m. in the City Council Chambers, 78-495 Calle Tampico, La Quinta, CA 92253. DECLARATION OF POSTING I, Phyllis Manley, Deputy City Clerk of the City of La Quinta, do hereby declare that the foregoing agenda for the La Quinta Redevelopment Agency meeting of Tuesday, June 1, 2004, was posted on the outside entry to the Council Chamber, 78-495 Calle Tampico and on the bulletin board at the La Quinta Chamber of Commerce and at Stater Bros., 78-630 Highway 1 1 1, on Friday, May 28, 2004. DATED: May 28, 2004 PHYLLI MANLEY, Deputy City Clerk City of La Quinta, California Redevelopment Agency Agenda 4 June 1, 2004 4 COUNCIL/RDA MEETING DATE: JUNE 1, 2004 ITEM TITLE: Demand Register Dated June 1, 2004 RECOMMENDATION: It is recommended the Redevelopment Agency Board: AGENDA CATEGORY: BUSINESS SESSION CONSENT CALENDAR STUDY SESSION PUBLIC HEARING Receive and File the Demand Register Dated June 1, 2004 of which $54,260.49 represents Redevelopment Agency Expenditures. PLEASE SEE CONSENT CALENDAR ITEM NUMBER 1 ON CITY COUNCIL AGENDA T4t�t 4 gep QU&rfi(J COUNCIL/RDA MEETING DATE: June 1, 2004 ITEM TITLE: Approval to Award a Contract for the SilverRock Resort Golf Cart Bridges, Project No. 2002-07E RECOMMENDATION: AGENDA CATEGORY: BUSINESS SESSION: CONSENT CALENDAR: STUDY SESSION: PUBLIC HEARING: Approve the award of contract for the SilverRock Resort Golf Cart Bridges, Project No. 2002-07E, to DenBoer Engineering - & Construction, Inc. in the amount of $194,000 and allocate $44,000 from the project's contingency. FISCAL IMPLICATIONS: The Capital Improvement Program (CIP) 2003/2004 budget included funds for construction of the SilverRock Resort project. On October 7, 2003, the project budget was revised to include $150,000 for three (3) golf cart bridges to cross the Coachella Valley Water District (CVWD) Canal that bisects the project site. Originally, the three (3) golf cart bridges were to be designed at a load. rating of five (5) tons. However, both Palmer Course Design Company and Landmark Golf Management recommended that one bridge be rated at ten (10) tons to accommodate heavier maintenance equipment as well as any emergency vehicles that may need to cross the canal. This increased the estimated cost of this bridge by '$21,000. Additionally, City Council requested that end pillars be included, which added approximately $3,700 to the cost of each bridge. The engineer's estimate for the construction of three (3) golf cart bridges was $206,500 including a 5% contingency. The lowest responsible bidder is DenBoer Engineering & Construction, Inc. with a bid of $194,000, which is 6% below the Engineer's Estimate, but is $44,000 greater than the original budget. Changes from Coachella Valley Water District (CVWD) during bidding require the north U bridge to be relocated approximately 200 feet north of its original design location. Because the All American Canal is wider at this location estimates for this bridge are $20,000 more than originally estimated. With the Agency's approval, this $64,000 increase in the cost will be funded from the $4,836,714 contingency approved and available for the entire project. Inspection for these improvements is included with Heinbuch Golf's construction administration contract. Since this project will be constructed with Agency funds, the contractor will be required to pay prevailing wages. BACKGROUND AND OVERVIEW: The City Council approved the Fiscal Year 2003/2004 CIP on May 20, 2003. This year's CIP includes the construction of the SilverRock Resort Phase I Improvements. This project consists of constructing three (3) golf cart bridges across the CVWD All American Canal, which bisects the project site. Two of the bridges will be rated at five (5) tons to carry normal golf cart traffic and one bridge will be designed to a ten (10) ton capacity for heavier maintenance equipment and any emergency vehicles that may need to cross the canal. On May 27, 2004, the Agency received seven (7) construction bids for the project. DenBoer Engineering & Construction, Inc. of Palm Springs submitted the lowest responsible bid in the amount of $194,000 (see bid summary in Attachment 1). DenBoer Engineering & Construction, Inc. has satisfactorily constructed similar bridges for other -agencies. During the bidding period, CVWD retracted their approval for locating the north bridge adjacent to their weir structure and asked that it be relocated. Palmer Course Design Group approved a location 200 feet further north that better facilitates golf cart circulation between the 91h and 101h holes. The wider section of the All American Canal at this location resulted in a longer bridge, which has been preliminarily estimated by DenBoer Engineering and Construction, Inc. to cost an additional $20,000 to construct. Contingent upon Agency approval of the PS&E, the following is the project schedule: Award of Bid Construction Period Project Acceptance June 1, 2004 June - September 2004 October 2004 S:\CityMgr\STAFF REPORTS ONLY\6-1-04\C 12 2002-07E.doc 2 �. FINDINGS AND ALTERNATIVES: The alternatives available to the Agency include: 1. Approve the award of contract for the SilverRock Resort Golf Cart Bridges, Project No. 2002-07E, to DenBoer Engineering & Construction, Inc. in the amount of $194,000, and allocate $64,000 from the project's contingency; or 2. Do not approve the award of contract for the SilverRock Resort Golf Cart Bridges, Project No. 2002-07E, to DenBoer Engineering & Construction, Inc. in the amount of $194,000, and do not allocate $64,000 from the project's contingency; or 3. Provide staff with alternative direction. Respectfully submitted, 12, dTiimothyv,5(. Jon son, P.E. Public Works Director/City Engineer Approved for submission by: Thomas P. Genovese, Executive Director Attachment: 1. Bid Summary S:\CityMgr\STAFF REPORTS ONLY\6-1-04\C 12 2002-07E.doc 8 3 m v �rLLJ No"DN N O m o N N r` G�ZN d � m g m 0 o w a 0 a 2 m r a E W r m w 'L a x W v m m O O m N (� �oz�ti w N M !F LO ATTACHMENT 1 m w .` a r C O O O O O O O O O O O O v 0 0 0 0 0 0 A? a` 000000 =- `D 00 m o o` r M d x > W (h c0 U E �00 •� U L O O O O O O C O O O CY) co 06 O O m w a W m D on 0 0 0 0 0 0 O O O O O o 0 0 0 0 0 6 O O O O O a IL 0 0 0 0 0 0 N .- c0 f` t` W N r N c O U O O O t v O O 00 O co +: O O O O c D LO co N •- (G r` r\ ti J J W U J IO � m i r m �p .CE a) c W W m m N (j m 9 O j O m O �ozvti 4 1.4Cf1Or011A7SP _ S OF 9ti COUNCIL/RDA MEETING DATE: June 1, 2004 AGENDA CATEGORY: ITEM TITLE: Consideration of Adopting a Resolution of BUSINESS SESSION: the Redevelopment Agency Certifying a Negative CONSENT CALENDAR: Declaration of Environmental Impact for Environmental Assessment 2004-506; and Appropriation of $50,000 STUDY SESSION: from the Project Area No. 1 Housing Fund Unallocated. PUBLIC HEARING: Reserves for Land Survey and Planning Studies Related to the Development of the Property Located at the Northwest Corner of Avenue 48 and Dune Palms Road RECOMMENDATION: Staff recommends the following actions: (1) adopt a Resolution of the Redevelopment Agency certifying a Negative Declaration of environmental impact for Environmental Assessment 2004-506; and (2) appropriate $50,000 from the Project Area No. 1 Housing Fund unallocated reserves for land survey and planning studies. FISCAL IMPLICATIONS: Purchasing this property will result in the expenditure of $14,505,480. It is anticipated that the majority of the funding will come from Low- and Moderate - Income Housing fund proceeds. The appropriations necessary to complete the purchase will be brought forward for the Agency's consideration at its meeting on June 15, 2004. Facilitating the development of affordable housing on this property will result in the expenditure of additional Housing Fund revenue; this amount is not known at this time since a project has not been designed. BACKGROUND AND OVERVIEW: In March of this year the Agency Board received a presentation regarding the status of the Agency's efforts to secure affordable dwellings with long-term covenants. The California Redevelopment Law provides that the Agency must insure that 15% of all units developed, or substantially rehabilitated in both Redevelopment Project Areas are affordable to very low, low and moderate -income households. Of these, 40% must be affordable to very low-income households. S:\CityMgr\STAFF REPORTS ONLY\6-1-04\B6 HammerEAMOC 1.13 The affordable dwellings must have covenants that insure they remain affordable for 45 years for single-family homes and 55 years for multi -family homes. Based upon existing and projected residential development in both Project Areas, the Agency must secure 1,927 affordable dwellings by 2040, of which 771 must be affordable to very low-income households. Further, the Law provides that the Agency must insure that 1,672 affordable dwellings are in place by 2004, of which 669 must be affordable to very -low income households. To date, the Agency has secured 894 affordable dwellings, 194 affordable to very low-income households and 700 affordable to low and moderate -income households. At the conclusion of the March 2003 discussions, the Agency Board directed staff to locate property that could be developed with affordable dwellings. One property was the 27.40 acre parcel owned by the Hammer Family Trust, Shirley Hammer, and William J. Hammer. This property is designated by the La Quinta General Plan for Medium Density Residential uses with a permitted density of up to 16 units per acre. The site can accommodate multi -family residential development; staff estimates that up to 220 units could be developed on 16.75 acres, leaving 10.8 acres for other uses. The Agency Board first reviewed and approved the Purchase and Sale Agreement on January 20, 2004. One of the conditions necessary to close the escrow on the property is the successful completion of the required environmental review process pursuant to the California Environmental Quality Act (CEQA). In addition, the purchase was also contingent upon securing positive results from Phase 1 and Phase 2 hazardous materials surveys. A Phase 1 survey was performed in February 2004. This effort recommended further investigation be conducted to review the potential for pesticide residue, underground fuel storage tanks, and contaminates from lead shot gun pellets. The Phase 2 survey was performed in April 2004 and the results determined that the site was clean. The pesticide residue was below Federal and State standards, the storage barrels were empty with no indication of materials leakage, and the lead shot was collected and sent to a recycling facility. The Phase 2 report recommended no further action was required. As discussed below, a Negative Declaration was prepared and circulated for this transaction, with no comments received to date. Staff is recommending the Agency Board approve the Negative Declaration. Environmental Review The Agency prepared EA 2004-506 to assess the potential environmental impacts of the proposed action. As noted above, the results of this analysis were that there would be no significant impacts and, as a result, a Negative Declaration was 02 S:\CityMgr\STAFF REPORTS ONLY\6-1-04\B6 HammerEAMOC prepared. No mitigation measures are required. The Negative Declaration was posted for public review pursuant to normal City and Agency procedures for a 20- day period beginning on May 7, 2004, as required by the California Environmental Quality Act. As noted above, no comments were received. Project Budget/Appropriations The $50,000 requested for land survey and additional planning studies will cover costs associated with creating various parcels, and conducting additional environmental and planning studies to facilitate this activity. Further appropriations requests will come forward at the Agency's June 15, 2004 meeting. FINDINGS AND ALTERNATIVES: The alternatives available to the Agency Board include: 1. Adopt a Resolution of the Redevelopment Agency certifying a Negative Declaration of environmental impact for Environmental Assessment 2004- 506; and appropriate $50,000 from the Project Area No. 1 Housing Fund unallocated reserves for land survey and planning studies; or 2. Do not adopt a Resolution of the Redevelopment Agency certifying Environmental Assessment 2004-506 and do not appropriate $ 50,000 from the Project Area No. 1 Housing Fund unallocated reserves for land survey and planning studies; or 3. Provide staff with alternative direction. Respectfully submitted, Jerr Hermalil C munity Development Director Approved for submission by: Thomas P. Genovese, Executive Director 03 S:\CityMgr\STAFF REPORTS ONLY\6-1-04\B6 HammerEA.DOC I r) !. RESOLUTION RA 2004- A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF LA QUINTA CERTIFYING A NEGATIVE DECLARATION OF ENVIRONMENTAL IMPACT FOR THE ACQUISITION OF THE HAMMER PROPERTY, ENVIRONMENTAL ASSESSMENT 2004-506. WHEREAS, an Initial Study and Negative Declaration has been prepared for the acquisition of the approximately 27.75-acre site generally located north of Avenue 48 and west of Dune Palms Road, by the La Quinta Redevelopment Agency (the "Agency") . WHEREAS, the Agency prepared the Initial Study and Negative Declaration in compliance with CEQA and the State CEQA Guidelines, California Code of Regulations, Title 14, section 15000; and WHEREAS, the Agency published a notice of its intention to adopt the Negative Declaration and associated Initial Study in the Desert Sun on May 8, 2004, which notice also included the date of the public meeting before the Agency Board on June 1 st, 2004, and further caused the notice to be filed with the Riverside County Clerk in accordance with the CEQA Guidelines; and WHEREAS, during the comment period, the Agency received no comment letters on the Negative Declaration; and, WHEREAS, the La Quinta Redevelopment Agency Board (the "Board") held a duly noticed public meeting on June 1 st, 2004, on the Initial Study and Negative Declaration, during which public hearing testimony and other evidence was accepted. NOW THEREFORE, BE IT RESOLVED by the Redevelopment Agency Board . of the City of La Quinta, as follows: SECTION 1: The above recitations are true and correct and are adopted as the findings of the Agency. SECTION 2 The Agency Board finds that the Negative Declaration has been prepared and processed in compliance with CEQA, the State CEQA Guidelines and the City's implementation procedures. The Agency Board has independently reviewed and considered the information contained in the Negative Declaration, and finds that it adequately describes and addresses the environmental effects of the GAWPDOCS\CCReso-COA\EA Reso Hammer Reso.doc 3 Resolution RA 2004- Environmental Assessment 2004-506 — Hammer Acquisition Adopted: June 1, 2004 Hammer Property acquisition, and that, based upon the Initial Study and the entire administrative record for this Project, there is no substantial evidence in light of the whole record that there may be significant adverse environmental effects as a result of the approval of the Hammer Property acquisition. SECTION 3: The Hammer Property acquisition will not be detrimental to the health, safety, or general welfare of the community, either indirectly, or directly, in that no significant impacts were identified by Environmental Assessment 2004-506. SECTION 4: The Hammer Property acquisition will not have the potential to degrade the quality of the environment, substantially reduce the habitat of a fish or wildlife population to drop below self sustaining levels, threaten to eliminate a plant or animal community, reduce the number or restrict the range of rare or endangered plants or animals or eliminate important examples of the major periods of California history or prehistory. SECTION 5: There is no evidence before the City that the Hammer Property acquisition will have the potential for an adverse effect on wildlife resources or the habitat on which the wildlife depends. SECTION 6: The Hammer Property acquisition does not have the potential to achieve short-term environmental goals, to the disadvantage of long-term environmental goals, as no significant effects on environmental factors have been identified by the Environmental Assessment. SECTION 7: The Hammer Property acquisition will not result in impacts which are individually limited or cumulatively considerable when considering planned or proposed development in the immediate vicinity, as development patterns in the area will not be significantly affected by the proposed project. SECTION 8: The Hammer Property acquisition will not have the environmental effects that will adversely affect the human population, either directly or indirectly, as no significant impacts have been identified which would affect human health, risk potential or public services. SECTION 9: The Agency Board has on the basis of substantial evidence, rebutted the presumption of adverse effect set forth in 14 CAL Code Regulations 753.5(d). 0 G:\WPDOCS\CCReso-COA\EA Reso Hammer Reso.doc 4 Resolution RA 2004- Environmental Assessment 2004-506 — Hammer Acquisition Adopted: June 1, 2004 SECTION 10: The Agency Board has fully considered the proposed Negative Declaration. SECTION 11: The Negative Declaration reflects the independent judgment and analysis of the Agency. SECTION 12: The location of the documents which constitute the record of proceedings upon which the Agency Board decision is based is the La Quinta City Hall, Community Development Department, 78-495 Calle Tampico, La Quinta, California 92253, and the custodian of those records in Jerry Herman, Community Development Director. SECTION 13: Based upon the Initial Study and the entire record of proceedings, the Project has no potential for adverse effects on wildlife as that term is defined in Fish and Game Code Section 711.2. SECTION 14: The Negative Declaration is hereby certified and adopted. SECTION 15: The Community Development Director shall cause to be filed with the Riverside County Clerk a Notice of Determination pursuant to CEQA Guidelines Section 1 5075(a). PASSED, APPROVED AND ADOPTED at a special meeting of the La Quinta Redevelopment Agency held on this 1 st day of June 2004, by the vote to wit: AYES: NOES: ABSENT: ABSTAIN: TERRY HENDERSON, Chair La Quinta Redevelopment Agency G:\WPD0CS\CCReso-00A\EA Reso Hammer Reso.doc 06 4 r� Resolution RA 2004- Environmental Assessment 2004-506 — Hammer Acquisition Adopted: June 1, 2004 ATTEST: JUNE S. GREEK, Agency Secretary City of La Quinta APPROVED AS TO FORM: M. KATHERINE JENSON, Agency Counsel City of La Quinta, California 0'7 GAWPD0CS\CCReso-00A\EA Reso Hammer Reso.doc t� W � t �• Ircervu OF COUNCIL/RDA MEETING DATE: June 1, 2004 •� AGENDA CATEGORY: ITEM TITLE: A Joint Public Hearing between the City Council of the City of La Quinta and the La Quinta Redevelopment Agency to Consider Adoption of: 1) a Resolution of the City Council Approving a Loan Between the La Quinta Redevelopment Agency and the La Quinta Financing Authority; and 2) a Resolution of the La Quinta Redevelopment Agency Approving the Issuance of its First Supplemental Loan Agreement, Escrow Deposit and Trust Agreement, Official Statement, a Purchase Contract, Authorizing the Executive Director to Set the Final Terms of the Approval of the Agency Loan, Approving the Payment of Costs of Issuing the Agency Loan and Making Certain Determinations Relating Thereto RECOMMENDATION: BUSINESS SESSION: CONSENT CALENDAR: STUDY SESSION: PUBLIC HEARING: 1. Open the Joint Public Hearing of the City Council and Redevelopment Agency ("Agency") Board, receive a staff presentation, and public testimony both for and against, approval by the City Council of the loan between the Agency and the La Quinta Financing Authority ("Authority"), and approval by the Agency to repay the loan to the Authority; 2. Close the Joint Public Hearing after all testimony has been presented; 3. Adopt a Resolution of the City Council approving the loan between the Agency and the Authority; and 4. Adopt a Resolution of the Agency approving the issuance of its First Supplemental Loan Agreement, Escrow Deposit and Trust Agreement, Official Statement, a Purchase Contract, authorizing the Executive Director to set the final terms of the approval of the Agency loan, approving the payment of costs of issuing the Agency loan and making certain determinations relating thereto. FISCAL IMPLICATIONS: The Agency will receive approximately $90,000,000 in loan proceeds that will be used to refund the 1995 Agency Housing Bonds and fund new � affordable housing initiatives. Staff has requested authority to issue up to $100,000,000 should interest rates lower from their current levels. However, it is our intent, based upon the current interest rate environment and the Bond Underwriter bond sizing projections, to issue up to $90,000,000. During the 30-year loan term, the Agency will repay the $90,000,000 of loan principal, and an additional $81,071,297 of interest expenses. These costs will be funded from the Low- and Moderate -Income Housing Fund from Project Areas 1 and 2. CHARTER CITY IMPLICATIONS: None. BACKGROUND AND OVERVIEW: The Agency has been actively implementing an affordable housing strategy to generate dwellings affordable to very low-, low- and moderate -income households that feature 45- to 55-year covenants. These efforts have been funded through a combination of Agency Housing Fund tax increment revenue and proceeds from the Agency's 1995 Housing Bond. In February 2004 the Agency initiated actions to secure a loan with the La Quinta Financing Authority by approving a Loan Agreement with the Authority wherein the Authority would issue revenue bonds and then loan the proceeds to the Agency for investment in affordable housing initiatives. The Loan Agreement was the subject of a validation action which was certified in April 2004. Now the Agency and the Authority are moving forward to sell the revenue bonds and fund the loan. Under this structure, the Authority will sell approximately $90,000,000 of tax exempt Revenue Bonds. The Bond proceeds will refund the 1995 Housing Bond (approximately $20,695,407) to achieve interest cost savings (estimated to be $1,000,000) due to lower bond interest costs, and raise new capital (approximately $66,032,407 net of bond issuance costs) to fund property acquisition and affordable housing project implementation efforts. The loan will be repaid by pledging La Quinta Redevelopment Project Area No. 1 and Project Area No. 2 Housing Fund revenue to pay debt service costs related to the Loan. The combined Housing Fund tax increment revenue for fiscal 2004-05 is projected to be $8,898,000; annual Loan debt service costs are anticipated to be $5,707,000, leaving $3,191,000 to fund administrative costs and other affordable housing activities. The Loan proceeds will be used for the Avenue 48th and Adams Street, Vista Dunes and Hammer property developments, and to fund other affordable housing projects and programs. A Public Hearing is required because we are issuing housing bonds through the Authority under the Local Bond Pooling Act. Government Code Section 6586.5(a)(2) 2 13 requires a public hearing with at least 5 days prior published notice to make findings regarding the underlying project, which in this case are the various housing projects which will be financed with bond proceeds. The Public Hearing was published in the Desert Sun on May 27, 2004. The necessary findings are set forth in Government ,Code Section .6586. Staff believes that this financing meets the following Government Code requirements: (1) that the projects which will be financed with bond proceeds through the Authority could reasonably result in "employment benefits from undertaking the project in a timely fashion" (GC 6586(c)) and result in the "more efficient delivery of local agency services to residential and commercial development" (GC6586(d)), and 2) that the combining of the new money and refunding portions of the bond issue through the Authority into one bond issue will result in "demonstrable savings in effective interest rate, bond preparation, bond underwriting, or bond insurance costs" (GC6586(a)). The attached resolution provides for the following • Approves the issuance of a loan with the Authority in an aggregate amount not to exceed $100,000,000; • Approves the loan documents with the Authority; • Approves the Preliminary Official Statement for the Authority's 2004 Series A Revenue Bonds; • Authorizes the Executive Director to establish the final terms of the loan; • Appoints U.S. Bank Trust National Association as trustee and escrow agent; • Finds that the loan will provide significant public benefit; • Pledges Project Areas No. 1 and No. 2 Housing Fund tax increment revenue to service loan principal and interest costs; and • Authorizes the officers of the Agency and members of the Governing Body to take such actions and execute documents necessary to facilitate the loan and Authority's Bond sale. Due to the number and length of the documents involved in this bond issue, these documents are available in the City Clerk's office for review. K 1.0 The alternatives available to the City Council and the Agency include: 1. Conduct a Joint Public Hearing between the City Council of the City of La Quinta and the La Quinta Redevelopment Agency to Consider Adoption of, Approve: 1) a Resolution of the City Council approving a loan between the La Quinta Redevelopment Agency and the La Quinta Financing Authority; and 2) a Resolution of the La Quinta Redevelopment Agency approving the issuance of its First Supplemental Loan Agreement, Escrow Deposit and Trust Agreement, Official Statement, a Purchase Contract, authorizing the Executive Director to set the final terms of the approval of the Agency loan, approving the payment of costs of issuing the Agency loan and making certain determinations relating thereto; or 2. Conduct a Joint Public Hearing between the City Council of the City of La Quinta and the La Quinta Redevelopment Agency to Consider Adoption of, do not Approve: 1) a Resolution of the City Council approving a loan between the La Quinta Redevelopment Agency and the La Quinta Financing Authority; and 2) a Resolution of the La Quinta Redevelopment Agency approving the issuance of its First Supplemental Loan Agreement, Escrow Deposit and Trust Agreement, Official Statement, a Purchase Contract, authorizing the Executive Director to set the final terms of the approval of the Agency loan, approving the payment of costs of issuing the Agency loan and making certain determinations relating thereto; or 3. Provide staff with alternative direction. Respectfully submitted, 2 ohn AM.Fa�lconer, Finance Director Approved for submission by: Thomas P. Genovese, Executive Director 4 RESOLUTION NO. RA 2004- ..A "RESOLUTION OF THE LA QUINTA REDEVELOPMENT AGENCY OF THE CITY OF LA QUINTA, CALIFORNIA APPROVING ITS FIRST SUPPLEMENTAL LOAN AGREEMENT, ESCROW DEPOSIT AND TRUST AGREEMENT, OFFICIAL STATEMENT, PURCHASE CONTRACT, AUTHORIZING THE EXECUTIVE DIRECTOR TO SET THE FINAL TERMS OF THE APPROVAL OF THE AGENCY LOAN, APPROVING THE PAYMENT OF COSTS OF ISSUING THE AGENCY LOAN AND MAKING CERTAIN DETERMINATIONS RELATING THERETO WHEREAS, the La Quinta Redevelopment Agency (the "Agency"), is a redevelopment. agency duly created, established and authorized to transact business and exercise its powers, all under and pursuant to the Community Redevelopment Law, being Section 33000 and following of the Health and Safety Code of the State of California, and the powers of the Agency include the power to issue bonds for any of its corporate purposes; and WHEREAS, redevelopment plans for certain redevelopment projects (the "Projects"), have been adopted and approved and all requirements of law for, and precedent to, the adoption and approval of said plan have been duly complied with; and WHEREAS, the Agency issued its $22,455,000 La Quinta Redevelopment Project Area Nos. 1 and 2 1995 Housing Tax Allocation Bonds (the "Prior Bonds"); and WHEREAS, the Agency proposes to enter into not to exceed $100,000,000 principal amount of its 2004 Loan (the "Agency Loan") to advance refund the Prior Bonds and provide funds for expansion of certain housing related redevelopment projects (the "Project") the repayment of which will be secured by certain tax increment revenues from the Project areas; and WHEREAS, there has been presented at this meeting a form of First Supplemental Loan Agreement and other documents providing for the approval of the Loan including a form of an escrow agreement relating to the Prior Bonds; and WHEREAS, there has been presented at this meeting forms ofPreliminary �� Official Statements relating to the La Quinta Financing Authority (the "Authority") Local Agency Revenue Bonds, 2004 Series A (the Authority Bonds"); and NOW, THEREFORE, BE IT RESOLVED, by the La Quinta Redevelopment Agency of the City of La Quinta, California, as follows: 124/015610-0073 4 5 499572.03 a05/26/04 Resolution No. RA 2004- First Supplemental Loan Agreement Adopted: June 1, 2004 Page 2 SECTION 1. Approval of Agency Loans. The incurrence of not to exceed $100,000,000 principal amount of the Agency Loan in order to refund the Prior Bonds and to provide funds to accomplish lawful housing related redevelopment purposes is hereby authorized and approved. SECTION 2. Appointment of Trustee. U.S. Bank National Association as Trustee is hereby appointed as Trustee (the "Trustee") pursuant to the Loan Documents, as defined below, to take any and all action provided for therein to be taken by the Trustee. SECTION 3. Official Statement. The form of Preliminary Official Statements relating to each series of the Authority Bonds and presented to this meeting are hereby approved. The preparation of a final Official Statement relating to each series of the Authority Bonds is hereby approved and the Executive Director or Assistant Executive Director or Treasurer is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver final official statements containing such changes from the Preliminary Official Statement as may be approved by the Executive Director or Assistant Executive Director or Treasurer and the distribution of such preliminary and final official statements in connection with the sale of the Bonds is hereby authorized. The Executive Director or Assistant Executive Director or Treasurer is also authorized and directed to deem the Preliminary Official Statement final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934 (the "Rule"), omitting only such information as is permitted under such Rule, and to execute an appropriate certificate stating the Agency's determination that the preliminary official statements have been deemed final within the meaning of such Rule. SECTION 4. Approval of Agency Loan and Loan Documents. The Agency hereby authorizes and approves the Agency Loan to be made to the Agency by the Authority from the proceeds of the Authority Bonds pursuant to the Loan Agreement, dated as of February 3, 2004, by and between the Agency and the Authority and the First Supplemental Loan Agreement dated as of June 1, 2004, by and among the Agency, the Authority and the Trustee (the Supplemental Loan Agreement") (collectively, the "Loan Documents"). The Loans shall be made pursuant to and in accordance with the terms of the Loan Documents. The Agency hereby approves the Loan Documents and any supplemental loan documents in substantially the forms on file with the Secretary together with any additions thereto or changes therein (including but not limited to the principal amounts of the Loans) deemed necessary or advisable by the Executive Director or Assistant Executive Director or Treasurer, whose execution thereof shall be conclusive evidence of approval of any such additions and changes. The Chairperson or Executive Director or Assistant Executive Director or Treasurer is hereby authorized and directed to execute, and the Secretary is hereby authorized and directed to attest and affix the seal of the Agency to, the final form of the Loan Documents 124/015610-0073 22 6 499572.03 a05/26/04 Resolution No. RA 2004- First Supplemental Loan Agreement Adopted: June 1, 2004 Page 3 and , any supplemental loan documents or and in the name and on behalf of the Agency. The proceeds of the Loans shall be applied by the Agency 'for the purposes and in the amounts set forth in the Loan Documents. The Agency hereby authorizes the delivery and performance of the Loan Documents. SECTION 5. Escrow Agreement. The forms of Escrow Deposit and Trust Agreement by and among the Agency, the Authority, and U.S. Bank National Association, as escrow holder (the Escrow Agreement"), presented at this meeting are hereby approved and the Chairman or any other member of the Agency or the Executive Director or Assistant Executive Director or Treasurer and Secretary are hereby authorized and directed, for and in the name of and on behalf of the Agency, to execute, acknowledge and deliver said Escrow Agreement in substantially the form presented at this meeting with such insubstantial changes therein as the officers executing the same may approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 6. Requisitions. The Executive Director or Assistant Executive Director or Treasurer, or his/her designee, is hereby authorized and directed to execute one or more requisitions authorizing the Trustee to pay the costs of issuing the Agency Loan from the proceeds of the Authority Bonds or Agency Loan and the moneys, if any, deposited by the Agency with the Trustee for such purpose, all pursuant to the Loan Documents. SECTION 7. Pledge. Agency hereby specifically pledges, by way of and pursuant to the issuance of Agency Loan and the Loan Documents, certain of the tax increment of Project Area Nos. 1 and 2 to payment of the Authority Bonds as set forth in the Loan Documents. SECTION 8. Public Benefit Finding. Subsequent to a public hearing held pursuant to Government Code Section 6586.5, the Agency hereby finds and determines the financing of the Project with the proceeds of the Authority Bonds and Agency Loan will provide significant public benefits in accordance with the criteria specified in Government Code Sections 6586(a), (c), and M. SECTION 9. Other Acts. The officers and staff of the Agency are hereby authorized and directed, jointly and severally, to do any and all things (including, but not limited to, obtaining a policy or policies of municipal bond insurance and/or a rating from a national rating agency with respect to the bonds), or otherwise to effectuate the refunding of the Prior Bonds, or to otherwise effectuate the purposes of this Resolution, and any and all such actions previously taken by such officers or staff members are hereby ratified and confirmed. 124/015610-0073 7 499572.03 a05/26/04 Resolution No. RA 2004- First Supplemental Loan Agreement Adopted: June 1, 2004 Page 4 SECTION 10. Effective Date. This Resolution shall take effect upon adoption. PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta Redevelopment Agency held on this 1 st day of June, 2004, by the following vote to wit:. AYES: NOES: ABSENT: ABSTAIN: TERRY HENDERSON, Chairperson La Quinta Redevelopment Agency ATTEST: JUNE S. GREEK, City Clerk City of La Quinta, California APPROVED AS TO FORM: M. KATHERINE JENSON, City Attorney City of La Quinta, California 124/015610-0073 24 8 499572.03 a05/27/04 TABLE OF CONTENTS 1. Attachment 1-City Council and Redevelopment Agency ............... 1 Notice of Public Hearing 2. Attachment 2 - First Supplemental Loan Agreement....................... 3 3. Attachment 3 - Escrow Deposit and Trust Agreement ..................... 19 4. Attachment 4 - Indenture of Trust ...................................................... 28 5. Attachment 5 - La Quinta Financing Authority .... ............................ ' 91 Local Agency Revenue Bonds 2004 Series a Preliminary Official Statement 6. Attachment 6 Continuing Disclosure Agreement ........................... 166 25 ATTACHMENT 1 (FOR COUNCIL ONLY) 4 CITY COUNCIL AND REDEVELOPMENT AGENCY NOTICE OF PUBLIC HEARING NOTICE IS HEREBY GIVEN that the La Quinta City Council and Redevelopment Agency ("Agency") will hold a joint public hearing in the Council Chambers of the La Quinta City Hall, 78-495 Calle Tampico, La Quinta, California on June 1, 2004 beginning at 7:00 P.M. or as soon thereafter as the matter may be heard, to consider the adoption of the following Resolutions: "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA QUINTA, CALIFORNIA APPROVING A LOAN BETWEEN THE LA QUINTA REDEVELOPMENT AGENCY AND THE LA QUINTA FINANCING AUTHORITY"; and "A RESOLUTION OF THE LA QUINTA REDEVELOPMENT AGENCY OF THE CITY OF LA QUINTA CALIFORNIA APPROVING THE ISSUANCE OF ITS FIRST SUPPLEMENTAL LOAN AGREEMENT, ESCROW DEPOSIT AND TRUST AGREEMENT, OFFICIAL STATEMENT, A PURCHASE CONTRACT, AUTHORIZING THE EXECUTIVE DIRECTOR TO SET THE FINAL TERMS OF THE APPROVAL OF THE AGENCY LOAN, APPROVING THE PAYMENT OF COSTS OF ISSUING THE AGENCY LOAN AND MAKING CERTAIN DETERMINATIONS RELATING THERETO" The purpose of the public hearing will be to determine if the financing of certain low and moderate income housing projects, as defined in the relevant staff reports (the "Projects"), through the issuance of the La Quinta Financing Authority Local Agency Revenue Bonds, 2004 Series A (the "Bonds") and the loan of bond proceeds to the Agency (the "Agency Loan") will result in "significant public benefits" within the meaning of Government Code Section 6586. All of the Projects are located within the jurisdictional boundaries of the City of La Quinta, California and are subject to the jurisdiction of the Agency. Any person may submit written comments on these matters to the Finance Department prior to the hearing and/or may appear and be heard in support of, or opposition to, the Projects at the time of the hearing. If you challenge the decision of this case in court, you may be limited to raising only those issues that you or someone else raised either at the public hearing, or in written correspondence delivered to the Finance Department at, or prior to, the public hearing. Furthermore, you must exhaust any administrative remedies prior to commencing a court challenge to City/Agency action. CADocuments and Settings\jfa1cone\Loca1 Settings\Temporary Internet Fi1es\01K2BC7\RDA BondNxbc 27 In the City's efforts to comply with the requirements of Title II of the Americans With Disabilities Act of 1990, the City Clerk requires that persons in need of special equipment, assistance, or accommodation(s) to communicate at the hearing, inform the City Clerk a minimum of 72 hours prior to the scheduled meeting. A copy of the staff report on the proposed projects is available for inspection and copying at the Finance Department counter located ' at La Quinta City Hall, 78-495 Calle Tampico, La Quinta, during normal business hours 8:00 A.M. to 5:00 P.M. Questions may be directed to John Falconer, Finance Director, at 760-777-7150. ----------------------------------------------------------------------------------- PUBLISH ONCE IN THE DESERT SUN ON MAY 27, 2004 wg CADocuments and Settings\jfa1cone\1=a1 Settings\Temporary Internet Files\0LK2BC7\RDA BondO4.doc 2 ATTACHMENT 2 FIRST SUPPLEMENTAL LOAN AGREEMENT By and Among THE LA QUINTA REDEVELOPMENT AGENCY, THE LA QUINTA FINANCING AUTHORITY and U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE Dated as of June 1, 2004 Relating to Project Areas Nos.1 and 2 Housing Loan 124/015610-0073 29. 412825.10 a05/24/04 3 FIRST SUPPLEMENTAL LOAN AGREEMENT THIS FIRST SUPPLEMENTAL LOAN AGREEMENT (the "First Supplemental Agreement") is made and entered into as of June 1, 2004 ("Effective Date"), by and among the LA QUINTA REDEVELOPMENT AGENCY, a public body corporate and politic, organized and existing under, and by virtue of, the laws of the State of California (the "Agency"), the LA QUINTA FINANCING AUTHORITY, a Joint Powers Authority organized and existing under the laws of the State of California (the "Authority"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association organized and existing pursuant to the laws of the United States (the "Trustee"). WITNESSETH: WHEREAS, the Agency is a redevelopment agency, a public body, corporate and politic, duly created, established and authorized to transact business and exercise powers under and pursuant to the provisions of the Community Redevelopment Law of the State of California (the "Law"), including the power to accept loans and other financing from any public or private person, firm, or entity; and WHEREAS, the Authority is a joint powers authority, duly created, established and authorized to transact business and exercise powers under and pursuant to the laws of the State of California, including the power to issue bonds, notes, and other obligations for any of its lawful purposes; and WHEREAS, a redevelopment plan for the Project Area No. 1, commonly known as the La Quinta Redevelopment Project, in the City of La Quinta, California (the "Redevelopment Project") has been adopted by Ordinance No. 43 of the City of La Quinta, which became effective on December 29, 1983, as may have been amended from time to time, in compliance with all requirements of the Law; and WHEREAS, a redevelopment plan for the Project Area No. 2, commonly known as the La Quinta Redevelopment Project No.' 2, in the City of La Quinta, California (the "Redevelopment Project") has been adopted by Ordinance No. 139 of the City of La Quinta, which became effective on May 15, 1989, as may have been amended from time to time, in compliance with all requirements of the Law; and WHEREAS, to finance low and moderate income housing redevelopment activities within its Project Areas, the Agency has previously issued its La Quinta Redevelopment Project Areas Nos. 1 and 2 1995 Housing Tax Allocation Bonds, in the aggregate principal amount of $22,455,000 (the "1995 Bonds"), pursuant to an Indenture dated as of July 1, 1995 (the "1995 Indenture"); and WHEREAS, the Authority has determined to issue its not to exceed Million Dollars ($ ) aggregate principal amount of Local Agency Revenue Bonds, Series 2004A (the "Bonds") for the purpose, among others, to (i) to make a loan, the proceeds of which will be used to finance the costs of 124/015610-0073 412825.10 a05/24/04 31 4 additional redevelopment activities; (ii) to advance refund the 1995 Bonds; and (iii) pay certain expenses of the Authority in issuing the Bonds; and WHEREAS, Agency and Authority entered into that certain Loan Agreement, dated as of February 3, 2004 (the "Agreement") for the issuance and delivery of the Loans by Authority to the Agency and the acceptance and receipt of the Loans by the Agency, pursuant to one or more Supplemental Agreements (as those terms are defined in the Agreement); and WHEREAS, it is desirable at this time to provide for the Authority's making and delivery to Agency of a Loan, and the Agency's acceptance and receipt of said Loan, pursuant to the Agreement and this First Supplemental Agreement in the aggregate principal amount of $ (the "Loan"); and WHEREAS, the Agency hereby confirms its pledge of certain Pledged Tax Revenues (as such term is defined in this First Supplemental Agreement) for the benefit of the Authority, the Bonds, and the Bondowners; and WHEREAS, the Authority certifies that all things necessary to cause the making and delivery of the Loan, pursuant to the Agreement and this First Supplemental Agreement, to be valid, binding, and legal obligations of the Authority in accordance with their terms, and all things necessary to cause the creation, execution, and delivery of this First Supplemental Agreement and the creation, making, and delivery of the Loan, subject to the terms hereof and of the Agreement, have in all respects been duly authorized; and WHEREAS, the Agency certifies that all things necessary to cause the acceptance and receipt of the Loan, pursuant to the Agreement and this First Supplemental Agreement, to be valid, binding, and legal obligations of the Agency in accordance with their terms, and to constitute this First Supplemental Agreement a valid assignment and pledge of the Pledged Tax Revenues pledged to the payment of principal of and interest and any redemption premium on the Loan as provided in the Agreement and in this First Supplemental Agreement, and all things necessary to cause the acceptance and receipt of this First Supplemental Agreement and the acceptance and receipt of the Loan, subject to the terms hereof and of the Agreement, have in all respects been duly authorized. NOW, THEREFORE, THIS FIRST SUPPLEMENTAL AGREEMENT WITNESSETH: That in order to secure the payment of the principal of and the interest and premium (if any) on the Loan at any time outstanding under this First Supplemental Agreement, and to secure the performance and observance of all the covenants and conditions, in the Agreement and herein set forth, and to declare the terms and conditions upon and subject to which the Loan is to be delivered, accepted, and received, and in consideration of the promises and mutual covenants herein and in the Agreement contained, and for other valuable considerations the receipt and sufficiency of which are hereby acknowledged, the Agency and Authority do hereby covenant and agree as follows: 124/015610-0073 32 412825.10 a05/24/04 -2- 5 ARTICLE I THE LOAN; DEFINITIONS Section 1.01 Execution of This First Supplemental Agreement. This First Supplemental Agreement is entered into pursuant to and in accordance with the provisions of the Agreement. The Authority hereby determines that the issuance and delivery of a loan to the Agency, and the Agency hereby determines that the acceptance and receipt of a loan from the Authority, pursuant to and for purposes consistent with the Agreement and this First Supplemental Agreement, including payment of all costs incidental to or connected with such financing, is necessary and desirable. Section 1.02 Definitions. All terms which are defined in Section 1.01 of the Agreement shall have the same meanings in this First Supplemental Agreement. Terms not herein or therein defined shall have the same meaning as in the Indenture for any Supplemental Indenture (as these terms are defined herein). "Agreement" means the Loan Agreement, dated as of February 3, 2004, by and between the Agency and the Authority, relating to, among other things, the Bonds, as the Agreement may be amended or supplemented from time to time. "Bond" or "Bonds" means the La Quinta Financing Authority, (Local Agency Revenue) Bonds, Series 2004 and, if the context requires, any Parity Debt, authorized by and at any time Outstanding pursuant to the Indenture and any Supplemental Indenture. "Bond Year" means each twelve-month period beginning on September 2 of each year and ending on September 1 of the following year (except with respect to the Loan, the first such Bond Year shall begin on the Closing Date and end on the next occurring September 1). "Trustee" means U.S. Bank Trust National Association. "First Supplemental Agreement" means this First Supplemental Loan Agreement. "Indenture" means the Indenture of Trust, dated as of June 1, 2004, by and between the Authority and the Trustee therein named, as originally entered into or as it may be amended or supplemented by any Supplemental Indenture entered into pursuant to the provisions hereof or thereof relating to the Bonds. "Interest Payment Date" means March 1 and September 1 of each year, commencing September 1, 2004, and in each year thereafter so long as any of the Bonds remain outstanding hereunder. "Loan" means the La Quinta Redevelopment Agency Project Areas Nos. 1 and 2 Housing Loan, in the aggregate principal amount of $ , authorized by and at any time outstanding pursuant to the Agreement and this First Supplemental Agreement. 124/015610-0073 412825.10 a05/24/04 -3_ 33 6 "Outstanding" with respect to the Bonds means those Bonds which have not been defeased, and with respect to the Loans, .means those Loans which have not been fully repaid or discharged. "Parity Debt" means any additional loans, bonds or other obligations of the Agency or Authority as permitted by the Indenture and/or Agreement which are on a parity with the Bonds. "Plan Limits" means the limitations contained in the Redevelopment Plans as to the number of dollars of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plans, as the same may from time to time be amended, and as such limitation may be required by, or pursuant to, the Law. "Pledged Tax Revenues" means that portion of Tax Revenues set aside for Low and Moderate Income Housing as provided in Sections 33334.2 and 33334.3 of the Law, less amounts paid to the State of California or County of Riverside as an administrative fee pertaining to the payment of the Tax Revenues. "Project Areas" means the territory within the La Quinta Redevelopment Project Area No. 1 and Project Area No. 2, as described in the respective Redevelopment Plans. "Project Area No. 1 Redevelopment Plan" means, collectively, (i) the Redevelopment Plan for the project designated as the "La Quinta Redevelopment Project Area No. 1", adopted and approved by Ordinance No. 43, which became effective on December 29, 1983, together with any amendments thereof heretofore or hereafter duly enacted pursuant to the Law, together with any amendments thereof heretofore or hereafter duly enacted pursuant to the Law. "Project Area No. 2 Redevelopment Plan" means "Project No. 1 Pass -Through Agreements" means the agreements entered into on or prior to the date hereof pursuant to Section 33401 of the Health and Safety Code with (i) County of Riverside; (ii) Desert Sands Unified School District, (iii) Coachella Valley Water District; (iv) Desert Community College District; (v) County of Riverside Superintendent of Schools; (vi) Coachella Valley Mosquito Abatement District; and (vii) Coachella Valley Recreation and Park District, and such statutory obligations as provided in Sections 33607.5 and 33607.7 of the Law. "Project No. 2 Pass -Through Agreements" means "Redevelopment Plans" means collecting the Project Area No. 1 Redevelopment Plan and the Project Area No. 2 Redevelopment Plan. "Redevelopment Projects" means the Project Areas. "Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency pursuant to the Indenture, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Pledged Tax Revenues; or (b) secured by a pledge of or lien upon the Pledged Tax Revenues which is subordinate to the pledge of and lien upon the Pledged Tax Revenues for the security of the Bonds and the Parity Debt. 124/015610-0073 412825.10 a05/24/04— 1 34 "Supplemental Indenture" means any indenture then in full force and effect which has been duly entered into by the Authority under the Law, or any act supplementary thereto and —amendatoryfihereof, at -a-meeting of the -Agency duly convened and held; at -which a quorum was present and acted thereon, amendatory of or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder. "1995 Bonds" means the $22,455,000 La Quinta Redevelopment Project Areas Nos. 1 and 2 1995 Housing Tax Allocation Bonds, issued pursuant to the 1995 Indenture. "1995 Indenture" means the Indenture of Trust dated as of July 1, 1995, authorizing the 1995 Bonds. Section 1.03 Due Authorization. (a) The Authority has reviewed all proceedings heretofore taken relative to the authorization, issuance and delivery of the Loan by the Authority and has found, as a result of such, review, and does hereby find and determine, (i) that the Authority has duly and regularly complied with all applicable provisions of law and the Agreement and is duly authorized by law and the Agreement to issue and deliver the Loan in the manner and upon the terms in the Agreement and this First Supplemental Agreement, (ii) that all acts, conditions and things required by law and the Agreement to exist, happen, or be performed precedent to and in connection with the issuance and delivery of the Loan do exist, have happened, and have been performed in regular and due time, form, and manner as required by law and the Agreement, and (iii) that the Authority is now duly empowered, pursuant to each and every requirement of law and the Agreement, to issue and deliver the Loan in the manner and form provided in the Agreement and this First Supplemental Agreement. (b) The Agency has reviewed all proceedings heretofore taken relative to the authorization, acceptance, and receipt of the Loan by the Agency and has found, as a result of such, review, and does hereby find and determine, (i) that the Agency has duly and regularly complied with all applicable provisions of law and the Agreement and is duly authorized by law and the Agreement to accept and receive the Loan in the manner and upon the terms in the Agreement and this First Supplemental Agreement, (ii) that all acts, conditions, and things required by law and the Agreement to exist, happen, or be performed precedent to and in connection with the acceptance and receipt of the Loan do exist, have happened, and have been performed in regular and due time, form, and manner as required by law and the Agreement, and (iii) that the Agency is now duly empowered, pursuant to each and every requirement of law and the Agreement, to accept and receive the Loan in the manner and form provided in the Agreement and this First Supplemental Agreement. ARTICLE II AUTHORIZATION OF THE LOAN Section 2.01 Authorization For Issuance and Receipt of the Loan. The first Loan to be issued under the Agreement, pursuant to this First Supplemental Agreement, in the aggregate principal amount of not to exceed Million Hundred Thousand Dollars ($ ), is hereby 124/015610-0073 412825.10 a05/24/04 "5_ 3 k ,, 5 8 authorized by the Authority to be issued and delivered to the Agency, and is hereby authorized by the Agency to be accepted and received, and shall be designated as the "La Quinta Redevelopment Agency Project AreasNos. 1 and 2 Housing Loan." Section 2.02 Terms of Loan. The Loan shall mature and become payable on in each year, as provided in Exhibit A. which by this reference is incorporated herein and made a part hereof. The Loan shall be dated as of , and shall bear interest from such date, at the rates set forth above, payable commencing on , and thereafter semiannually on and in each year, all as provided in Exhibit A. Section 2.03 Prepayment of the Loan. The Agency may prepay the Loan pursuant to Section 10.03 of the Loan Agreement. ARTICLE III ESTABLISHMENT OF FUNDS AND ACCOUNTS; APPLICATION OF PROCEEDS AND PARITY DEBT Section 3.01 Establishment of Funds and Accounts to be held by the Trustee. Pursuant to the provisions of the Agreement, the Agency hereby establishes the Project Areas Debt Service Fund and the Project Areas Redemption Fund, which the Trustee shall maintain and hold in trust. Section 3.02 Application of Proceeds of the Loan and Other Funds. The net proceeds of the Loan, in the amount of $: directed by the Agency, including: shall be deposited as (1) Transfer such amounts as directed by the Agency to the Escrow Bank for deposit in the Escrow Fund relating to the 1995 Bonds; (2) Transfer such amounts as directed by the Agency to the Debt Service Fund; and (3) Transfer such amounts as directed by the Agency for deposit in Housing Fund. Section 3.03 Application of Debt Service Fund. Notwithstanding the provisions of the Agreement, including, without limitation, Section 5.01 of the Agreement, all Pledged Tax Revenues shall be transferred not later than two days prior to each Interest Payment Date to the Trustee on behalf of the Authority and deposited by the Trustee in the Debt Service Fund. All Pledged Tax Revenues deposited as Loan Payments with the Trustee in the Debt Service Fund shall be disbursed (i) to pay the principal of 124/015610-0073 412825.10 a05/24/04 '6_ 36 0 9 and interest and redemption premium, if any, on the Bonds, and (ii) to pay lawful expenses, with such amounts as may be remaining paid to the Agency. Section 3.04 Application of Special Fund. The Agency shall establish and maintain a special fund to be known as the"Agency Special Fund". The Agency shall deposit the Pledged Tax Revenues received in any Bond Year in the Agency Special Fund within ten (10) Business Days of the receipt thereof by the Agency, until such time (if any) during such Bond Year as the amounts on deposit in the Agency Special Fund equal the aggregate amounts required to be transferred to the Trustee on behalf of the Authority for deposit in the Debt Service Fund pursuant to Section 5.02 of the Agreement; and (except as may be otherwise provided in any Supplemental Agreement or Modifying Agreement) any Pledged Tax Revenues received during such Bond Year in excess of such amounts shall be released from the pledge and lien hereunder and may be used for any lawful purpose of the Agency. Prior to the payment in full of the principal of and interest on the Loan, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except only as provided in this First Supplemental Agreement and any Supplemental Agreements or Modifying Agreement, and such moneys shall be used and applied as set forth herein and in any Supplemental Agreements or Modifying Agreements. Section 3.05 Issuance of Parity Debt. In addition to the Loan, the Agency may, by Supplemental Agreement or Modifying Agreement, issue or incur Parity Debt payable from Pledged Tax Revenues on a parity with the Bonds to finance additional redevelopment activities with respect to the Project Area in such principal amount as shall be determined by the Agency. The Agency may issue or incur any such other Parity Debt subject to the following specific conditions all of which are hereby made conditions precedent to the issuance and delivery of such Parity Debt issued under this Section. (a) The Agency shall be in compliance with all covenants set forth in the Agreement, Indenture, all Supplemental Indentures, and all Supplemental Loan Agreements; (b) The Pledged Tax Revenues estimated to be received for the then current Fiscal Year based on the most recent assessed valuation of property in the Project Areas as evidenced in written documentation from an appropriate official of the County, shall be at least equal to 130% of Maximum Annual Debt Service on the Bonds and any Parity Debt, which will be Outstanding immediately following the issuance of such Parity Debt; provided, however, for the purpose of this subsection (b), Pledged Tax Revenues shall be exclusive of the product of the following: (i) Tax Revenues attributable to all property subject to pending appeals within the Project Areas, times (ii) the percentage representing, (x) the actual amount of reduction in assessed valuation as compared to (y) the aggregate assessed valuation of such properties prior to the reduction as a result of successful appeals; provided further, the percentage set forth in (ii) above shall be based on the County -wide experience, as verified by an Independent Redevelopment Consultant, for the last two (2) fiscal years; 124/015610-0073 412825.10 a05/24/04 37 10 (c) The Supplemental Agreement providing for the issuance of such Parity Debt under this Section 3.4 shall provide that interest thereon shall be payable on March 1 -and September, -I, and principat- thereof shall be payable on September l in any year in which principal is payable; (d) The Supplemental Agreement providing for the issuance of such Parity Debt may provide for the establishment of separate funds; (e) The aggregate amount of the principal of and interest on all Outstanding Bonds, and Parity Debt and Subordinate Debt coming due and payable following the issuance of such additional Parity Debt shall not exceed the maximum amount of tax increment revenues permitted under the Plan Limits to be allocated and paid to the Agency following the issuance of such Parity Debt; (f) The aggregate principal amount of the Outstanding Bonds, the Parity Debt and Subordinate Debt following the issuance of such Parity Debt shall not exceed the maximum principal amount of indebtedness permitted under the Redevelopment Plan; and (g) The Agency shall deliver to the Trustee a written certificate of the. Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth above in this Section 3.4 above have been satisfied and that an amount equal to the Reserve Requirement is on deposit in the Reserve Fund as of the delivery of such Parity Debt. (h) For purposes of the issuance of Parity Debt or release of escrowed proceeds unless otherwise approved by the Bond Insurer, Pledged Tax Revenues shall be calculated by multiplying the most recent assessed value in the Project Areas as certified by the County by the basic 1 % tax rate (without regard to overrides) and shall be further reduced by: (i) the amount of subventions paid by the State or any other amount appropriated by the State for the Agency; (il) unless the "Teeter Plan" is currently in effect and the County has made no announcement that the plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Area are less than the amount of the tax levy in the Project Area for the immediately preceding two (2) Fiscal Years; and (iii) The amount required to be paid to the County for administrative expenses; (i) Prior to the issuance of Parity Debt or release of escrowed proceeds an independent redevelopment consultant shall certify that Pledged Tax Revenues, adjusted pursuant to the panty test, are at least 1.30X Maximum Annual Debt Service on the Bonds, and Parity Debt outstanding after the issuance of the proposed Parity Debt; and 124/015610-0073 412825.10 a05/24/04 —8— �$ 11 (j) If the Agency has outstanding or proposes to issue bonds bearing interest at a variable rate, the interest on such bonds shall be assumed to be the maximum interest - rate -allowable under the financing -document- in--al*l . instances where -an -assumptlion-about interest rates is necessary unless the interest rate is "synthetically" fixed with a Bond Insurer approved interest rate swap or cap agreement which is in effect for the life of the bonds, in which case the synthetically fixed rate shall be used. Section 3.06 Issuance of Subordinate Debt. In addition to the Loan, the Agency may incur Subordinate Debt in such principal amount as shall be determined by the Agency. The Agency may issue or incur such Subordinate Debt subject to the following specific conditions precedent: (a) The Agency shall be in compliance with all covenants set forth in the Agreement, Indenture, all Supplemental Indentures, and all Supplemental Loan Agreements. (b) If, and to the extent, such Subordinate Debt is payable from tax increment revenues within the Plan Limit, then the aggregate amount of the principal of and interest on all Outstanding Bonds, all Subordinate Debt and any Parity Debt comings due and payable following the issuance of such Subordinate Debt shall not exceed the maximum amount of tax increment revenues permitted under the Plan Limit to be allocated and paid to the Agency following the issuance of such Subordinate Debt. (c) Except with respect to any Subordinate Debt issued and delivered on the Closing Date, the Agency shall deliver to the Trustee a Written Certificate of the Agency certifying that the conditions precedent to the issuance of such Subordinate Debt set forth in subsections (a) and (b) of this Section 3.5 have been satisfied. ARTICLE IV MISCELLANEOUS Section 4.01 Security for the Loan. The Loan is issued within the meaning of the Agreement, and shall be payable from Pledged Tax Revenues as designated from time to time by the Agency, and, further,' from the Special Fund established by this First Supplemental Agreement. Pledged Tax Revenues will be disbursed from the Special Fund as set forth in Section 3.04 hereof. The Pledged Tax Revenues shall be allocated solely to the payment of the principal and interest, and redemption premium, if any, of the Loan; except that out of the Pledged Tax Revenues may be apportioned in such amounts for such other purposes as are expressly permitted in this First Supplemental Agreement. The pledge and allocation of Pledged Tax Revenues are for the exclusive benefit of the Loan and shall be irrevocable until the entire Loan has been paid and retired or until moneys have been set aside irrevocably for that purpose. In consideration of the acceptance and receipt of the Loan by the Agency, this First Supplemental Agreement shall be deemed to be and shall constitute a contract between the Agency and the Authority and the covenants and agreements herein set forth to be performed on 124/015610-0073 412825.10 a05/24/04 -9- 12 behalf of the Agency shall be for the equal and proportionate security and protection of all Owners of the Bonds without preference, priority or distinction as to security or otherwise of any of the Loan over any of the others by reason --of the number or date -thereof, of the timeofsale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or herein. The Loan is not payable with respect to Tax Revenues of any other redevelopment project or any other Loans acquired by the Authority or from the funds and accounts established by any other Supplemental Agreement. Section 4.02 Housing Fund. The Agency shall establish and maintain a fund to be known as the "Low and Moderate Income Housing Fund" (the "Housing Fund") into which a portion of the proceeds of the Bonds will be deposited on the Closing Date in accordance with Section 3.02(3). The moneys in the Housing Fund shall be used solely in the manner authorized in the Redevelopment Law and the Redevelopment Plan. Section 4.03 Limitation on Superior Debt and Parity Debt. The Agency covenants that it shall not enter into any agreement or otherwise incur any loans, advances or indebtedness, which is in any case secured by a lien on the Pledged Tax Revenues superior to or on a parity with the lien established by this First Supplemental Agreement, excepting only Parity Debt issued pursuant to the provisions of this First Supplemental Agreement. Section 4.04 Subject to the Agreement. Except as in this First Supplemental Agreement expressly provided to the contrary, every term and condition contained in the Agreement shall apply to this First Supplemental Agreement and to the Loan with the same force and effect as if the same were herein set forth at length, with such omissions, variations, and modifications thereof as may be appropriate to make the same conform to this First Supplemental Agreement. Section 4.05 Article and Section Headings. The headings or titles of the several Articles and Sections of this First Supplemental Agreement shall be solely for convenience of reference and shall not affect the meaning, construction, or effect of this First Supplemental Agreement. Section 4.06 Prior Actions. (a) All actions heretofore taken not inconsistent with the provisions of this First Supplemental Agreement by the Agency, and the officers of the Agency on its behalf, directed toward the Redevelopment Projects to be financed with the Loan, and toward the acceptance and receipt of the Loan and their issuance, shall be, and the same hereby is, ratified, approved, and confirmed. All ordinances and resolutions, or parts thereof, in conflict herewith are hereby 124/015610-0073 40 412825.10 a05/24/04 -10- 13 repealed to the extent of such inconsistency. This repealer shall not be construed to revive any ordinance or resolution, or part thereof, heretofore repealed. (b) All actions heretofore taken not inconsistent with the provisions of this First Supplemental Agreement by the Authority, and the officers of the Authority, on its behalf, toward the issuance and delivery of the Loan shall be, and the same hereby is, ratified, approved, and confirmed. All ordinances and resolutions, or parts thereof, in conflict herewith are hereby repealed to the extent of such inconsistency. This repealer shall not be construed to revive any ordinance or resolution, or part thereof, heretofore repealed. Section 4.07 Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Agreement shall for any reason be held illegal or unenforceable such holding shall not affect the validity of the remaining portions of this Agreement. The Agency and Authority each hereby declare that it would have adopted this Agreement and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance and receipt of the Loans pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Agreement may be held illegal, invalid or unenforceable. Section 4.08 Effective Date of First Supplemental Agreement. This First Supplemental Agreement shall take effect from and after the date of its passage and adoption, which date shall be inserted into the preamble to this First Supplemental Agreement. Notwithstanding anything in this First Supplemental Agreement to the contrary, this First Supplemental Agreement, the obligations of Authority and Agency hereunder, shall be conditioned and contingent upon the sale of the Bonds and the receipt of proceeds therefrom by the Authority. Section 4.09 Governing Law. This First Supplemental Agreement shall be governed by and construed in accordance with the internal laws of the State of California without regard to conflicts of law principles. Section 4.10 Execution in Counterparts. This First Supplemental Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument [SIGNATURES ON NEXT PAGE] 124/015610-0073 412825.10 a05/24/04 -11- A `-t 14 IN WITNESS WHEREOF, the Agency, the Authority, and the Trustee have caused this First Supplemental -Agree ment-to be executed in their respective -name and attested hereto, as of the Effective Date. LA QUINTA REDEVELOPMENT AGENCY ("Agencyel) M Executive Director LA QUINTA FINANCING AUTHORITY ("Authority") 0 Executive Director U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE ("Trustee") 0 Its: 124/015610-0073 _ `. 412825.10 a05/24/04 -12 4,• 15 EXHIBIT A PROJECT AREAS NOS.1 AND 2 HOUSING LOAN DEBT SERVICE SCHEDULE [SEE FOLLOWING PAGES] 124/015610-0073 A-1 43 412825.10 a05/24/04 16 REPLACE THIS PAGE WITH DEBT SER VICE SCHEDULE, ETC. 124/015610-0073 4 t� 412825.10 a05/24/04 A-1 17 TABLE OF CONTENTS Page ARTICLEI THE LOAN; DEFINITIONS................................................................................... 3 Section 1.01 Execution of This First Supplemental Agreement .................................... 3 Section1.02 Definitions................................................................................................3 Section 1.03 Due Authorization.................................................................................... 5 ARTICLE II AUTHORIZATION OF THE LOAN..................................................................... 5 Section 2.01 Authorization For Issuance and Receipt of the Loan ............................... 5 Section2.02 Terms of Loan ........................................................................................... 6 Section 2.03 Prepayment of the Loan ............................................................................ 6 ARTICLE III ESTABLISHMENT OF FUNDS AND ACCOUNTS; APPLICATION OF PROCEEDS AND PARITY DEBT............................................................... 6 Section 3.01 Establishment of Funds and Accounts to be held by the Trustee ............. 6 Section 3.02 Application of Proceeds of the Loan and Other Funds ............................. 6 Section 3.03 Application of Debt Service Fund..................................................0......... 6 Section 3.04 Application of Special Fund..................................................................... 7 Section 3.05 Issuance of Parity Debt............................................................................. 7 Section 3.06 Issuance of Subordinate Debt................................................................... 9 ARTICLEIV MISCELLANEOUS.............................................................................................. 9 Section 4.01 Security for the Loan ................................................................................ 9 Section4.02 Housing Fund..........................................................................................10 Section 4.03 Limitation on Superior Debt and Parity Debt.........................................10 Section 4.04 Subject to the Agreement........................................................................10 Section 4.05 Article and Section Headings.................................................................10 Section4.06 Prior Actions. ...... o ....... o ............... o ........ o ...................... o .......................... o 10 Section 4.07 Partial Invalidity.....................................................................................11 Section 4.08 Effective Date of First Supplemental Agreement...................................11 Section4.09 Governing Law....................................................................................... I I Section 4.10 Execution in Counterparts......................................................................11 Exhibit A Debt Service Schedule 124/015610-0073 _ 412825.10 a05/24/04 _1 J 18 ATTACHMENT 3 ESCROW DEPOSIT AND TRUST AGREEMENT by and among the THE LA QUINTA FINANCING AUTHORITY, THE LA QUINTA REDEVELOPMENT AGENCY and U.S. BANK TRUST NATIONAL ASSOCIATION as Escrow Bank,1995 Bonds Trustee and 2004 Bonds Trustee Dated as of June 1, 2004 La Quinta Finance Authority Local Agency Revenue Bonds 2004 Series A 124/015610-0073 498751.02 a05/14/04 19 ESCROW DEPOSIT AND TRUST AGREEMENT This ESCROW DEPOSIT AND TRUST AGREEMENT is made and entered into as of the 1 st day of June, 2004, by and among the LA QUINTA FINANCING AUTHORITY, a joint exercise of powers authority, organized and existing under and by virtue of the laws of the State of California (the "Authority"), the LA QUINTA REDEVELOPMENT AGENCY, a redevelopment agency organized and existing under the laws of the State of California (the "Agency"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as Escrow Bank hereunder (the "1995 Bonds Trustee," the "2004 Trustee" and the "Escrow Bank") with respect to the Agency's $22,455,000 La Quinta Redevelopment Project Areas Nos. 1 and 2 1995 Housing Tax Allocation Bonds (the "1995 Bonds"). WITNESSETH: WHEREAS, the Agency has executed and delivered its 1995 Bonds pursuant to an Indenture of Trust, dated as of July 1, 1995 (the "1995 Indenture"); and WHEREAS, the Agency has executed an Indenture of Trust, dated as of June 1, 2004, (the "2004 Indenture"), pursuant to which Bonds (the "2004 Bonds") of the Authority have been issued, in part, to provide funds to advance refund the 1995 Bonds; and WHEREAS, the Escrow Bank acts as successor Trustee under the 1995 Indenture for the 1995 Bonds (hereinafter referred to in any such capacity as the "1995 Bonds Trustee"); and WHEREAS, pursuant to the 1995 Bonds shall no longer be deemed to be outstanding and unpaid if the Agency shall have caused to be deposited with the 1995 Bonds Trustee in trust, Qualified Investments (as herein defined) in such amount as, in the opinion of an independent certified public accountant, will, together with the interest to accrue thereon, be fully sufficient to pay and discharge the 1995 Bonds (including all principal, interest and redemption premiums), at or before their respective maturity dates, then the 1995 Indenture and all rights granted thereby, shall thereupon cease, terminate and become void and be discharged and satisfied; and WHEREAS, the firm of LLP has prepared and delivered to the Agency and the 2004 Trustee a verification report verifying the mathematical accuracy of the amount of said deposit, upon which the Agency and 2004 Trustee have relied; and WHEREAS, the Agency wishes to make such a deposit with the Escrow Bank and to enter into this Agreement for the purpose of providing the terms and conditions for the deposit and application of amounts so deposited; and WHEREAS, the Escrow Bank has . full powers to act with respect to the irrevocableescrow and trust created herein and to perform the duties. and obligations to be undertaken pursuant to the Agreement; 124/015610-0073 (] 498751.02 a05/14/04 J 20 NOW, THEREFORE, in consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby _agree as follows: Section 1. Definitions. As used herein, the term "Qualified Investments" shall mean United States Treasury notes, bonds, bills or certificates of indebtedness or those for which the faith and credit of the United States are pledged for the payment of principal and interest. Terms not herein defined shall be as defined in the 2004 Indenture. Section 2. AMintment of Escrow Bank. The Agency hereby appoints the Escrow Bank as escrow holder for all purposes of this Agreement and in accordance with the terms and provisions of this Agreement, and the Escrow Bank hereby accepts such appointment. Section 3. Establishment of Escrow Fund. The Escrow Bank hereby agrees to establish and maintain an irrevocable escrow fund to be designated the "1995 Bonds Escrow Fund", ("Refunding Escrow Fund") which shall be held by the Escrow Bank in trust as security for the payment of the principal of, redemption premiums and interest on the 1995 Bonds. If at any time the Escrow Bank shall receive actual knowledge that the moneys and Qualified Investments in the Refunding Escrow Fund will not be sufficient to make any payment required by Section 5 hereof, the Escrow Bank shall notify the Agency of such fact and the Agency shall immediately cure such deficiency. Section 4. Deposit and Application of Funds. Concurrently with delivery of the 2004 Bonds, the Agency shall cause to be transferred by the 2004 Trustee to the Escrow Bank for deposit in the Refunding Escrow Fund the amount of $ derived by the Agency from the proceeds of the 2004 Bonds, and the amount of $ transferred by the 1995 Bonds Trustee under the 1995 Indenture. Any amounts held by the 1995 Trustee, or which at some future time may be held by the Bond Fiscal Agent subsequent to this transfer, shall be transferred to the 2004 Trustee for deposit in the Redevelopment Fund as defined in the 2004 Indenture. The amount deposited by the Agency with the Escrow Bank in the Refunding Escrow Fund pursuant to this Section 4 shall be applied by the Escrow Bank on the date hereof in the amount of $ , to acquire the Qualified Investments described in Exhibit "A" attached hereto and by this reference incorporated herein (the "Original Federal Securities") and the remaining amount of $ shall be held uninvested. Section 5. Instructions as to Application of Deposit. The Original Federal Securities deposited pursuant to Section 4 hereof shall be deemed to be and shall constitute the deposit permitted to be made by the Agency pursuant to the 1995 Indenture. The Agency hereby instructs the Escrow Bank to apply the payments received from the Original Federal Securities, together with the uninvested cash deposited to: (a) pay all principal of and the interest on the 1995 Bonds coming due and payable on and through September 1, , and (b) to redeem on September 1, at a price of 102.00% plus accrued interest thereon to the date of redemption of all of the then outstanding 1995 Bonds maturing after September 1, ; all pursuant to and in accordance with the provisions of the 1995 Indenture on the dates and in the amounts set forth in Exhibit `B" attached hereto and by this reference incorporated herein. 124/015610-0073 498751.02 a05/14/04 -2- 21 Section 6. Investment of Any Remaining Moneys. The proceeds received from any of the Original Federal Securities shall be held uninvested until applied as required pursuant to Section 6. The Escrow Bank is hereby authorized and empowered to deposit uninvested monies held hereunder from time to time in demand deposit accounts, without payment for interest thereon as provided hereunder, established at commercial banks that are corporate affiliates of the Escrow Bank. Section 7. Substitution or Withdrawal of Federal Securities. The Agency may at any time direct the Escrow Bank to substitute non -callable Qualified Investments for any or all of the Original Federal Securities then deposited in the Escrow Fund, or to withdraw from the Escrow Fund and transfer to the Authority any Federal Securities. or portions thereof, provided', that any such direction and substitution or withdrawal shall be accompanied with a certification of an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions, which individual or firm carries errors and omissions insurance, and is not the underwriter, bond counsel or financial advisor in relation to the 1995 Bonds or the 2004 Bonds that the Federal Securities then to be so deposited in the Escrow Fund, or in the case of any such withdrawal, in either case together with interest to be derived therefrom, shall be in an amount at all times at least sufficient to make the payments specified in Section 5 hereof and, further, to be accompanied with an opinion of nationally recognized bond counsel that: (a) the substitution or withdrawal is permitted under this Agreement, and (b) the substitution will not affect the exemption from federal income taxes of the interest on the 1995 Bonds or the 2004 Bonds. In the event that, following any such substitution or withdrawal of Federal Securities pursuant to this Section 7, there is an amount of moneys or Federal Securities in excess of an amount sufficient to make the payments required by Section 5 hereof, such excess shall be paid to the Agency. Section 8. Application of Certain Terms of the 1995 Indenture. All of the terms of the 1995 Indenture relating to the making of payments or principal and interest on the 1995 Bonds are incorporated in this Agreement as if set forth in full herein. The Escrow Bank is hereby directed to provide timely notice of redemption of all Bonds. Said notice shall be mailed by the 1995 Bonds Trustee in accordance with the provisions of the Trustee. The notices so mailed shall contain the information specified in the Trustee. This paragraph shall constitute notice by the Agency to the 1995 Bonds Indenture of the redemption of the 1995 Bonds of the redemption of the 1995 Bonds on September 1, Section 9. Liability of Escrow Bank. The Escrow Bank undertakes to perform such duties and only such duties specifically set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against the Escrow Bank. The Agency further agrees to indemnify the Escrow Bank from any and all claims, losses or expenses arising from the performance of its duties hereunder except that the Escrow Bank shall not be indemnified for any claim, loss or expense arising from its negligence or willful misconduct. No provision of this Agreement shall require the Escrow Bank to risk or advance its own funds and the Escrow Bank's sole responsibility is to administer the amounts deposited hereunder in accordance with 124/015610-0073 498751.02 a05/14/04 -3- 22 the terms of this Agreement. Such indemnity shall survive termination of this Agreement or resignation or removal of the Escrow Bank. Section 10. Compensation to Escrow Bank. The Agency shall pay the Escrow Bank full compensation for its duties under this Agreement, including out-of-pocket costs such as publication costs, redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, fees, costs and expenses relating to the purchase of any Federal Securities after the date hereof, pursuant to separate agreement between the Agency and the Escrow Bank. Under no circumstances shall amounts deposited in the Escrow Funds be deemed to be available for said purposes. Section 11. Resignation and Removal. The provisions of the 1995 Indenture as it relates to the 1995 Bonds relating to the resignation and removal of the 1995 Bonds Trustee are also incorporated in this Agreement as if set forth in full herein and shall be the procedure to be followed with respect to any resignation or removal of the Escrow Bank hereunder. Section 12. Limited Liability of Escrow Bank; Reliance on Opinions and Documents. The Escrow Bank shall not be responsible for any of the recitals or representations contained herein. The Escrow Bank shall not be liable for the accuracy of any calculations provided as to the sufficiency of the moneys or the securities deposited with it to pay the principal or interest represented by the 1995 Bonds. The Escrow Bank shall not be liable for any act or omission of the Agency under this Agreement. The Escrow Bank may conclusively rely, as to the truth and accuracy of the statements and the correctness of the opinions and calculations provided, and shall be protected and indemnified, in acting, or refraining from acting, upon any written notice, instruction, request, certificate, document or opinion furnished to the Escrow Bank and reasonably believed by the Escrow Bank to have been signed or presented by the proper party, and it need not investigate any fact or matter stated in such notice, instruction, request, certificate, document or opinion. Whenever in the administration of this Agreement the Escrow Bank shalldeem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Escrow Bank, be deemed to be conclusively proved and established by a certificate of an authorized representative of the Agency, and such certificate shall, in the absence of negligence or willful misconduct on the part of the Escrow Bank, be full warrant to the Escrow Bank for any action taken or suffered by it under the provisions of this Agreement upon the faith thereof. Section 13. Amendment Hereof. This Agreement may not be amended by the parties hereto unless there shall first have been filed with the Agency and the Escrow Bank a written opinion of nationally -recognized bond counsel stating that such amendment will not adversely affect the exemption from federal income taxation or the exclusion from gross income under federal tax law, as applicable, of interest on the 1995 Bonds or the 2004 Bonds. 124/015610-0073 498751.02 a05/14/04 -4- 23 Section 14. Execution in Counterparts. This Escrow Deposit and Trust Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one -and -the, same instrument. 124/015610-0073 498751.02 a05/14/04 _5" 24 IN WITNESS WHEREOF, the Authority, Agency and the Escrow Bank have each caused-Ahis- -Agreement to be executed by their duly. authorized -officers -all as of the date first above written. LA QUINTA REDEVELOPMENT AGENCY ("Agency") 0 Executive Director LA QUINTA FINANCING AUTHORITY ("Authority") LIM Executive Director U.S. BANK TRUST NATIONAL ASSOCIATION, as Escrow Bank, 1995 Bonds Trustee, and 2004 Bonds Trustee ("Escrow Bank") m Authorized Signatory 124/015610-0073 498751.02 a05/14/04 -6- 25- EXHIBIT A 124/015610-0073 498751.02 a05/14/04 26 EXHIBIT B 124/015610-0073 498751.02 a05/14/04 27 ATTACHMENT 4 INDENTURE OF TRUST Dated as of June 1, 2004 by, and between the LA QUINTA FINANCING AUTHORITY AND U.S. BANK NATIONAL ASSOCIATION as Trustee Relating to La Quinta Financing Authority Local Agency Revenue Bonds, 2004 Series A 124/015610-0073 505001.03 a05/24/04 28 INDENTURE OF TRUST THIS INDENTURE OF TRUST (the "Indenture") dated as of June 1, 2004, by and between the LA QUINTA FINANCING AUTHORITY, a joint exercise of powers authority organized and existing under and by virtue of the laws of the State of California (the "Authority"), and U.S. BANK NATIONAL ASSOCIATION, a national banking corporation, organized and existing under the laws of the United States and having a corporate trust office in Los Angeles, California, as trustee (the "Trustee"). WITNESSETH: WHEREAS, the Authority is a joint exercise of powers authority duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement between the City of Palm Springs (the "City") and the La Quinta Redevelopment Agency (the "Agency") and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act'), and is authorized pursuant to Article 4 of the Act (the "Bond Law") to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations, and to make loans, to provide financing and refinancing for capital improvements of member entities of the Authority; and WHEREAS, for the purpose of providing financing and refinancing for the acquisition, construction, improving and equipping of capital improvements undertaken by the City and the Agency, the Authority has determined to issue its La Quinta Financing Authority Local Agency Revenue Bonds, 2004 Series A (the `Bonds"), all pursuant to and secured by this Indenture and by Supplemental Indentures providing for the issuance of the Bonds in series, all in the manner provided herein; and WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Authority has authorized the execution and delivery of this Indenture; and WHEREAS, the Authority certifies that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of and the interest and premium (if any) on all Bonds at any time issued and outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable considerations, the 124/015610-0073 505001.03 a05/24/04 29 receipt whereof is hereby acknowledged, the Authority does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the Bonds, as follows: WHEREAS, it is desirable at this time to provide for the issuance of a Series of the Bonds pursuant to the Indenture and this Indenture in the aggregate principal amount of .a (the "Series A Bonds"); and WHEREAS, the Authority hereby confirms its pledge of certain Revenues (as such term is defined in the Indenture) for the benefit of the owners of Series A Bonds; and WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any and interest thereon, the Authority and the Trustee have duly authorized the execution and delivery of this Indenture; and WHEREAS, the Authority has determined that all acts and proceedings required by law necessary to make the Bonds when executed by the Authority, and authenticated and delivered by the Trustee, the valid, binding and legal special obligations of the Authority, and to constitute this Indenture a legal, valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done or taken; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, premium, if any, and the interest on all the Bonds issued and Outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof, and for other valuable consideration, the receipt of which is hereby acknowledged, the Authority and the Trustee do hereby covenant and agree with one another, for the benefit of the respective owners from time to time of the Bonds, as follows: ARTICLE I DETERMINATIONS; DEFINITIONS Section 1.1 Findings and Determinations. The Authority has reviewed all proceedings heretofore taken and has found, as a result of such review, and hereby finds and determines that all things, conditions and acts required by law to exist, happen or be performed precedent to and in connection with the issuance of the Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the Authority is now duly empowered, pursuant to each and every requirement of law, to issue the Bonds in the manner and form provided in this Indenture. 124/015610-0073 505001.03 a05/24/04 "3 _ 30 Section 1.2 Defmitions. - Unless Ahe � context- otherwise requires; the -terms- defined in this Section 1.2 shall, for all purposes of this Indenture, of any Supplemental Indenture, and of any certificate, opinion or other document herein mentioned, have the meanings herein specified. "Act" means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California. "Agent," means the La Quinta Redevelopment Agency, a public body corporate and politic duly organized and existing under the Law. "Agreement" means that certain Joint Exercise of Powers Agreement, dated as of , by and between the Agency and the City and as hereafter duly amended and supplemented from time to time, creating the Authority for the purposes, among other things, of assisting the City and the Agency in the financing and refinancing of Public Capital Improvements, as such term is defined in the Bond Law. "Alternative Reserve Account Security' means one or more letters of credit, Surety Bond or bond insurance policies, for the benefit of the Trustee in substitution for or in place of all or any portion of the Reserve Requirement. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Term Bonds are redeemed from mandatory sinking fund payments as scheduled, and (b) the principal amount of the Outstanding Term Bonds scheduled to be paid or redeemed from mandatory sinking fund payments in such Bond Year. "Authority" means the La Quinta Financing Authority, a joint powers authority duly organized and existing under the Agreement and under and by virtue of the laws of the State of California. "Authority Bond Counsel" or "Agency Bond Counsel" or "Bond Counsel" means the law firm & Rutan & Tucker, LLP, Costa Mesa, California, and any successor firm. "Authorized Representative" means: (a) with respect to the Authority, its Chairperson, Treasurer, Executive Director, Assistant Executive Director or Secretary, or any other Person designated as an Authorized Representative of the Authority by a Certificate of the Authority signed by its Chairperson and filed with each Local Agency, the Authority and the Trustee; (b) with respect to the City, its City Manager, Assistant City Manager or Finance Director, or any other Person designated as an Authorized Representative of the City by a Certificate signed on behalf of the City by its City Manager and filed with the Authority and the Trustee; (c) with respect to the Agency, its Executive Director, Assistant Executive Director, Treasurer or Secretary, or any other Person designated as an Authorized Representative of the Agency by a Certificate signed on behalf of the Agency by its Executive Director and filed with the Authority and the Trustee; and (d) with respect to the Trustee, the President, any Vice President, any Assistant Vice President, any Senior Authorized Officer or any Trust Officer of the Trustee, and when used with reference to any act or document also means any other Person authorized to 124/015610-0073 505001.03.a05/24/04 31 perform such act or sign any document by or pursuant to a resolution of the Board of Directors of the Trustee or the by-laws of the Trustee. An Authorized Representative may by written instrument designate any Person to act on his or her behalf. "Average Annual Debt Service" means the amount determined by dividing the sum of all Annual Debt Service amounts due in each of the Bond Years following the date of such calculation by the number of such Bond Years. "Bonds" means the Authority's Local Agency Revenue Bonds, 2004 Series A, issued in the amount of $ "Bond Counsel" means either Authority Bond Counsel or Local Agency Bond Counsel. "Bond Law" means the Marks -Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with Section 6584), as amended from time to time. "Bond Insurer" means Ambac Assurance Corporation, a Wisconsin -domiciled stock insurance company, or any successor thereto. "Bondowner" or "Owner of Bonds", or any similar term means any person, who shall be the registered owner or his duly authorized attorney, trustee or representative. For the purpose of Bondowners' voting rights or consents, Bonds owned by or held for the account of the Agency shall not be counted. "Bond Year" means any twelve-month period beginning on September 2 in any year and extending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shall commence on the Closing Date and end on September 1, 2002. "Business Day" means a day of the year on which banks in Los Angeles, California, or the city in which the Trust Office is located, are not required or permitted to be closed and on which the Federal Reserve System is not closed. "Chair" or "Chairperson" means the Chair of the Authority or Agency, as the case may be, appointed pursuant to Section 33113 of the Health and Safety Code of the State, or other duly appointed officer of the Agency authorized by the Agency or Authority by resolution or by-law to perform the functions of the chairperson in the event of the chairperson's absence or disqualification. "Cit 'means the City of La Quinta, California. "Closing Date" means the date on which the Bonds are delivered by the Agency to the original purchaser thereof. "Code" means the Internal Revenue Code of 1986, as amended and any regulations, rulings, judicial decisions, and notices, announcements and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it, or any applicable regulations adopted under the Internal Revenue Code of 1954, as amended. 124/015610-0073 505001.03 a05/24/04 -5- 32 "Compputation Year" means the period beginning on the Closing Date and ending on August 31, and each August 31 thereafter until there are no longer any Bonds Outstanding. "Continuing Disclosure Agreement" means the agreement by that name of the Authority, the Agency dated the Closing Date and any amendment or supplement thereto. "Costs of Issuance" means the costs and expenses incurred by the Agency or Authority in connection with the issuance and sale of the Bonds, including, but not limited to, any rating agency fees, recording fees, Financial Guaranty Insurance Policy premiums, Alternative Reserve Account Security premiums, the acceptance and . initial annual fees and expenses of the Trustee, legal fees and expenses, costs of printing the Bonds and Official Statement, fees of financial consultants and other fees and expenses set forth in a Written Certificate of the Authority to be paid from the Costs of Issuance Account. "County" means the County of Riverside, a county duly organized and existing under the laws of the State. "Debt Service" means the scheduled amount of interest and amortization of principal payable on the Bonds and on any Parity Debt during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.3. "Depository" means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to Section 2.4. "Depository System Participant" means any participant in the Depository's book -entry system. "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. "Event of Default" means any of the events described in Section 8.1. "Federal Securities" means any noncallable, direct general obligations of the United States of America, the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America. "Financial Guaranty Insurance Policy" means the Financial Guaranty Insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein. "First Supplemental Loan Agreement" means that First Supplemental Loan Agreement, dated as of 1, ,by and among the Authority, the Agency and the Trustee. 124/015610-0073 _ 505001.03 a05/24/04 -6 33 "Fiscal Year" means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other twelve month period selected and designated by the Agency to the Trustee in writing -as -its- official -fiscal year period. "Housing_ Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.3. "Indenture" means this Indenture of Trust, dated as of the date hereof, by and between the Agency and the Trustee, as originally entered into or as it may be amended or supplemented by any Supplemental Indenture entered into pursuant to the provisions hereof. "Independent Financial Consultant, "Independent Engineer," "Independent Certified Public Accountant" or "Independent Redevelopment Consultant" means any individual or firm engaged in the profession involved, appointed by the Agency, and who, or each of whom, has a favorable reputation in the field in which his opinion or certificate will be given, and: (a) is in fact independent and not under domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, loth Floor, Jersey City, New Jersey 07202, Attention: Editor, Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's Investors Service "Municipal and Government," 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Called Bond Department, Standard & Poor's Corporation "Called Bond Record," 55 Water Street, New York, New York 10041; 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 the redemption of bonds as the Agency may designate in a Request of the Agency delivered to the Trustee. "Interest Payment Date" means March 1 and September 1 of each year, commencing September 1, 2004, and in each year thereafter so long as any of the Bonds remain outstanding hereunder. "Investment Agreement" means the unconditional obligation of one or more banks, insurance companies or other financial institutions with a long-term unsecured debt rating of "A" or better by Standard & Poor's or Moody's (or a claims -paying rating of "A" by Standard & Poor' s or Moody' s) as of the date of execution thereof, providing for the investment of moneys held under this Indenture. Each Investment Agreement must be reviewed and approved by Standard & Poor's or Moody's, as the case may be, provided that any Investment Agreement also: (i) shall contain a provision for collateralization at a level acceptable to Standard & Poor's or Moody's, as the case may be, and (ii) shall clearly state the exact rating requirements to be maintained with respect thereto. Extensions of the term of an Investment Agreement shall not require the consent of the owners of the Bonds. The Agency shall not withdraw moneys from an 124/015610-0073 505001.03 a05/24/04 -7- 34 Investment Agreement in a manner or at a time which would result in it having to pay a breakage or withdrawal penalty thereunder unless such fee is paid from the Housing Fund or the Agency has -delivered to the Trustee a -cash- flow -certificate which -assumes that such withdrawal Ias-been made and such penalty has been paid. "JPA Law" means the provisions of Articles 1 through 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State, as amended. "Law" means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto. "Loan Agreement" means that Loan Agreement dated as of February 3, 2004, by and between the Authority and the Agency. "Loan Documents" means collectively the Loan Agreement and the First Supplemental Loan Agreement. "Loan Payments" means the payments made by the Agency pursuant to the Loan Documents. "Local Agency' means the City or the Agency. "Local Agency Bond Counsel" means, with respect to the issuance of any Local Obligation by a Local Agency, a firm of nationally recognized attorneys experienced in .the issuance of obligations the interest on which is excluded from gross income for purposes of Section 103 of the Tax Code, which firm is selected by such Local Agency and which acts as bond counsel to such Local Agency in connection with the issuance of any issue of such Local Obligations, and which may be Authority Bond Counsel. "Local Obligation" tion" means any obligation of or loan to the Agency or other public entity which the Authority is authorized to acquire or to make under the Bond Law including but not limited to any loan agreement, tax allocation bonds, or other bonds authorized by any Supplemental Indenture, and, with respect to a Series of the Bonds, means the obligations and loans acquired or made with the proceeds of such Series of the Bonds, as identified in this Indenture or any Supplemental Indenture. "Maximum Annual Debt Service" means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the interest payable on the Outstanding Bonds and any Parity Debt in such Bond Year, assuming that outstanding serial Bonds are retired as scheduled and that any Outstanding term Bonds are redeemed from mandatory sinking fund payments as scheduled, (b) the principal amount of Outstanding Bonds and any Parity Debt payable by their terms in such Bond Year, and (c) the principal amount of any Outstanding term Bonds scheduled to be redeemed from mandatory sinking fund payments in such Bond Year. If any proceeds of outstanding Parity Debt shall be on deposit in an escrow fund from which amounts may not be released to the Agency unless the amount of Pledged Tax Revenues for the most recent Fiscal Year (as evidenced in a written document from an appropriate official of the County), at least equals 130% of the amount of Maximum Annual 124/015610-0073 505001.03 a05/24/04 -8- 35 Debt Service, which would result if the amount on deposit in such escrow fund were to be released to the Agency from such escrow fund in accordance with the terms of the related Supplemental- Indenture, then for- purposes of -calculating Maximum Annual Debt Service, the Annual Debt Service on such Parity Debt shall be determined as if the amounts then on deposit in the escrow fund were withdrawn therefrom and applied to pay or redeem such Parity Debt in accordance with the terms of the related Supplemental Indenture. "Moody's' or "Moody's Investors Service" means Moody's Investors Service, Inc., New York, New York, or any successors or assignees. "1995 Housing Bonds" means the $22,455,000 La Quinta Redevelopment Project Areas No. 1 and 2 1995 Housing Tax Allocation Bonds, issued pursuant to the 1995 Indenture. "1995 Housing Indenture" means the Indenture of Trust, dated as of July 1, 1995, authorizing the 1995 Housing Bonds. "Nominee" means (a) initially, Cede & Co., as nominee of DTC, and (b) any other nominee of the Depository designated pursuant to Section 2.4(a). "Opinion of Counsel" means a written opinion of an attorney or firm of attorneys of favorable reputation in the field of municipal bond law. Any opinion of such counsel may be based upon, insofar as it is related to factual matters, information which is in the possession of the Agency as shown by a certificate or opinion of, or representation by, an officer or officers of the Agency, unless such counsel knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which his or her opinion may be based, as aforesaid, is erroneous. "Outstanding" when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 9.3) all Bonds except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of Section 9.3; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant hereto. "Owner" means, with respect to any Bond, the person in whose name the ownership of such Bond shall be registered on the Registration Books. "Participating Underwriter" shall have the meaning ascribed thereto in the applicable Continuing Disclosure Agreement. "Project No. 1 Pass -Through Agreements" means the agreements entered into on or prior to the date hereof pursuant to Section 33401 of the Health and Safety Code with (i) County of Riverside; (ii) Desert Sands Unified School District,' (iii) Coachella Valley Water District; (iv) 124/015610-0073 505001.03 a05/24/04 -9- 36 Desert Community College District; (v) County of Riverside Superintendent of Schools; (vi) Coachella Valley Mosquito Abatement District; and (vii) Coachella Valley Recreation and Park District and such statutory obligations as provided in Section 33607.5 of the Law. "Project No. 2 Pass -Through Agreements" means "Permitted Investments" means any of the following: A. The following obligations may be used as Permitted Investments for all purposes, including defeasance investments in refunding escrow accounts. (1) Cash (insured at all times by the Federal Deposit Insurance Corporation), (2) Obligations of, or obligations guaranteed as to principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including: • U.S. treasury obligations • All direct or fully guaranteed obligations • Farmers Home Administration • General Services Administration • Guaranteed Title XI financing • Government National Mortgage Association (GNMA) • State and Local Government Series (3) Obligations of Government- Sponsored Agencies that are not backed by the full faith and credit of the U.S. Government: • Federal Home Loan Mortgage Corp. (FHLMC) Debt obligations • Farm Credit System (formerly: Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives) • Federal Home Loan Banks (FHL Banks) • Federal National Mortgage Association (FNMA) Debt obligations • Financing Corp. (FICO) Debt obligations • Resolution Funding Corp. (REFCORP) Debt obligations • U.S. Agency for International Development (U.S. A.I.D) Guaranteed notes Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). U.S.A.I.D. securities must mature at least four business days before the appropriate payment date. 124/015610-0073 505001.03 a05/24/04 -10- 37 B. Bond Insurer will allow following Obligations to be used as Permitted Investments for all purposes other than defeasance investments in refunding escrow accounts. (1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: - Export -Import Bank - Rural Economic Community Development Administration - U.S. Maritime Administration - Small Business Administration - U.S. Department of Housing & Urban Development (PHAs) - Federal Housing Administration - Federal Financing Bank (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: - Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). - Obligations of the Resolution Funding Corporation (REFCORP) - Senior debt obligations of the Federal Home Loan Bank System - Senior debt obligations of other Government Sponsored Agencies approved by Ambac (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P-1" by Moody's and "A-1 " or "A-1 +" by S &P and maturing not more than 3 60 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); (4) Commercial paper which is rated at the time of purchase in the single highest classification, "P 1" by Moody's and "A-1+" by S&P and which matures not more than 270 calendar days after the date of purchase; (5) Investments in a money market fund rated "AAAm" or "AAAm- G" or better by S&P; (6) Pre -refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and 124/015610-0073 505001.03 a05/24/04 -11- 38 (A) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of Moody's or S &P or any successors thereto; or (B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (7) Municipal obligations rated "Aaa/AAA" or general obligations of States with a tin of "AVA" or higher by both Moody's and S &P; (8) Investment agreements approved in writing by Bond Insurer (supported by appropriate opinions of counsel); and (9) Other forms of investments (including repurchase agreements) approved in writing by Ambac. C. The value of the above investments shall be determined as of the end of each month as follows: (1) For securities: (a) the closing bid price quoted by Interactive Data Systems, Inc.; or (b) a valuation performed by a nationally recognized and accepted pricing service acceptable to Bond Insurer whose valuation method consists of the composite average of various bid price quotes on the valuation date; or (c) the lower of two dealer bids on the valuation date. The dealers or their parent holding companies must be rated at least investment grade by Moody's and S&P and must be market makers in the securities being valued. (2) As to certificates of deposit and bankers' acceptances: the face amount thereof, plus accrued interest; and 124/015610-0073 505001.03 a05/24/04 -12- 39 (3) As to any investment not specified above: the value thereof established by prior agreement between the Agency, the Trustee and Bond --..Insurer. "Plan Limit" means the limitation contained in the Redevelopment Plan as to the number of dollars of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan, as such limitation may be required by, or pursuant to, the Law. "Project Areas" means the territory within the La Quinta Redevelopment Project Area No. 1 and Project Area No. 2, as described in the Redevelopment Plan. "Project Area No. 1" means the territory within the La Quinta Redevelopment Project Area No. 1, as described in the Applicable Redevelopment Plan. "Project Area No. 2" means the territory within the La Quinta Redevelopment Project Area No. 2, as described in the Applicable Redevelopment Plan. "Qualified Surety Bond" means an insurance policy or surety bond issued by a company licensed to issue an insurance policy or surety, the claims —paying ability of which is rated in the highest rating category by A.M. Best & Company (if rated by such), Standard & Poor's and Moody's. "Rating_ Categories" means any one of the investment grade rating categories I (without regard to plus or minus signs or other numerical or qualifying designation) of Standard & Poor's and Moody" s, or their respective successors or assigns. "Rebate Regulations" means any final, temporary, or proposed Treasury Regulations promulgated pursuant to Section 148 (f) of the Code. "Record Date" means, with respect to any Interest Payment Date, the close of business on the fifteenth (15th) calendar day of the month preceding such Interest Payment Date, whether or not such fifteenth (15th) calendar day is a Business Day. "Redevelopment Plans" means collectively the Redevelopment Plan for the project designated as the "La Quinta Redevelopment Project Area No. 1", adopted and approved by Ordinance No. 43, which became effective on December 29, 1983, and "Li Quinta Redevelopment Plan Project Area No. 2", adopted and approved by Ordinance No. 139 which became effective on May 15, 1989, together with any amendments thereof heretofore or hereafter duly enacted pursuant to the Law. "Redevelopment Project Areas," "Redevelopment Projects," or "Project Areas" means the project areas defined and described in the Redevelopment Plans. "Registration Books" means the records maintained by the Trustee pursuant to Section 2.9 for the registration and transfer of ownership of the Bonds. "Report" means a document in writing signed by an Independent Redevelopment Consultant and including: 124/015610-0073 -13 - 505001.03 a05/24/04 40 (a) a statement that the person or firm making or giving such Reporthas read the pertinent provisions of this Indenture to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Deport. "Reserve Fund" means the account by that name established and held by the Trustee pursuant to Section 4.3(b). "Reserve Requirement" means, with respect to the Bonds, an amount equal to thle least of (i) ten percent (10%) of the proceeds of the Bonds, as applicable, (ii) Maximum Annual Debt Service, or (iii) 125% of Average Annual Debt Service. "Resolution" means the resolution adopted by the Agency on June 1, 2004. "Revenues" means, with respect to one or more Series of the Bonds: (a) all'i amounts derived from or with respect to the Loan and Loan Documents; (b) investment income with respect to any moneys held by the Trustee in the funds and accounts established tinder the Indenture providing for the issuance of such Series of the Bonds; and (c) any other investment income received under the Supplemental Indenture providing for the issuance of such (Series of the Bonds, as identified in the Indenture. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax—(516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures -Call Notification, 440 South La Salle Street, Chicago, Illinois 60605, Fax: (312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103; Attention: Bond Department, Fax-(215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Agency may designate in a Written Request of the Agency delivered to the Trustee. . "Series A Bonds" means the La Quinta Financing Authority Local Agency Revenue Bonds, 2004 Series A, issued in the aggregate principal amount of $ , authorized by and at any time outstanding pursuant to the Indenture and this First Supplemental Indenture. "Six -Month Period" shall mean the period of the time beginning on the Closing 'Date and ending six months thereafter, and each six month period thereafter until the latest matOrity date of the Bonds (and any obligations that refund the Bonds). "SLGS" means U.S. Treasury Securities State and Local Government Series. "Special Fund" means the fund by that name established and held by the Agency pursuant to Section 4.2. 124/015610-0073 -14- 505001.03 a05/24/04 41 "Standard & Poor's". "S&P" or "Standard & Poor's Ratings Services" means Standard & Poor's Ratings Services, New York, New York, or any successors or assigns. "State" means the State of California. "Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency pursuant to the Indenture, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Pledged Tax Revenues; or (b) secured by a pledge of or lien upon the Pledged Tax Revenues which is subordinate to the pledge of and lien upon the Pledged Tax Revenues for the security of the Bonds and the Parity Debt. "Supplemental Indenture" means any indenture then in full force and effect which has been duly entered into by the Agency under the Law, or any act supplementary thereto and amendatory thereof, at a meeting of the Agency duly convened and held, at which a quorum was present and acted thereon, amendatory of or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder. "Sure , Bond" means the surety bond issued by the Bond Insurer guaranteeing certain payments into the Reserve Fund as provided therein and subject to the limitations 'set forth therein. "Tax Certificate" means that certain Tax Certificate executed by the Authority and the Agency on the Closing Date with respect to the Bonds. "Tax ReMulations" means temporary and permanent regulations promulgated under Section 103 and all related provisions of the Code. "Term Bonds" means the Bonds maturing in the years 2022 and 2032. "Trustee" means U.S. Bank Trust, National Association, as trustee hereunder, or any successor thereto appointed as trustee hereunder in accordance with the provisions of Article VI. "Trust Office" means such corporate trust office of the Trustee as may be designated from time to time by written notice from the Trustee to the Agency, initially being Los Angeles, California, except that with respect to presentation of Bonds for payment of or registration of transfer and exchange, such term shall mean the office of the Trustee in St. Paul, Minnesota or such other office designated by the Trustee. Section 1.3 Rules of Construction. All references herein to "Articles", "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture, and the words "herein", "hereof", "hereunder" and other words -of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. 124/015610-0073 -15- 505001.03 a05/24/0-4 42 ARTICLE II AUTHORIZATION AND TERMS Section 2.1 Authorization of Bonds. Bonds in the aggregate principal amount of Dollars ($ ) are hereby authorized to be issued by the Authority under and subject to the terms of this Indenture and the Law. This Indenture constitutes a continuing agreement with the owners of 411 of the Bonds issued or to be issued hereunder and then Outstanding to secure the full and final ,,payment of principal and interest on all Bonds which may from time to time be executed and &livered hereunder, subject to the covenants, agreements, provisions and conditions herein contained. The Bonds shall be designated the "La ' Quinta Financing Authority Local Agency 'Revenue Bonds, 2004 Series A. Section 2.2 Terms of Bonds. The Bonds shall be issued in fully registered form without coupons in the denomination of $5,000 or any integral multiple thereof. The Bonds shall mature on September 1 of each year and shall bear interest (calculated on the basis of a 360-day year of twelve 30-day months) at the rate per annum as follows: Maturity Date (September 1) Term Bonds due September 1, Term Bonds due September 1, Principal Amount Interest Rate $ Interest on the Bonds shall be payable semiannually on each Interest' Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee mailed by first class mail on each Interest Payment Date to such Owner at the address of such Owner as it appears on the Registration Books as of such Record Date; provided however, that payment of interest may be by wire transfer to an account in the continental United States to any registered owner of Bonds in the aggregate principal amount of $1,000,000 or more who shall furnish written wire instructions to the Trustee before the applicable Record Date. Principal of any Bond shall be paid upon presentation and surrender thereof, at maturity at the Trust Office of the Trustee. The principal of and interest on the Bonds shall be payable in lawful money of the United States of America. 124/015610-0073 -16- 505001.03 a05/24/04 43 Each Bond shall be dated June 15, 2004, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the1ollowing Interest -Payment Date; in- which event it shall bear interest from such Interest Payment Date; or (b) a Bond is authenticated on or before August 15, 2004, in which event it shall bear interest from the Date of Delivery, provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Section 2.3 Redemption of Bonds. A. Terms of Redemption. (1) Optional Redemption. The Bonds may be called before maturity and redeemed at the option of the Authority, in whole or in part from the proceeds of refunding Bonds or any other available funds on September 1, , or any date thereafter, prior to maturity. Bonds called for redemption shall be redeemed at the redemption prices (expressed as a percentage of the principal amount of Bonds to be redeemed) plus accrued interest to the redemption date as shown in the following table: Redemption Date Redemption Price September 1, through August 31, 102% September 1, through August 31, 101% September 1, and thereafter 100% (2) Sinking Fund Redemption. The Term Bonds maturing on September 1, 2022, will be subject to mandatory redemption in part, by lot, on September 1, 2013, and on each September 1 thereafter to and including September 1, 2022, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the redemption date, without premium, from minimum sinking fund payments on hand in the Debt Service Fund in the years and amounts as follows: Year Amount Year Amount (3) Sinking Fund Redemption. The Term Bonds maturing on September 1, will be subject to mandatory redemption in part, by lot, on September 1, ; , and on each September 1 thereafter to and including September 1, , at a redemption price equal to the principal amount thereof together with accrued interest thereon to the redemption date, without premium, from minimum sinking fund payments on hand in the Debt Service Fund in the years and amounts as follows: Year Amount Year Amount 124/015610-0073 505001.03 a05/24/04 " 17- 44 Year Amount Year Amount Minimum sinking fund payments for any Term Bond redeemed pursuant to Section 2.3(A)(1) hereof shall be reduced pro rats. (4) Special Mandatory Redemption trom Proceeds or loan rrepayments or the attic or Refunding of Local Obli atg ions. On any Interest Payment Date that the Bonds are subject to optional redemption, the Bonds shall also be subject to special mandatory redemption 'from the proceeds of sale or refunding of Local Obligations at a price equal to the principal amount, of the Bonds to be redeemed, plus interest accrued to the date fixed for redemption, plus the premium, if any, payable upon optional redemption of the Bonds; provided that the Authority may determine not to apply all or any portion of such moneys to the redemption of such Bands (i) if the Authority applies such moneys to the purchase of other Local Obligations or (ii) if the Authority applies such moneys to the payment of regularly scheduled payments of principal of the Bonds or (iii) if the Authority is able to invest such proceeds to a subsequent principal payment or redemption date at a yield which will not adversely impact the Authority's ability to pay the Bonds, as confirmed by a certificate of an Independent Financial Consultant delivered by the Authority to the Trustee with the Written Certificate of the Authority. Prior to the investment of such moneys to such a subsequent payment or redemption date, the Authority shall obtain and provide to the Trustee the opinion of Authority Bond Counsel that such investment will not adversely affect the exclusion from gross income for purposes of the federal tax laws of interest payable on the Bonds. If the Trustee shall invest such moneys to such a subsequent payment or redemption date, then the moneys shall be applied to pay or redeem the applicable portion of the Bonds on such subsequent payment or redemption date. Except as may be otherwise provided in the applicable Supplemental Indenture, upon any such redemption, Bonds shall be selected for redemption in a manner determined by the Authority and presented to the Trustee in a Written Certificate no later than forty-five (45) days prior to the applicable redemption date. B. Call and Redemption. The Authority may by resolution direct the call and redemption prior to maturity of Bonds by the Trustee in such amounts as funds are ,available therefor and shall give notice to the Trustee of such redemption not less than sixty (60) days prior to the redemption date. C. Notice of Redemption. Notice of redemption prior to maturity (except as'iprovided below) shall be given by first class mail, postage prepaid to the registered owner of each Bond at the address shown on the registration books of the Trustee not less than thirty (30) nor more than sixty (60) days prior to such redemption date. Neither failure to mail such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of any Bonds. The notice of redemption shall (a) state the redemption date; (b) state the redemption price; (c) state the numbers of the Bonds to be redeemed; provided, however, that whenever any 124/015610-0073 -18- 505001.03 a05/24/04 45 call for redemption includes all of the outstanding Bonds, the numbers of the Bonds need not be stated; (d) state as to any Bonds redeemed in part only, the registered Bond numbers and the principal portion thereof to be -redeemed; - (e) state -that -interest- on the -principal- portion of the Bonds so designated for redemption shall cease to accrue from and after such redemption date and that on said date there shall become due and payable on each of such Bonds the redemption price thereof; (f) the date of issue of the Bonds as originally issued; (g) the rate of interest borne by each Bond being redeemed and (h) the place of redemption. D. Notice of Redemption. The actual receipt by the Owner of any Bond or notice of such redemption shall not be a condition precedent to redemption, and failure to receive such notice shall not affect the validity of the proceedings for the redemption of such Bonds or the cessation of interest on the redemption date. Notice of redemption of Bonds shall be given by the Trustee and on behalf of the Authority at the expense of the Authority. In addition to the foregoing notice, further notice shall be given by the Trustee as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed. Each further notice of redemption shall be sent 2 days prior to sending notice of redemption pursuant to the first paragraph of this section by registered or certified mail or overnight delivery service to the Securities Depositories. Upon the payment of the redemption price of any Bonds being redeemed, each; check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying; by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. An affidavit of mailing by the Trustee that notice of redemption has been given as herein provided shall be conclusive as against all parties, and no Bondowner whose Bond is called for redemption may object thereto or object to the cessation of interest on the redemption date fixed by any claim by showing that he failed actually to receive such a notice of call and redemption. E. Redemption Fund. There is hereby created with the Trustee a special trust fund called the "2004 Series A Redemption Fund" (hereinafter referred to as the "Redemption Fund"). There shall be set aside in the Redemption Fund moneys for the purpose and sufficient to redeem, the premiums, if any, payable as provided in this Indenture, the Bonds designated in such notice of redemption to be redeemed as provided in this section. Said moneys must be set aside in the Redemption Fund solely for that purpose and shall be applied by the Trustee to the payment (principal and premium, if any) of the Bonds to be redeemed upon presentation and surrender of such Bonds. Moneys sufficient to redeem the Bonds designated in the notice as hereinbefore required to be redeemed shall be deposited in the Redemption Fund on or prior to the Business Day preceding the redemption date. Any interest due on the Bonds on or prior to the redemption date shall be paid, pro rata with Parity Debt then subject to mandatory sinking fund redemption, if necessary, from the Debt Service Fund upon presentation and surrender thereof. F. Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the registered 124/015610-0073 -19- 505001.03 a05/24/04 4b owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bond surrendered and of the same interest rate and same maturity. Such partial redemption -shall be valid upon payment of the amount thereby required to be paid to such registered owners and the Authority and the Trustee shall be released and discharged from all liability to the extent of such payment. G. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the principal of, premium, if any, and interest payable upon redemption of the Bonds being set aside as aforesaid, the Bonds, or parts thereof, as the ease may be, so called for redemption shall, on the redemption date, become due and payable at the redemption price specified in such notice, interest on the Bonds, or parts thereof, as the ease may be, so called for redemption shall cease to accrue, shall cease to be entitled to any lien, benefit or security under this Indenture, and the Owners of said Bonds shall have no. rights in respect thereof except to receive payment of the redemption price thereof, and, in the case of partial redemption of Bonds, also to receive a new Bond or Bonds for the unredeemed balance as aforesaid. All Bonds, or parts thereof, as the case may be, redeemed pursuant to the provisions of this Section shall be cancelled upon surrender thereof. H. Purchase of Bonds. In lieu of redemption, the Trustee, at the written direction of the Agency, shall purchase Bonds from amounts on deposit in the Redemption Fund on the open market at a price not to exceed the current redemption price on the next succeeding Interest Payment Date plus accrued interest, if any, to the date of purchase. Section 2.4 Book Entry. (a) Original Delivery. The Bonds shall be initially delivered in the form of a separate single fully registered Bond without coupons (which may be typewritten) for each maturity of the Bonds. Upon initial delivery, the ownership of 'each such Bond shall be registered on the Registration Books in the name of Cede & Co., as nominee of the Depository Trust Company (the "Nominee"). Except as provided in subsection (c), the ownership of all of the Outstanding Bonds shall be registered in the name of the Nominee on the Registration Books. With respect to Bonds the ownership of which shall be registered in the name of the Nominee, the Authority and the Trustee shall have no responsibility or obligation to any Depository System Participant or to any person on behalf of which holds an interest in the Bonds. Without limiting the generality of the immediately preceding sentence, the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Depository System Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any notice with respect to the Bonds, (iii) the payment to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any amount with respect to principal of premium, if any, or interest on the Bonds or (iv) any consent given or other action taken by the Depository as Owner of the Bonds. The Authority and the Trustee may treat and 124/015610-0073 _20_ 505001.03 a05/24/04 47 consider the person in whose name each Bond is registered as the absolute owner of such Bond for the purpose of payment of principal, premium and interest on such Bond, for the purpose of giving notices of redemption and other matter; with -respect to such Bond, for the purpose of registering transfers of ownership of such Bond, and for all other purposes whatsoever. The Trustee shall pay the principal of and interest and premium, if any, on the Bonds only to the respective owners or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to payment of principal of and interest and premium, if any, on the Bonds to the extent of the sum or sums so paid. No person other than a Bond Owner shall receive a Bond evidencing the obligation of the Authority to make payments of principal, interest and premium, if any, pursuant to this Indenture. Upon delivery by the Depository to the Nominee of written notice to the effect that the Depository has determined to substitute a new Nominee in its place, and subject to the provisions herein with respect to Record Dates, such new Nominee shall become the Nominee hereunder for all purposes; and upon receipt of such a notice the Authority shall promptly deliver a copy of the same to the Trustee. (b) Representation Letter. In order to qualify the Bonds for the Depository's book entry system, the Authority and the Trustee shall execute and deliver to such Depository a letter representing such matters as shall be necessary to so qualify the Bonds. The execution and delivery of such letter shall not in any way limit the provisions of subsection (a) above or in any other way impose upon the Authority or the Trustee any obligation whatsoever with respect to persons having interests in the Bonds other than the Bond Owners. The Trustee agrees to comply with all provisions in such letter with respect to the giving of notices thereunder by the Trustee. In addition to the execution and delivery of such letter, the Authority may take any other actions, not inconsistent with this Indenture, to qualify the Bonds for the Depository's book -entry program. (c) Transfers Outside Book -Entry System. In the event that either (i) the Depository determines not to continue to act as Depository for the Bonds, or (ii) the Authority determines to terminate the Depository as such, then the Authority shall thereupon discontinue the book -entry system with such Depository. In such event, the Depository shall cooperate with the Authority and the Trustee in the issuance of replacement Bonds by providing the Trustee with a list showing the interests of the Depository System Participants in the Bonds, and by surrendering the Bonds, registered in the name of the Nominee, to the Trustee on or before the date such replacement Bonds are to be issued. The Depository, by accepting delivery of the Bonds, agrees to be bound by the provisions of this subsection (c). If, prior to the termination of the Depository acting as such, the Authority fails to identify another Securities Depository to replace the Depository, then the Bonds shall no longer be required to be registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Article 2. Prior to its termination, the Depository shall furnish the Trustee with the names and addresses of the Participants and respective ownership interests thereof. (d) Payments to the Nominee. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments with respect to principal of and interest and premium, if any, on such Bond and all notices with 124/015610-0073 505001.03 a05/24/04 -21- 48 respect to such Bond shall be made and given, respectively, as provided in the letter described in subsection (b) of this Section or as otherwise instructed by the Depository. Section 2.5 Form of Bonds. The Bonds, the form of Trustee's Certificate of Authentication, and the 'form of Assignment to appear thereon, shall be substantially in the form set forth in Exhibit A,'which is attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Indenture. Section 2.6 Execution of Bonds. The Bonds shall be executed on behalf of the Authority by the signature of its Chairperson, Executive Director or Assistant Executive Director and the signature of its Secretary who are in office on the date of this Indenture or at any time thereafter. Either or both of such signatures shall be made manually or shall be affixed by facsimile thereof. If any officer whose signature appears on any Bond ceases to be such officer before delivery of the Bonds to the purchaser, such signature shall nevertheless be as effective as if the officer had remained in office until the delivery of the Bonds to the purchaser. Any Bond shall be signed and attested on behalf of the Authority by such persons as at the actual date of the execution of such Bond shall be the proper officers of the Authority although on the date of such Bond any such person shall not have been such officer of the Authority. Only such of the Bonds as shall bear thereon a certificate of authentication in the form hereinbefore set forth, executed manually and dated by and in the name of the Trustee by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this -Indenture, and such certificate of the Trustee shall be conclusive evidence that such Bonds have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. In the event temporary Bonds are issued pursuant to Section 2.10 hereof, the temporary Bands may bear thereon a certificate of authentication executed and dated by the Trustee, may be initially registered by the Trustee, and, until so exchanged as provided under Section 2.10 hereof, the temporary Bonds shall be entitled to the same benefits pursuant to this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.7 Transfer of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by a duly authorized attorney of such person, upon surrender of such Bond to the Trustee at its Trust Office for cancellation, accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for registration of transfer, the Authority shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds, of like series, interest rate, maturity and principal amount. The Trustee shall collect from the Owner any tax or other governmental charge on the transfer of any Bonds pursuant to this Section 2.7. The Trustee may refuse to transfer, under the provisions of this Section 2.7, any Bond which has matured or has been called for redemption. 124/015610-0073 505001.03 a05/24/04 -22- 49 Section 2.8 Exchange of Bonds. Bonds -may -be -exchanged -at the Trust,Office-of the Trustee for- alike- aggregateprincipal amount of Bonds of other authorized denominations of the same series, interest 'rate and maturity. The Trustee shall collect any tax or other governmental charge on the exchange of any Bonds pursuant to this Section 2.8. The Trustee may refuse to exchange, under the provisions of this Section 2.8, any Bond which has matured or has been called for redemption. Section 2.9 Registration Books. The Trustee will keep or cause to be kept, at its Trust Office, sufficient records for the registration and registration of transfer of the Bonds, which shall at all times during normal business hours be open to inspection by the Authority, upon reasonable prior notice to the Trustee; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on the Registration Books, Bonds as hereinbefore provided. Section 2.10 Temporary Bonds. The Bonds shall be initially issued in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds shall be printed, lithographed or typewritten, shall be of such denominations as shall be determined by the Authority, and shall contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds shall be surrendered, for cancellation, in exchange therefor at the Trust Office of the Trustee, and the Trustee shall deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized. denominations, interest rates and like maturities. Until so exchanged, the temporary Bonds shall be entitled to the same benefits pursuant to this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.11 Bonds, Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the owner of such Bond, shall execute, and the Trustee shall thereupon deliver, a new Bond of like tenor and amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft shall be submitted to the Trustee and, if such evidence and the indemnity to be given satisfactory to the Trustee, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon deliver, a new Bond of like tenor and amount in lieu of and in substitution for the Bond so lost, destroyed or stolen. The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each new Bond issued under this Section 2.11 and of the expenses which may be incurred by the Authority and the Trustee in the premises. Any Bond issued under the provisions of this Section 124/015610-0073 505001.03 a05/24/04 -23- 50 in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to. the benefits of this Indenture with all other Bonds issued pursuant to this Indenture. ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS; PARITY DEBT Section 3.1 Issuance of Bonds. Upon the execution and delivery of this Indenture, the Authority shall execute and deliver to the Trustee Bonds in the aggregate principal amount Dollars ($ ) and the Trustee shall authenticate and deliver the Bonds upon the Written Request of the Authority. Section 3.2 Application of Sale and Certain Other Amounts. On the Closing Date the proceeds of sale of the Bonds in the amount of $ representing the principal amount of the Bonds of $ , less underwriters' discount of $ less original issue discount of $ , plus accrued interest of $ , shall be paid to the Trustee -and applied as follows: (a) The Trustee shall deposit $ representing accrued interest received on the sale of the Bonds in the Debt Service Fund; (b) The Trustee shall deposit $ into the Costs of Issuance Account within the Housing Fund to pay the Costs of Issuance. At closing, the Trustee shall wire transfer from the Costs of Issuance Account of the Housing Fund $ to the Bond Insurer as payment of the premium on the Financial Guaranty Insurance Policy and $ to the Bond Insurer as payment of the premium on the Surety Bond and pay the other Costs of Issuance as set forth in the Written Certificate of the Agency; (c) The Trustee shall transfer $ to the Escrow Bank for deposit pursuant to the Escrow Agreement; and (d) The Trustee shall deposit the remaining funds in the amount of _ to the Agency for deposit in the Housing Fund. The Trustee may establish such temporary fund or account on its records as it may deem appropriate to facilitate such deposits and transfers. Section 3.3 Housing Fund. There is hereby continued a separate fund known as the Low and Moderate Income Housing Fund (the "Housing Fund"), which the Authority hereby covenants and agrees to cause 124/015610-0073 5 1 505001.03 a05/24/04 -24- to be maintained and which shall be held in trust by the Trustee on behalf of the Agency. Within the Housing Fund herein, there is hereby established a temporary Account known as the Cost of Issuance- Account.- The moneys in the Mousing Fund -shall be used-, in the manner provided -by the Law solely for the purpose of aiding in financing the Low and Moderate Income Housing Activities in the Project Areas. The moneys in the Cost of Issuance Account shall be used for the payment of the Costs of Issuance. The Trustee shall pay moneys from the Housing Fund upon receipt of a written request of the Agency. Any amounts remaining in said Cost of Issuance Account as of October 1, 2004 shall be transferred to the Housing Fund held by the Trustee. ARTICLE IV SECURITY OF BONDS; FLOW OF FUNDS Section 4.1 Security of Bonds; Equal Security. Except as provided in Section 6.6, the Bonds shall be equally secured by a first pledge of and lien on all of the Pledged Tax Revenues and a first and exclusive pledge of and lien upon all of the moneys in the Special Fund, the Debt Service Fund and the Reserve Fund without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. Except for the Pledged Tax Revenues and such moneys, no funds or properties of the Authority on the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest on the Bonds. In consideration of the acceptance of the Bonds by those who shall hold the same from time to time, this Indenture shall be deemed to be and shall constitute a contract between the Authority and the Owners from time to time of the Bonds, and the covenants and agreements herein set forth to be performed on behalf of the Authority shall be for the equal and proportionate benefit, security and protection of all Owners of the Bonds without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or herein. Section 4.2 Special Fund; Deposit of Pledged Tax Revenues. There is hereby established a special fund to be known as the "Special Fund", which shall be held by the Authority and invested in Permitted Investments. The Authority shall deposit all of the Loan Payments received in any Bond Year in the Special Fund promptly upon receipt thereof from the Agency, until such time during such Bond Year as the amounts on deposit in the Special Fund equal the aggregate amounts required to be transferred to -the Trustee for deposit into the Debt Service Fund and the Reserve Fund in such Bond Year pursuant to Section 4.3 and for deposit in such Bond Year in the funds and accounts established with respect to Parity Debt, as provided in any Supplemental Indenture. All Loan Payments received by the Authority during any Bond Year in excess of the amount required to be deposited in the Special Fund during such Bond Year pursuant to the preceding paragraph of this Section 4.2 shall be released from the pledge and lien hereunder for the security of the Bonds and may be transferred by the Authority to the Agency for any lawful 124/015610-0073 505001.03 a05/24/04 -25- 52 purposes of the Agency, including but not limited to the payment of Subordinate Debt, or the payment of any amounts due and owing to the United States of America pursuant to Section 5:12 -Prior to the payment in,full of the principal of and interest on the Bonds and the payment in full of all other amounts payable hereunder and under any Supplemental Indentures, the Authority shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except as may be provided in this Indenture and in any Supplemental Indenture. Section 4.3 Deposit of Amounts by Trustee. There is hereby established a trust fund to be known as the "Debt Service Fund" and a trust fund known as the "Reserve Fund", to be held by the Trustee hereunder in trust. Moneys in the Special Fund shall be transferred by the Authority in the following amounts, at the following times, for deposit by the Trustee in the funds: (a) Debt Service Fund. On or before the second Business Day preceding each Interest Payment Date, the Authority shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Debt Service Fund an amount which when added to the amount contained in the Debt Service Fund on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No such transfer and deposit need be made to the Debt Service Fund if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds. On or before the second Business Day preceding September 1 in each year, beginning September 1, 2004 the Authority shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Debt Service Fund an amount which, when added to the amount then contained in the Debt Service Fund, will be equal to the principal and/or sinking fund payment becoming due and payable on the outstanding Bonds, on the next Interest Payment Date. No such transfer and deposit need be made to the Debt Service Fund if the amount contained therein is at least equal to the principal and/or sinking fund payment to become due on the next Interest Payment Date on all of the Outstanding Bonds. All moneys in the Debt Service Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the interest, the principal and/or sinking fund payments of the Bonds as it shall become due and payable. (b) Reserve Fund. In the event that the amount on deposit in the Reserve Fund, including the Surety Bond, at any time becomes less than the Reserve Requirement, the Trustee shall promptly notify the Authority of such fact to the extent known to the Trustee. Promptly upon receipt of any such notice, the Authority shall withdraw from the Special Fund and transfer to the Trustee an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Fund. If there shall then not be sufficient moneys in the Special Fund to transfer an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Fund, the Agency shall be obligated to continue making transfers as Pledged Tax Revenues become available in the Special Fund until there is an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Fund. No such transfer and deposit need be made to the Reserve Fund so long as there shall be on deposit therein a sum at least equal to the Reserve Requirement. All money in the Reserve Fund shall be used and withdrawn by the Trustee solely for the 124/015610-0073 505001.03 a05/24/04 -26- 53 purpose of making transfers to the Debt Service Fund, in the event of any deficiency at any time in the Debt Service Fund for the retirement of all the Bonds then Outstanding, except -that so- long as the Agency is not- in default -hereunder; any amount in -the Reserve Fund in excess of the Reserve Requirement shall be withdrawn from the Reserve Fund semiannually on the third Business Day preceding each March 1 and September 1 by the Trustee and upon receipt of a Written Request of the Agency deposited in the Rebate Fund or in the Debt Service Fund. All amounts in the Reserve Fund on the final Interest Payment Date shall be withdrawn from the Reserve Fund and shall be transferred either (i) to the Debt Service Fund, to the extent required to make the deposits then required to be made pursuant to this Section 4.3, or (ii) if the Authority shall have caused to be deposited in the Debt Service Fund an amount sufficient to make the deposits required by this Section 4.3, then the Trustee shall upon the Written Request of the Agency transfer the remaining amount to the Rebate Fund or to the Agency for deposit in the Housing Fund. The Authority reserves the right to substitute, at any time and from time to time, one or more letters of credit, Alternative Reserve Account Security, bond insurance policies or other form of guarantee approved in writing by the Bond Insurer from a financial institution the long-term unsecured obligations of which are rated to the Bond Insurer's satisfaction in substitution. for or in place of all or any portion of the Reserve Requirement, under the terms of which the Trustee is unconditionally entitled to draw amounts when required for the purposes hereof. Upon deposit by the Authority with the Trustee of any such letter of credit, surety bond, bond insurance policy or other form of guarantee, the Trustee shall withdraw from the Reserve Fund and transfer to the Authority for deposit in the Housing Fund an amount equal to the principal amount of such letter of credit, Alternative Reserve Account Security, bond insurance policy or other form of guarantee. The Reserve Fund will initially be funded with the Alternative Reserve Account Security to be issued by the Bond Insurer in the amount of the Reserve Requirement. If and to the extent that the Reserve Fund has been funded with a combination of cash (or Permitted Investments) and a Alternative Reserve Account Security, then all such cash (or Permitted Investments) shall be completely used before any demand is made on such Alternative Reserve Account Security, and replenishment of the Alternative Reserve Account Security shall be made prior to any replenishment of any such cash (or Permitted Investments). If the Reserve Fund is funded, in whole or in part, with more than one Alternative Reserve Account Security, then any draws made against such Alternative Reserve Account Security shall be made pro-rata. If it is necessary to make a draw upon the Bond Insurer's Alternative Reserve Account Security, the Trustee shall deliver to the Bond Insurer a Demand for Payment (as defined in the Bond Insurer's Alternative Reserve Account Security) substantially in the form required by the Bond Insurer's Alternative Reserve Account Security at least three days prior to the date on which the funds from such draw are needed. The Trustee shall maintain adequate records, verified by the Bond Insurer, as to the amount available to be drawn at any given time under the Bond Insurer's Surety Bond. 124/015610-0073 505001.03 a05/24/04 -2%- 54 ' If during any Bond Year (i) Pledged Tax Revenues remain in the Special Fund after providing (or otherwise reserving) for all deposits required by clause Ja)- during the entirety --of -such Bond Year, (ii) the amounts on deposit in the Reserve Fund and in any debt service reserve account established with respect to any Parity Debt are equal to or exceed their respective required funding levels, (iii) any Alternative Reserve Account Security used to fund the Reserve Fund or any debt service reserve accounts established with respect to any Parity Debt are fully replenished and all interest on amounts advanced under such Alternative Reserve Account Security has been paid to the provider thereof, and (iv) the Agency is not in default hereunder, then any moneys then on deposit in the Special Fund may be used in any manner provided by law for the purpose of aiding in financing the Redevelopment Project, including early redemption or purchase of the Bonds and Parity Debt, as provided in this Indenture and permitted by the Law. (c) Surplus. The Agency shall not be required to deposit in the Special Fund in any Bond Year an amount of Pledged Tax Revenues which, together with other available amounts in the Special Fund, exceeds the amounts required to be transferred to the Trustee from the Special Fund with respect to such Bond Year pursuant to this Section 4.3. In the event that, for any reason whatsoever, any amount shall remain on deposit in the Special Fund on the last day of any Bond Year (being the applicable September 1) after making all of the transfers from the Special Fund with respect to such Bond Year theretofore required to be made pursuant to this Section 4.3 the Agency may withdraw such amount from the Special Fund to be used for any lawful purpose of the Agency. Section 4.4 Payment Procedure Pursuant to the Surety Bond. As long as the Surety Bond shall be in full force and effect, the Authority and Trustee agree to comply with the following provisions: (a) In the event and to the extent that moneys on deposit in the Debt Service Fund plus all amounts on deposit in and credited to the Reserve Fund on the Bonds in excess of the amount of the Surety Bond, are insufficient to pay the amount of principal and interest coming due, then upon the later of (i) one (1) day after receipt by the General Counsel of Bond Insurer of a demand for payment in the form attached to the Surety Bond as Attachment 1 (the "Demand for Payment"), duly executed by the Trustee certifying that payment due from the Agency for payment of interest or principal on the Bonds under the Indenture has not been made to the Trustee; or (ii) the payment date of the Obligations as defined in the Demand for Payment presented by the Trustee to the General Counsel of Bond Insurer, Bond Insurer will make a deposit of funds in an account with the Trustee or its successor, sufficient for the payment to the Trustee of amounts which are then due to the Trustee under the Indenture (as specified in the Demand for Payment) up to but not in excess of the Surety Bond Coverage, as defined in the Surety Bond; provided, however, that in the event that the amount on deposit in, or credited to, the Reserve Fund, in addition to the amount available under the Surety Bond includes amounts available under a letter of credit, insurance policy, surety bond or other 124/015610-0073 505001.03 a05/24/04 "28- 55' such funding instrument (the "Additional Funding Instrument"), draws on the Surety Bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the _. insufficiency. (b) Trustee shall, after submitting to Bond Insurer, the Demand for Payment as provided in (a) above, make available to Bond Insurer all records relating to the Funds and Accounts maintained under this Indenture. (c) the Trustee shall, upon receipt of moneys received from the draw on the Surety Bond, as specified in the Demand for Payment, credit the Reserve Fund to the extent of moneys received pursuant to such Demand. (d) the Reserve Fund shall be replenished in the following priority: (i) principal and interest on the Surety Bond shall be paid from first available Revenues, principal and interest on the Surety Bond and on the Additional Funding Instrument shall be paid from first available Revenues on a pro rata basis; (ii) after all such amounts are paid in full, amounts necessary to fund the Reserve Fund to the required level, after taking into account the amounts available under the Surety Bond and the Additional Funding Instrument shall be deposited from next available Revenues. ARTICLE V OTHER COVENANTS OF THE AUTHORITY Section 5.1 Punctual Payment. The Authority shall punctually pay or cause to be paid the principal and interest to become due in respect of all the Bonds together with, the premium thereon, if any, in strict conformity with the terms of the Bonds and of this Indenture. The Authority shall faithfully observe and perform all of the conditions, covenants and requirements of this Indenture and all Supplemental Indentures and the Bonds. Nothing herein contained shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes referred to herein. Section 5.2 Limitation of Additional Indebtedness; Against Encumbrances. The Authority hereby covenants that, so long as the Bonds are Outstanding, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from all or any part of the Pledged Tax Revenues, excepting only the Bonds, Parity Debt and any Subordinate Debt, and the Authority will not otherwise encumber, pledge or place any charge or lien upon any of the Pledged Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien herein created in the Indenture for the benefit of the Bonds. Section 5.3 Extension of Payment. The Authority will not, directly or indirectly, extend or consent to the extension of the time for the payment of any Bond or claim for interest on any of the Bonds and will not, directly 124/015610-0073 505001.03 a05/24/04 -29- 56 or indirectly, be a party to or approve any such arrangement by purchasing or funding the Bonds or claims for interest in any other manner. In case the maturity of any such Bond or claim for -interest-shall -be-extended -or-funded-, whether or -not -with the consent -of the -Agency, such Bond or claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. Section 5.4 Tax Covenants. The Authority covenants and agrees to contest by court action or otherwise any assertion by the United States of America or any department or agency thereof that the interest received by the Bondowners is includable in gross income of the recipient under federal income tax laws. Notwithstanding any other provision of this Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of interest with respect to the Bonds and any Parity Debt will not be adversely affected for federal income tax purposes, the Authority covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The Authority will take no action or refrain from taking any action or make any use of the proceeds of the Bonds or any Parity Debt or of any other moneys or property which would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code; (b) Arbitrage. The Authority, will make no use of the proceeds of the Bonds or any Parity Debt or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code; (c) Federal Guaranty. The Authority will make no use of the proceeds of the Bonds or any Parity Debt or take or omit to take any action that would cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code; (d) Information Reportin>;. The Authority will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code; (e) Hedge Bonds. The Authority will make no use of the proceeds of the Bonds or any Parity Debt or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause either the Bonds to be considered "hedge bonds" within the meaning of Section 149(g) of the Code unless the Agency takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the Bonds for federal income tax purposes; and (f) Miscellaneous. The Authority will take no action or refrain from taking any action inconsistent with its expectations stated in that certain Tax Certificate executed by the Agency in connection with each issuance of Bonds and any Parity Debt 124/01561OM73 505001.03 a05/24/04 -30- 57 and will comply with the covenants and requirements stated therein and incorporated by reference herein. Section 5.5 Establishment and Application of Rebate Fund. (a) Establishment. A special fund is hereby created and designated the "Rebate Fund" to be held by the Trustee and in which there shall be established two separate accounts designated the "Rebate Account" and the "Alternative Penalty Account." Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected, the Authority shall cause to be deposited in each such account of the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Account or the Alternative Penalty Account shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund shall be governed by this Section and the Tax Certificate, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the Bonds will not be adversely affected if such requirements are not satisfied. (1) Rebate Account. The following requirements shall be satisfied with respect to the Rebate Account: (i) Payment to the Treasury. The Trustee shall pay, as directed by a representative of the Agency, to the United States Treasury, out of amounts in the Rebate Account, (X) Not later than 60 days after the end of (A) the fifth Bond Year, and (B) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (Y) Not later than 60 days after the payment of all the Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148 (f) of the Code. In the event that, prior to the time of any payment required to be made from the Rebate Account, the amount in the Rebate Account is not sufficient to make such payment when such payment is due, the Authority shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this Subsection (a) (1) shall be made to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255 on or before the date on which such payment is due, and shall be 124/015610-0073 505001.03 a05/24/04 -31- 58 accompanied by Internal Revenue Service Form 8038—T, or shall be made in such other manner as provided under the Code. The Trustee shall not - be responsible -for--calculating Rebatable Arbitrage -or for the -adequacy or correctness of any rebate report or rebate calculations.. The Trustee shall be deemed conclusively to have complied ,with the provisions of this Indenture regarding calculation and payment of Rebatable Arbitrage if it follows the directions of the Agency as provided in this Indenture and it shall have no independent duty to review such calculations or enforce compliance by the Agency with such rebate requirements. (2) Alternative Penalty Account. (i) Six -Month Computation. If the 1-1/2% Penalty has been elected, within 85 days of each particular Six —Month Period, the Authority shall determine or cause to be determined whether the 1-1/2% Penalty is payable (and the amount of such penalty) as of the close of the applicable Six —Month Period. The Authority shall obtain expert advice in making such determinations. (li) Six -Month Transfer. Within 85 days of the close of each Six -Month Period, upon - the written direction of an Authority Representative, the Trustee shall deposit in the Alternative Penalty Account from any legally available source of funds (as specified by the Authority in the aforesaid written direction), if and to the extent required, so that the balance in the Alternative Penalty Account equals the amount of 1-1/2% Penalty due and payable to the United States Treasury determined as provided in Subsection (a) (2)(i) above. In the event that immediately following the transfer provided in the previous sentience, the amount then on deposit to the credit of the Alternative Penalty: Account exceeds the amount required to be on deposit therein to make the payments required by Subsection (a) (2) (iii) below, the Trustee, at the written direction of a representative of the Agency, shall withdraw the excess from the Alternative Penalty Account and credit the excess to the Debt Service Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed in writing by an Authority Representative, to the United States Treasury, out of amounts in the Alternative Penalty Account, not later than 90 days after the close of each Six —Month Period the 1-1/2% Penalty, if applicable and payable, computed in accordance with Section 148 (f) (4) of the Code. In the event that, prior to the time of any payment required to be made from the Alternative Penalty Account, the amount in such account is not sufficient to make such payment when such payment is due, the Authority shall calculate the amount of such deficiency and direct the Trustee to deposit an amount received from any legally available source of funds — equal to such deficiency into the Alternative Penalty Account prior to the time such payment is due. Each payment required to be made pursuant to 124/015610-0073 505001.03 a05/24/04 -32- a9 this Subsection (a) (2) shall be made to the Internal Revenue Service, Philadelphia, Pennsylvania 19255 on or before the date on which such - - - payment is due; -and -shall- be -accompanied-.by ,Internal -Revenue Service Form 8038—T or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after payment of the Bonds, the payments described in Subsection (a) (1)(i) or (a)(2)(iii) (whichever is applicable), may be withdrawn by the Authority and utilized in any manner by the Authority. (c) Survival of Defeasance. Notwithstanding anything in this Section or this Indenture to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance of the Bonds. Section 5.6 Compliance with the Code. The Authority shall take any and 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 Code as in effect on the date of issuance of the Bonds. Section 5.7 Further Assurances. The Authority will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture, and for the better assuring and confirming unto the owners of the rights and benefits provided in this Indenture. Section 5.8 Continuing Disclosure. The Authority hereby covenants and agrees that it will comply, and will cause the Agency to comply, with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of the Authority to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking a mandate or specific performance by court order. ARTICLE VI THE TRUSTEE Section 6.1 Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to the occurrence of an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Indenture and no implied 124/015610-0073 505001.03 a05/24/04 -3 3 - 60 covenants shall be read into this Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise - such of the rights and -powers vested in -it by. -this -Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) The Authority may remove the Trustee at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee (i) if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or (ii) if at any time the Agency has knowledge that the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. In each case such removal shall be accomplished by the giving of written notice of such removal by the Authority to the Trustee, whereupon the Authority shall appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the Authority and by giving the Owners notice of such resignation by first class mail, postage prepaid, at their respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any owner (on behalf of such owner and all other Owners) may petition any court of competent jurisdiction at the expense of the Authority for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein .set forth. Upon request of the successor shall execute and 124/015610-0073 505001.03 a05/24/04 -34- 1W deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties.- rights, powers, trusts, duties and obligations. Upon acceptance- of appointment by a successor Trustee as provided in this subsection, the Authority shall mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which then has a current rating on the Bonds and to the Owners at their respective addresses. shown on the Registration Books. If the Authority fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority. (e) . Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company, a federally chartered savings institution or bank having the powers of a trust company, or authorized to exercise trust powers, having a trust office in the State, having a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federal or state authority. If such bank, savings institution or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such bank, savings institution or trust 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 Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. Section 6.2 Merger or Consolidation. Any bank, federally chartered savings institution or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank, savings institution or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, savings institution or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank, savings institution or trust company shall be eligible under subsection (e) of Section 6.1, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 6.3 Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall not assume responsibility for the correctness of the same, nor make any representations as to the validity or sufficiency of this Indenture or of the Bonds nor shall incur any responsibility in respect thereof, other than as expressly stated herein. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or intentional misconduct. The Trustee shall not be liable for the acts of any agents of the Trustee selected by it with due care. The Trustee may become the Owner of any Bonds with the same rights it would have if it were not Trustee and, to the 124/015610-0073 505001.03 a05/24/04 -35- 62 extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of the Owners, whether or -not such committee -shall represent the owners of a majority in principal amount of the Bonds then Outstanding. (b) The Trustee shall not be liable 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 and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (c) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture, except for actions arising from the negligence or intentional misconduct of the Trustee. The permissive right of the Trustee to do things enumerated hereunder shall not be construed as a mandatory duty. (d) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless and until it shall have actual knowledge thereof, or shall have received written notice thereof at its Trust Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it. Without limiting the generality of the foregoing, the Trustee shall not be responsible for reviewing the contents of any financial statements furnished to the Trustee pursuant to Section 5.5. No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Trustee shall be entitled to charge interest on all amounts advanced by it hereunder at the maximum rate permitted by law. The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys or receivers and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, attorney or receiver appointed with due care by it hereunder. The Trustee may consult with counsel, and shall not be liable for any action taken or not taken hereunder in reliance upon the opinion or advice of such counsel. The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. 124/015610-0073 -3 6- 505001.03 a05/24/04 63 Section 6.4 Right to Rely on Documents. The Trustee shall be protected -in --acting --upon any. - notice, resolution, request, . consent, order, certificate, report, opinion or other paper or document believed by it to be genuine and to have been signed or prescribed by the proper party or parties, in the absence of negligence or intentional misconduct by the Trustee. The Trustee shall not be bound to recognize any person as the owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto is established to the satisfaction of the Trustee. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the Authority, which shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. The Trustee may conclusively rely on any certificate or report of any Independent Accountant or Independent Redevelopment Consultant appointed by the Authority. Section 6.5 Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject at all reasonable times upon reasonable notice to the inspection of the Authority and any Owner, and their agents and representatives duly authorized in writing, during regular business hours and under reasonable conditions. Section 6.6 Compensation and Indemnification. The Authority shall pay to the Trustee from time to time reasonable, compensation for all services rendered under this Indenture in accordance with the letter proposal from the Trustee approved by the Agency and also all reasonable expenses, charges, legal and consulting fees (including fees and expenses of internal legal counsel of Trustee) and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under this Indenture. Upon the occurrence of an Event of Default, the Trustee shall have a first lien on the Tax Revenues and all funds and accounts held by the Trustee hereunder to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel incurred in declaring such Event of Default and in exercising the rights and remedies set forth in Article VIII hereof. The Authority further covenants and agrees to indemnify and save the Trustee and its officers, directors, agents and employees, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder, including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee, its officers, directors, agents or employees. The 124/015610-0073 505001.03 a05/24/04 -3 7- 64 obligations of the Authority and the rights of the Trustee under this Section 6.6 shall survive resignation or removal of the Trustee under this Indenture and payment of the Bonds and discharge of thisIndenture. Section 6.7 Deposit and Investment of Moneys in Funds. Moneys in the funds established hereunder shall, in accordance with a Written Request of the Agency, be invested by the Trustee in Permitted Investments. The Trustee may conclusively rely on any direction contained in a Written Request of the Authority to invest in investments that such investments are Permitted Investments. In the absence of a Written Request of the Authority, the Trustee shall invest moneys in item B(5) of the definition of Permitted Investments. The obligations in which moneys in the said funds are invested shall mature on or prior to the date on which such moneys are estimated to be required to be paid out hereunder. The obligations in which moneys in the Reserve Fund are so invested shall be invested in obligations maturing no later than five years after the date of investment; provided no such investment shall mature later than the final maturity of the Bonds; provided further, if such investments may be redeemed at par so as to be available on each Interest Payment Date, any amount of the Reserve Fund may be invested in such redeemable investments of any maturity on or prior to the final maturity of the Bonds. The Trustee shall sell or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide moneys to meet any payment required under this Indenture. Notwithstanding anything herein to the contrary, the Trustee shall notbe responsible for any loss from investments, sales or transfers undertaken in accordance with this Indenture. Any interest, income or profits from the deposits or investments of all funds (except the Rebate Fund and, to the extent required by Section 4.3 hereof, the Reserve Fund) shall be deposited in the Debt Service Fund. For purposes of determining the amount of deposit in any fund held hereunder, all income and profits from Permitted Investments credited to such fund shall be valued at market value. The Trustee shall annually, on or about September 1 of each year commencing on September 1, and at such times as the Authority shall deem appropriate, value the investments in such funds. Notwithstanding anything to the contrary contained herein, in making any valuations of investments hereunder, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system. Except as otherwise provided in this Section, Permitted Investments representing an investment of moneys attributable to any fund and all investment profits or losses thereon shall be deemed at all times to be a part of said fund. For purposes of this provision, the Trustee may act as principal or agent in the acquisition or disposition of investments. For purposes of this Section, the Trustee may commingle moneys in funds and accounts established under the Indenture. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur, the Authority will not receive such confirmations to the extent permitted by law. The Trustee will furnish the Authority periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. 124/015610-0073 505001.03 a05/24/04 -38- 65 Section 6.8 Accounting Records and Financial Statements. - The- Trustee shall at all times keep, --or- cause to -be --kept, proper --books. of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions relating to the proceeds of the Bonds made by it and all funds and accounts held by the Trustee established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority at reasonable hours and under reasonable circumstances. The Trustee shall furnish to the Authority, at least monthly, an accounting of all transactions in the form of its customary statements relating to the proceeds of the Bonds and all funds and accounts held by the Trustee pursuant to this Indenture. Section 6.9 Appointment of Co -Trustee or Agent. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture, and in particular in case of the enforcement of the rights of the Trustee on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co -trustee. The following provisions of this Section 6.9 are adopted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co —trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co —trustee but only to the extent necessary to enable such separate or co —trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co —trustee shall run to and be enforceable by either of them. Should any instrument in writing from the Authority be required by the separate or co — trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Authority. In case any separate co -trustee, or a successor, shall become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co — trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new successor or co —trustee to such separate or co —trustee. No Trustee or separate or co -trustee shall be liable for the actions or omissions of such other Trustee or separate or co -trustee. In addition to the appointment of a co -trustee hereunder, the Trustee may, at the expense and with the prior written consent of the Authority, appoint any agent of the Trustee in New 124/015610-0073 505001.03 a05/24/04 -39- 4 York, New York, for the purpose of administering the transfers or exchanges of Bonds or for the performance of any other responsibilities of the Trustee hereunder. Section 6.10 Powers of Bond Insurer in Relation to the Trustee. (a) The Trustee may be removed at any time, at the request of Bond Insurer for any breach -of this Indenture. (b) Bond Insurer shall receive prior written notice of any Trustee resignation. (c) Every successor Trustee appointed pursuant to this Section shall be a trust company or bank in good standing located in or incorporated under the laws of the State, duly authorized to exercise trust powers and subject to examination by federal or state authority, having a reported capital and surplus of not less than $75,000,000 and shall not be appointed unless Bond Insurer approves such successor in writing. (d) Notwithstanding any other provision of this Indenture, in determining whether the rights of the Bondholders will be adversely affected by any action taken pursuant to the terms and provisions of this Indenture, the Trustee shall consider the effect on the Bondholders as if there were no Financial Guaranty Insurance Policy. (e) Notwithstanding any other provision of this Indenture, no removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to Bond Insurer, shall be appointed. ARTICLE VII MODIFICATION OR AMENDMENT OF THIS INDENTURE Section 7.1 Amendment With Consent of Owners. Upon the prior consent of the Bond Insurer, this Indenture and the rights and obligations of the Authority and of the owners may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without consent of any Owners, to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency in this Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the Agency; (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Indenture, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners; (c) to provide for the issuance of Parity Debt pursuant to _ Section 3.4 or the issuance of Subordinate Debt pursuant to Section 3.5, and to provide the terms and 124/015610-0073 505001.03 a05/24/04 -40- 67 conditions under which such Parity Debt or Subordinate Debt may be issued, including, but not limited to, the establishment of special funds and accounts relating thereto and any other provisions relating -solely- thereto, - -subject to -and- in accordancewith the provisions of Sections 3.4 and 3.5; or (d) to amend any provision hereof relating to the requirements of or compliance with the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exemption from federal income taxation of interest on any of the Bonds, in the opinion of nationally recognized bond counsel. Except as set forth in the preceding paragraph, upon the prior consent of the Bond Insurer, this Indenture and the rights and obligations of the Authority and of the owners may be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal or interest at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. Section 7.2 Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII, this Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights., duties and obligations. of the parties hereto or thereto and all Owners, as the case may be, shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.3 Endorsement or Replacement of Bonds After Amendment. After the effective date of any amendment or modification hereof pursuant to this Article VII, the Agency may determine that any or all of the Bonds shall bear a notation, by endorsement in form approved by the Authority, as to such amendment or modification and in that case upon demand of the Authority the Owners of such Bonds shall present such Bonds for that purpose at the Trust Office of the Trustee, and thereupon a suitable notation as to such action shall be made on such Bonds. In lieu of such notation, the Authority may determine that new Bonds shall be prepared at the expense of the Authority and executed in exchange for any or all of the Bonds, and in that case, upon demand of the Authority, the Owners of the Bonds shall present such Bonds for exchange at the Trust Office of the Trustee, without cost to such Owners. 124/015610-0073 505001.03 a05/24/04 -41- 68 Section 7.4 Amendment by Mutual Consent. The. provisions of. this Article —11 shall- not, prevent-- any owner. from accepting any amendment as to the particular Bond held by such owner, provided that due notation thereof is made on such Bond. Section 7.5 Notice to Standard & Poor' s. The Agency agrees to forward to Standard & Poor's Ratings Group, 25 Broadway, New York, New York 10004, any amendments consented to by the Bond Insurer and entered into pursuant to this Article VII. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS Section 8.1 Events of Default. The following events shall constitute Events of Default hereunder: (a) if default shall be made in the due and punctual payment of the principal of or interest on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) if default shall be made by the Authority in the observance of any of the covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, other than a default described in the preceding clause (a) , and such default shall have continued for a period of sixty (60) days following receipt by the Authority of written notice from the Trustee or any Owner of the occurrence of such default; (c) if the Authority or Agency shall commence a voluntary action under Title 11 of the United States Code or any substitute or successor statute; or (d) if the Authority or Agency defaults under the Loan Agreement. If an Event of Default has occurred and is continuing, the Trustee shall, if directed by the Bond Insurer, or if requested in writing by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding and consented to by the Bond Insurer, (a) declare the principal of the Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding, and (b) exercise any remedies available to the Trustee and the owners in law or at equity. Immediately upon receiving notice or actual knowledge of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Bond Insurer and the Agency by telephone confirmed in writing. Such notice shall also state whether the principal of the Bonds shall have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clauses (a) or (c) above the Trustee shall, and with 124/015610-0073 505001.03 a05/24/04 -42- respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Owners by mail, which shall include the statement that interest on the Bonds- shall cease to accrue Irom and- after the date,- if -any, on which -the Trustee shall have declared the Bonds to become due and payable pursuant to the preceding paragraph (but only to the extent that principal and any accrued, but unpaid, interest on the Bonds is actually paid on such date). This provision, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority shall deposit with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal and interest (to the extent permitted by law) at the net effective rate per annum of the Bonds, and the reasonable expenses of the Trustee (including fees and expenses of its counsel), and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Section 8.2 Application of Funds. All of the Pledged Tax Revenues and all sums in the funds and accounts established and held by the Trustee hereunder upon the date of the declaration of an Event of Default, and all sums thereafter received by the Trustee hereunder, shall be applied by the Trustee in the order following upon presentation of the several Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in exercising the rights and remedies set forth in this Article VIII, including reasonable compensation to its agents, attorneys and counsel; and Second, to the payment of the whole amount then owing and unpaid, upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the outstanding Bonds (to the extent that such interest on overdue installments of principal and interest shall have been collected) , and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. 124/015610-0073 505001.03 a05/24/04 -43 - 70 Section 8.3 Power of Trustee to Control Proceedings. In the event that the Trustee; upon the happening of an Event of Default,. shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon the direction of the Bond Insurer or upon the request of the Owners of a majority in principal amount of the Bonds then Outstanding upon the consent of the Bond Insurer, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the owners of a majority in principal amount of the Outstanding Bonds hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Section 8.4 Limitation on Owner's Right to Sue. No Owner of any Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the owners of a majority in aggregate principal amount of all the Bonds then outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities, including fees and expenses of its counsel, to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to enforce any right under this Indenture, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all owners of the Outstanding Bonds. The right of any Owner of any Bond to receive payment of the principal of (and premium, if any) and interest on such Bond as herein provided, shall not be impaired or affected without the written consent of such owner, notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. Section 8.5 Non -Waiver. Nothing in this Article VIII or in any other provision of this Indenture or in the Bonds, shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Pledged Tax Revenues and other amounts pledged hereunder, the principal of and 124/015610-0073 505001.03 a05/24/04 -44- 71 interest on the Bonds to the respective Owners on the respective Interest Payment Dates, as herein provided, or affect or impair the right of action, which is also absolute and unconditional, of the Owners or the Trustee to - institute -suit to -enforce such -payment by virtue of the, contract embodied in the Bonds. A waiver of any default by any Owner or the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No' delay or omission of any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Owners and the Trustee by the Law or by this Article VIII may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners and the Trustee. If a suit, action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Owners or the Trustee, the Authority, the Trustee and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Section 8.6 Actions by Trustee as Attorney -in -Fact. Any suit, action or proceeding which any owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners by taking and holding the Bonds or Parity Debt, as applicable, shall be conclusively deemed so to have appointed it) the true and lawful attorney -in -fact of the respective Owners for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney -in -fact, provided, however, the Trustee shall have no duty or obligation to exercise any such right or remedy unless it has been indemnified to its satisfaction from any loss, liability or expense (including fees and expenses of its counsel). Section 8.7 Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law. ARTICLE IX MISCELLANEOUS Section 9.1 Benefits Limited to Parties. Nothing in this Indenture, expressed or implied, is intended to give to any person other than the Authority, the Trustee and the owners, any right, remedy, claim under or by reason of 124/015610-0073 505001.03 a05/24/04 -45- 72 this Indenture. Any covenants, stipulations, promises or agreements in this Indenture and the Loan Agreement contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the -Trustee -andthe Owners. Section 9.2 Successor is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture either the Authority or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 9.3 Discharge of Indenture. If the Authority shall pay and discharge the indebtedness evidenced by the Bonds, or any portion thereof, in any one or more of the following ways: (a) by well and truly paying or causing to be paid the principal of and interest on such Bonds, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee or an escrow agent, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established pursuant to this Indenture, is fully sufficient to pay such Bonds, including principal and interest; or (c) by irrevocably depositing with the Trustee or an escrow agent, in trust, Federal Securities in such amount as an Independent Certified Public Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to this Indenture, be fully sufficient to pay and discharge the indebtedness evidenced by such Bonds (including principal and interest) at or before maturity; and, in the event that the Authority has made either of the deposits referred to in paragraphs (b) or (c) above, the Authority shall have provided the Trustee with (i) a report of an Independent Certified Public Accountant to the effect that the moneys or obligations so deposited with the Trustee are sufficient to pay the principal of, and interest on all Bonds Outstanding, as and when the same shall become due and payable, and (ii) an opinion of Bond Counsel to the effect that all conditions precedent to the defeasance of the Bonds have been met then, at the election of the Authority, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Pledged Tax Revenues and other funds provided for in this Indenture and all other obligations of the Trustee and the Authority under this Indenture with respect to such Bonds shall cease and terminate, except only (a) the obligations. of the Agency under Section 5.12, (b) the obligation of the Trustee to transfer and exchange such Bonds hereunder, (c) the obligations of the Agency under Section 6.6, and (d) the obligation of the Agency to pay or cause to be paid to the owners, from the amounts so deposited with the Trustee, all sums due thereon and to pay the Trustee all fees, expenses and costs of the Trustee. Notice of such election shall be filed with the Trustee. In the event the Authority shall, pursuant to the foregoing provision, pay and discharge any portion or all of the Bonds then Outstanding, 124/015610-0073 -46- 505001.03 a05/24/04 73 the Trustee shall be authorized to take such actions and execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge, including, without limitation, selection by lot of Bonds of -any maturity of the Bonds-- that the Authority -has determined to pay and discharge in part. In the event the Authority shall, pursuant to the foregoing provision, pay and discharge all of the Bonds then Outstanding, any funds thereafter held by the Trustee which are not required for said purposes, shall be paid over to the Authority. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by Bond Insurer pursuant to the Financial Guaranty Insurance Policy, the Bonds shall remain Outstaying for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Issuer, and the assignment and pledge of the trust estate and all covenants, agreements and other obligations of the Authority to the registered owners shall continue to exist and shall run to the benefit of Bond Insurer, and Bond Insurer shall be subrogated to the rights of such registered owners. Section 9.4 Execution of Documents and Proof of Ownership by Owners. Any request, consent, declaration or other instrument which this Indenture may require or permit to be executed by any Owner may be in one or more instruments of similar tenor, and shall be executed by such Owner in person or by their attorneys appointed in writing. Except as otherwise herein expressly provided, the fact and date of the execution by any Owner or his attorney of such request, declaration or other instrument, or of such writing appointing such attorney, may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he purports to act, that the person signing such request, declaration or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. The ownership of Bonds and the amount, maturity, number and date of ownership thereof shall be proved by the Registration Books. Any request, consent, declaration or other instrument or writing of the owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the Agency or the Trustee in good faith and in accordance therewith. Section 9.5 Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are owned or held by or for the account of the Authority, the Agency or the City of La Quinta (but excluding Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be outstanding for the purpose of any such determination, provided, however, that for the purpose of determining whether the Trustee shall be protected in relying on any such demand, request, direction, consent or waiver, only Bonds which the Trustee knows to be so owned or held shall be disregarded. 124/015610-0073 505001.03 a05/24/04 -47- 74 Section 9.6 Waiver of Personal Liability. - - No member, officer,. agent -or- employee -of -the Authority -shall be individually or personally liable for the payment of the principal of or interest or any premium on the Bonds; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law. Section 9.7 Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or cancelled pursuant to the provisions of this Indenture, the Trustee shall destroy such bonds and provide the Authority a certificate of destruction. The Authority shall be entitled to rely upon any statement of fact contained in any certificate with respect to the destruction of any such Bonds therein referred to. Section 9.8 Notices. Any notice, request, complaint, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or mailed by first class, postage prepaid, or sent by facsimile, or other form of telecommunication, addressed as follows: If to the Authority: La Quinta Financing Authority 78-495 Calle Tampico La Quinta, California 92253 Attention: Executive Director Telephone: (760) 777-7100 Facsimile: (760) 777-7101 If to the Trustee: U.S. Bank National Association 550 S. Hope Street, Suite 500 Los Angeles, California 90071 Attn: Corporate Trust Services Telephone: (213) 533-8741 Facsimile: (213) 533-8729 If to the Bond Insurer: Ambac Assurance Corporation One State Street Plaza New York, NY 10004 Attn: Yolanda Ortiz Telephone: (212) 208-3553 Facsimile: (212) 208-3404 Section 9.9 Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of this Indenture shall for any reason be held illegal, invalid or unenforceable, such holding shall not affect the validity of the remaining portions of this Indenture. The Authority hereby declares that it would have adopted this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and 124/015610-0073 505001.03 a05/24/04 -48- 75 authorized the issue of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses, or phrases of this Indenture may be held illegal, invalid or unenforceable. If, by reason of the judgment of any --court, the -Trustee is -rendered -unable to perform its duties hereunder, all such duties and all of the rights and powers of the Trustee hereunder shall; pending appointment of a successor Trustee in accordance with the provisions of Section 6.1 hereof, be assumed by and vest in the Treasurer of the Authority in trust for the benefit of the Owners. The Authority covenants for the direct benefit of the Owners that its Treasurer in such case shall be vested with all of the rights and powers of the Trustee hereunder, and shall assume all of the responsibilities and perform all of the duties of the Trustee hereunder, in trust for the benefit of the Owners of the Bonds, pending appointment of a successor Trustee in accordance with the provisions of Section 6.1 hereof. Section 9.10 Unclaimed Moneys. Anything contained herein to the contrary notwithstanding, to the extent permitted by law, any money held by the Trustee in trust for the payment and discharge of the interest or premium (if any) on or principal of the Bonds which remains unclaimed for two (2) years after the date when the payments of such interest, premium and principal have become payable, if such money was held by the Trustee at such date, or for two (2) years after the date of deposit of such money if deposited with the Trustee after the date when the interest and premium (if any) on and principal of such Bonds have become payable, shall be repaid by the Trustee to the Agency as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Bond Owners shall look only to the Authority for the payment of the principal of and interest on such Bonds. Section 9.11 Execution in Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 9.12 Governing Law. This Indenture shall be construed and governed in accordance with the internal laws of the State. Section 9.13 Provisions Relating to Bond Insurer. A. Provisions Relating to Bond Insurer Consent. (1) Consent of Bond Insurer. Any provision of this Indenture expressly recognizing or granting rights in or to Bond Insurer may not be amended in any manner which affects the rights of Bond Insurer hereunder without the prior written consent of Bond Insurer. (2) Consent of Bond Insurer in Addition to Bondholder Consent. Unless -otherwise provided in this Section, Bond Insurer's consent shall be required in addition to Bondholder consent, when required, for the following purposes: (1) execution and delivery of any Supplemental Indenture or 124/015610-0073 -49- 505001.03 a05/24/04 76 amendment, supplement or change to or modification of the Indenture; (ii) removal of the Trustee and selection and appointment of any successor trustee; and, (iii) initiation -or approval- -of -any-action not -described in (i)or (ii) above which requires bondholder consent. (3) Consent of Bond Insurer in the Event of Insolvency. Any reorganization or liquidation plan with respect to the Authority and Agency must be acceptable to Bond Insurer. In the event of any reorganization or liquidation, Bond Insurer shall have the right to vote on behalf of all bondholders who hold Bond Insurer insured bonds absent a default by Bond Insurer under the applicable Financial Guaranty Insurance Policy insuring such Bonds. (4) Consent of Bond Insurer Upon Default. Anything in this Indenture to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default as defined herein, Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Trustee for the benefit of the Bondholders under this Indenture, including, without limitation; (i) the right to accelerate the principal of the Bonds as described in this Indenture, and (ii) the right to annul any declaration of acceleration and Bond Insurer shall also be entitled to approve all waivers of Events of Default. Upon the occurrence of an Event of Default, the Trustee may, with the consent of Bond Insurer, and shall, at the written direction of Bond Insurer or the Bondholders owning 51 % or more of the Principal of Bonds Outstanding with the consent of Bond Insurer, by written notice to the Authority and Bond Insurer, declare the principal of the bonds to be immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become be immediately due and payable, anything in this Indenture or the Bonds to the contrary notwithstanding. B. Information to be Provided to the Bond Insurer. (1) While the Financial Guaranty Insurance Policy or Surety Bond is in effect, the Authority shall cause Agency to furnish Bond Insurer (to the attention of the Surveillance Department, unless otherwise indicated): (a) As soon as practicable after the filing thereof, a copy of any financial statement of the Agency and a copy of any audit and annual report of the Agency; (b) A copy of any notice to be give to the registered owners of the Bonds, including, without limitation, notice of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to this Indenture relating to the security for the Bonds; and (c) Such additional information as Bond Insurer may reasonably request. 124/015610-0073 505001.03 a05/24/04 -50- (d) A copy of any notice to be given to the registered owners of the Bonds, including without limitation, notice of any redemption -of or- -defeasance -of Bonds, - and any certificate rendered pursuant to this Indenture relating to the security of the Bonds. (e) To the extent that the Agency has entered into a continuing disclosure agreement with respect to the Bonds, the Bond Insurer shall be included as a party to be notified. (2) The Trustee shall notify Bond Insurer (Attention: Surveillance Department and General Counsel Office) of any failure of the Agency to provide relevant notices, certificates, etc. (3) The Authority and the Agency will permit Bond Insurer to discuss the affairs, finances and accounts of the Authority and the Agency or any information Bond Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the Agency. The Trustee, Authority, or Agency will permit Bond Insurer to have access to and to make copies of all books and records relating to the Bonds at any reasonable time. (4) Bond Insurer shall have the right to direct an accounting at the Authority's expense, and the Authority's failure to comply with such direction within thirty (30) days after receipt of written notice of the direction from Bond Insurer shall be deemed a default hereunder; provided, however, that if compliance cannot occur within such period, then such period will be extended so long as compliance is begun within such period and diligently pursued, but only if such extension would not materially adversely affect the interests of any registered owner of the Bonds. (5) Notwithstanding any other provision of this Indenture, the Trustee, Authority, or Agency shall immediately notify Bond Insurer (Attention: Surveillance Department and General Counsel Office) if at any time there are insufficient moneys under the Indenture to make any payments of principal and/or interest as required and immediately upon the occurrence of any Event of Default hereunder. (6) To the extent that the Authority or Agency has entered into a Continuing Disclosure Agreement with respect to the Bonds, Bond Insurer shall be included as party to be notified. Section 9.14 Payment Procedure Pursuant to the Financial Guaranty Insurance Policy. As long as the Financial Guaranty Insurance Policy shall be in full force and effect, the Trustee agrees to comply with the following provisions: (a) At least one (1) day prior to all Interest Payment Dates the Trustee will determine whether there will be sufficient funds in the funds and accounts (including 124/015610-0073 505001.03 a05/24/04 -51- 78 from a draw on any Alternative Reserve Account Security) to pay the principal of or interest on the Bonds on such Interest Payment Date. If the Trustee determines that there will be insufficient funds in such funds or accounts, the Trustee shall - so notify Bond Insurer. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest, or both. If the Trustee has not so notified Bond Insurer at least one (1) day prior to an Interest Payment Date, Bond Insurer will make payments of principal or interest due on the Bonds on or before the first (Is) day next following the date on which Bond Insurer shall have received notice of nonpayment from the Trustee. (b) the Trustee shall, after giving notice to Bond Insurer as provided in (a) above, make available to Bond Insurer and, at Bond Insurer's direction, to the Bank of New York, New York, New York, as insurance trustee for Bond Insurer or any successor insurance trustee (the "Insurance Trustee"), the registration books of the Authority maintained by the Trustee, and all records relating to the funds and accounts maintained under this Indenture. (c) the Trustee shall provide Bond Insurer and the Insurance Trustee with a list of registered owners of Bonds entitled to receive principal or interest payments from Bond Insurer under the terms of the Financial Guaranty Insurance Policy; and shall make arrangements with the Insurance Trustee (i) to mail checks or drafts to the registered owners of Bonds entitled to receive full or partial interest payments from Bond Insurer and (ii) to pay principal upon Bonds surrendered to the Insurance Trustee by the registered owners of Bonds entitled to receive full or partial principal payments from Bond Insurer. (d) the Trustee shall, at the time it provides notice to Bond Insurer pursuant to (a) above, notify registered owners of Bonds entitled to receive the payment of principal or interest thereon from Bond Insurer (i) as to the fact of such entitlement, (ii) that Bond Insurer will remit to them all or a part of the interest payments next coming due upon proof of Bondholder entitled to interest payments and delivery to the Insurance Trustee, of an appropriate assignment of the registered owner's right to payment, (iii) that should they be entitled to receive full payment of principal from Bond Insurer, they must surrender their Bonds (along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee to permit ownership of such Bonds to be registered in the ' name of Bond Insurer) for payment to the Insurance Trustee, and not the Trustee, and (iv) that should they be entitled to receive partial payment of principal from Bond Insurer, they must surrender their Bonds for payment thereon first to the Trustee, who shall note on such Bonds the portion of the principal paid by the Trustee, and then, along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee, to the Insurance Trustee, which will then pay the unpaid portion of principal. (e) in the event that the Trustee has notice that any payment of principal of or interest on a Bond which has become due for payment and which is made to a Bondholder by or on behalf of the Authority has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a 124/015610-0073 -52- 505001.03 a05/24/04 court having competent jurisdiction, the Trustee shall, at the time Bond Insurer is notified, notify Bond Insurer and notify all registered owners that in the event that any registered owner's payment is so recovered, such--registered-owner will be -entitled to payment from Bond Insurer to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee shall furnish to Bond Insurer its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee, and subsequently recovered from registered owners and the dates on which such payments were made. (f) in addition to those rights granted Bond Insurer under this Indenture, Bond Insurer shall, to the extent it makes payment of principal of or interest on Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Financial Guaranty Insurance Policy, and to evidence such subrogation (i) in the case of subrogation as to claims for past due interest, the Trustee shall note Bond Insurer's rights as subrogee on the registration books of the Authority maintained by the Trustee, upon recipient from Bond Insurer of proof of the payment of interest thereon to the registered owners of the Bonds, and (ii) in the case of subrogation as to claims for past due principal, the Trustee shall note Bond Insurer's rights as subrogee on the registration books of the Authority maintained by the Trustee, upon surrender of the Bonds by the registered owners thereof together with proof of the payment of principal thereof. Section 9.15 Payment Procedure Pursuant to the Surety Bond. A. As long as the Surety Bond shall be in full force and effect, the Authority and Trustee agree to comply with the following provisions: (a) In the event and to the extent that moneys on deposit in the Debt Service Fund, plus all amounts on deposit in and credited to the Reserve Fund in excess of the amount of the Surety Bond, are insufficient to pay the amount of principal and interest coming due, then upon the later of (i) one (1) day after receipt by the General Counsel of the Bond Insurer of a demand for payment in the form attached to the Surety Bond as Attachment 1 (the "Demand for Payment"), duly executed by the Trustee certifying that payment due under the Indenture has not been made to the Trustee; or (ii) the payment date of the Bonds as specified in the Demand for Payment presented by the Trustee to the General Counsel of the Bond Insurer, Bond Insurer will make a deposit of funds in an account with the Trustee or its successor, in New York, New York, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee under the Indenture (as specified in the Demand for Payment) up to but not in excess of the Surety Bond Coverage, as defined in the Surety Bond; provided, however, that in the event that the amount on deposit in, or credited to, the Reserve Fund, in addition to the amount available under the Surety Bond or other such funding instrument (the "Additional Funding Instrument"), draws on the Surety Bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. 124/015610-0073 -5 3 - 505001.03 a05/24/04 8'� (b) the Trustee shall, after submitting to the Bond Insurer the Demand for Payment as provided in (a) above, make available to the Bond Insurer all records relating to the funds and accounts maintained under this Indenture. (c) the Trustee shall, upon receipt of moneys received from the draw on the Surety Bond, as specified in the Demand for Payment, credit the Reserve Fund to the extent of moneys received pursuant to such Demand. (d) the Reserve Fund shall be replenished in the following priority: (i) [principal and interest on the Surety Bond shall be paid from first available Pledged Revenues] [principal and interest on the Surety Bond and on the Additional Funding Instrument shall be paid from first available Pledged Revenues on a pro rata basis]; (ii) after all such amounts are paid in full, amounts necessary to fund the Reserve Fund to the required level, after taking into account the amounts available under the Surety Bond [and the Additional Funding Instrument] shall be deposited from the next available Pledged Revenues. (e) In the event that Bond Insurer were to become insolvent, any claims arising under the Surety Bond would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California. Section 9.16 Interested Parties. A. Bond Insurer As Third Party Beneficiary. To the extent that this Indenture confers upon or gives or grants to Bond Insurer any right, remedy or claim under or by reason of this Indenture and the Loan Agreement, Bond Insurer is hereby explicitly recognized as being a third -party beneficiary hereunder and may enforce any such right remedy or claim conferred, given or granted hereunder. B. Parties Interested Herein. Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Authority, the Trustee, Bond Insurer, and the registered owners of the Bonds, any right, remedy or claim under or by reason of this Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Authority contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority, the Trustee, Bond Insurer, and the registered owners of the Bonds. C. Notwithstanding anything in this Indenture to the contrary, if Bond Insurer has failed to make any payments under the Financial Guaranty Insurance Policy, and such failure remains unremedied, all rights accruing to Bond Insurer hereunder with respect to the giving of instructions approvals or consents shall cease to be in force and effect until such time as such failure to make such payments has been remedied. [SIGNATURES ON NEXT PAGE] 124/015610-0073 505001.03 a05/24/04 -54- 81 IN WITNESS WHEREOF, the LA QUINTA FINANCING AUTHORITY, has caused this Indenture to be signed in its name by its Executive Director and attested by its Secretary, and U.S. BANK NATIONAL ASSOCIATION, by its Authorized Officer and - attested by an Authorized Officer, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. ATTEST: Secretary LA QUINTA FINANCING AUTHORITY By: Executive Director U.S. BANK NATIONAL ASSOCIATION as Trustee LOM Authorized Officer 124/015610-0073 -5 5 - 505001.03 a05/24/04 82 EXHIBIT A (FORM OF BOND) UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF RIVERSIDE LA QUINTA FINANCING AUTHORITY LOCAL AGENCY REVENUE BOND, 2004 SERIES A INTEREST RATE: MATURITY DATE: DATED DATE: CUSIP: REGISTERED OWNER: PRINCIPAL SUM: DOLLARS The LA QUINTA FINANCING AUTHORITY (the "Authority"), a joint powers authority created pursuant to the provisions of Articles I through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the "Law"), for value received, hereby promises to pay (but only out of the Revenues and other assets pledged therefor as hereinafter mentioned) to the Registered Owner stated above or registered assigns (the "Owner"), on the Maturity Date stated above (subject to any right of prior redemption hereinafter mentioned), the Principal Sum stated above, in lawful money of the United States of America; and to pay interest thereon in like lawful money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Bond (unless this Bond is authenticated after a Record Date (as hereinafter defined) and on or prior to the next succeeding Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or before in which event it shall bear interest from the Dated Date stated above) until payment of such Principal Sum shall be discharged as provided in the Indentures hereinafter mentioned, at the Interest Rate per annum stated above, payable semiannually on each March 1 and September 1 (each, an "Interest Payment Date"), commencing September 1, 2004. The principal (or redemption price) hereof is payable upon presentation and surrender of this Bond at the corporate trust of U.S. Bank National Association (the "Trustee") in Los Angeles, California (or such other office designated by the Trustee, herein called the "Principal Office" of the Trustee). Interest hereon is payable by check of the Trustee mailed by first class mail on each Interest Payment Date to the Owner as of the fifteenth (15th) day of the month ,preceding each Interest Payment Date (the "Record Date") at the address shown on the registration books maintained by the Trustee or, upon written request filed with the Trustee prior to the Record Date for the applicable Interest Payment Date by an Owner of at least $1,000,000 in aggregate principal amount of Bonds, by wire transfer made on such Interest Payment Date in immediately available funds to an account designated by such Owner in such written request. 124/015610-0073 505001.03 a05/24/04 83 It is hereby certified and recited by the Authority that any and all conditions, things and acts required to exist, to have happened and to have been performed precedent to and in the issuance of this Bond -do exist, have happened and, have- been -performed in Aue time, form and manner as required by the Bond Law, and by the Constitution and laws of the State. of California, and that the amount of this Bond, together with all other indebtedness of the Authority, does not exceed any limit prescribed by the Bond Law, or by the Constitution and laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indentures. This Bond shall not be entitled to any benefit under the Indentures, or become valid or obligatory for any purpose, until the Trustee's Certificate of Authentication hereon endorsed shall have been signed by the Trustee. This Bond is one of a duly authorized issue of bonds of the Authority designated as the "La Quinta Financing Authority Local Agency Revenue Bonds, 2004 Series A" (the "Bonds"), in the aggregate principal amount of $ , all issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985, being Article 4 of the Law (commencing with section 6584) (the "Bond Law"), and pursuant to an Indenture of trust, dated as of May 1, 20041 by and between the Authority and the Trustee (the "Indenture"), issued for the purpose of providing funds for the purchase of Local Obligations (as defined in the Indentures) issued to finance the acquisition, construction, improving and equipping of public capital improvements undertaken by the La Quinta Redevelopment Agency (the "Local Agency"). Reference is hereby made to the Indentures (copies of which are on file at said office of the Trustee) and all indentures supplemental thereto and to the Bond Law for a description of the rights thereunder of the owners of the Bonds, of the nature and extent of the security, of the rights, duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder. The Owner of this Bond, by acceptance hereof, assents and agrees to all the provisions of the Indentures. The Bonds and the interest thereon are payable on a subordinated basis from Revenues (as that term is defined in the Indenture), derived primarily from payments made by the Local Agency with respect to Local Obligations acquired with the proceeds of the Bonds, a pledge and assignment of said Revenues and of amounts held in the funds and accounts established pursuant to the Indentures (including proceeds of the sale or refunding of the Bonds), subject only to the provisions of the Indentures permitting the application thereof for the purposes and on the terms and conditions set forth in the Indentures. The Bonds are special obligations of the Authority and are not a lien or charge upon the funds or property of the Authority, except to the extent of the aforesaid pledge and assignment. The Bonds are not a debt of the Local Agency or the State of California and said State is not liable for the payment thereof. The Authority has no taxing power. The Bonds are subject to mandatory redemption, in part by lot, on September 1 each year commencing September 1, , from mandatory sinking payments 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 respective principal amounts and on September 1 in the respective years as set forth in the following schedule; provided, however, 124/015610-0073 -57- 505001.03 a05/24/04 84 that (i) in lieu of redemption thereof, the Bonds may be purchased by the Authority and tendered to the Trustee pursuant to the provisions of the Indenture, and (ii) if some but not all of the Bonds have been redeemed pursuant to the optional redemption -provisions -described herein, the total amount of all future sinking payments will be reduced by the aggregate principal amount of the Bonds so redeemed, to be allocated among such sinking payments in integral multiples of $5,000 as determined by the Authority. SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS TERM BONDS MATURING SEPTEMBER 11 September 1 Year Principal Amount The bonds are subject to redemption prior to maturity at the option of the Authority on any Interest Payment Date on or after September 1, , as a whole or in part, in a manner determined by the Authority, 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 September 1, and March 1, September 1, and March 1, September 1, and thereafter Redemption Prices 102.0% 101.0% 100.0% When redemption is authorized or required, written notice of redemption is required to be mailed by the Trustee to the respective Owners of any Bonds designated for redemption at their addresses appearing on the bond registration books, to the Securities Depositories, and to the Information Services, all as provided in the Indenture, by first class mail, postage prepaid, no less than thirty (30), nor more than sixty (60) days prior to the date fixed for redemption. Neither failure to receive such notice nor any defect in the notice' so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date. The rights of a Bondowner to receive interest will terminate on the date, if any, on which the Bond is to be redeemed pursuant to a call for redemption. The Indenture contains no provisions requiring any publication of notice of redemption, and Bondowners must maintain a current address on file with the Trustee to receive any notices of redemption. In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Bondowner thereof, at the expense of the Authority, a new Bond or Bonds of the same series and maturity date, of authorized denominations equal in an aggregate principal amount to the unredeemed portion of the bond to be redeemed. 124/015610-0073 505001.03 a05/24/04 -58- 85 The Bonds are issuable as fully registered Bonds in the minimum denomination of $5,000 each or any integral multiple thereof. Subject to the limitations and upon payment of the charges, if any, provided in1he Indenture, Bonds --may be, exchanged, at the Principal Office of the Trustee, for a like aggregate principal amount of Bonds of the same interest rate and of other authorized denominations. This Bond is transferable by the Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges, if any, provided in the Indentures, and upon surrender and cancellation of this Bond. Upon such transfer, a new Bond or Bonds, of authorized denomination or denominations, for the same aggregate principal amount, will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of any Bond (i) during the period established by the Trustee for selection of Bonds for redemption, or (ii) selected for redemption. The Authority and the Trustee may treat the Owner hereof as the absolute owner hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indentures and the rights and obligations of the Authority and of the owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Indentures; provided that no such modification or amendment shall (1) extend the fixed maturity of this Bond, or reduce the amount of principal hereof, or reduce the rate of interest hereon, or extend the time of payment of interest hereon, or reduce any premium payable upon the redemption hereof, without the consent of the Owner hereof, or (2) reduce the percentage of Bonds the consent of the owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged as security for the Bonds prior to or on a parity with the lien created by the Indentures, or deprive the owners of the Bonds of the lien created by the Indentures on such Revenues and other assets (except as expressly provided in the Indentures), without the consent of the owners of all Bonds thenoutstanding, all as more fully set forth in the Indentures. 124/015610-0073 505001.03 a05/24/04 -59- IN WITNESS WHEREOF, the La Quinta Financing Authority has caused this Bond to be executed in its name and on its behalf by the actual or facsimile signature of the Executive Director of the Authority, all as -of the Dated Date stated above. LA QUINTA FINANCING AUTHORITY Un Executive Director 124/015610-0073 _60_ 505001.03 a05/24/04 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Bonds described in the within -mentioned Indenture, which has been authenticated on the date set forth below. Date of Authentication: U.S. BANK NATIONAL ASSOCIATION LON Authorized Signatory [FORM OF ASSIGNMENT) For value received the undersigned doles) hereby sell, assign and transfer unto (Name, Address, and Tax Identification or Social Security Number of Assignee) the within registered Bond and hereby irrevocably constitute(s) and appoint(s) , attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: NOTICE: Signatures must be guaranteed by an eligible Notice: The signature on this Assignment must guarantor correspond with the name as it appears on the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever 124/015610-0073 505001.03 a05/24/04 -61- 88 TABLE OF CONTENTS Page ARTICLE I DETERMINATIONS; DEFINITIONS.................................................... 3 Section 1.1 Findings and Determinations.................................................................... 3 Section1.2 Definitions................................................................................................4 Section 1.3 Rules of Construction.............................................................................15 ARTICLE II AUTHORIZATION AND TERMS.......................................................16 Section 2.1 Authorization of Bonds...........................................................................16 Section2.2 Terms of Bonds.......................................................................................16 Section 2.3 Redemption of Bonds.............................................................................17 Section2.4 Book Entry.............................................................................................. 20 Section2.5 Form of Bonds........................................................................................ 22 Section 2.6 Execution of Bonds................................................................................. 22 Section 2.7 Transfer of Bonds................................................................................... 22 Section2.8 Exchange of Bonds................................................................................. 23 Section 2.9 Registration Books.................................................................................. 23 Section 2.10 Temporary Bonds................................................................................... 23 Section 2.11 Bonds, Mutilated, Lost, Destroyed or Stolen ......................................... 23 ARTICLE III' DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS; PARITYDEBT...................................................................................... 24 Section 3.1 Issuance of Bonds................................................................................... 24 Section 3.2 Application of Sale and Certain Other Amounts .................................... 24 Section 3.3 Housing Housing Fund........................................................................... 24 ARTICLE IV SECURITY OF BONDS; FLOW OF FUNDS ...................................... 25 Section 4.1 Security of Bonds; Equal Security.......................................................... 25 Section 4.2 Special Fund; Deposit of Pledged Tax Revenues ................................... 25 Section 4.3 Deposit of Amounts by Trustee.............................................................. 26 Section 4.4 Payment Procedure Pursuant to the Surety Bond ................................... 28 ARTICLE V OTHER COVENANTS OF THE AUTHORITY ................................... 29 Section 5.1 Punctual Payment................................................................................... 29 Section 5.2 Limitation of Additional Indebtedness; Against Encumbrances............ 29 Section 5.3 . Extension of Payment............................................................................. 29 Section5.4 Tax Covenants........................................................................................ 30 Section 5.5 Establishment and Application of Rebate Fund ..................................... 31 Section 5.6 Compliance with the Code...................................................................... 33 Section 5.7 Further Assurances................................................................................. 33 Section 5.8 Continuing Disclosure............................................................................ 33 ARTICLEVI THE TRUSTEE...................................................................................... 33 Section 6.1 Duties, Immunities and Liabilities of Trustee ........................................ 33 Section 6.2 Merger or Consolidation......................................................................... 35 124/015610-0073 505001.03 a05/24/04 "1" Pa e Section 6.3 Liability of Trustee................................................................................. 35 Section 6.4 Right to Rely on Documents................................................................... 37 Section 6.5 Preservation and Inspection of Documents ............................................ 37 Section 6.6 Compensation and Indemnification........................................................ 37 Section 6.7 Deposit and Investment of Moneys in Funds ......................................... 38 Section 6.8 Accounting Records and Financial Statements ...................................... 39 Section 6.9 Appointment of Co -Trustee or Agent ..................................................... 39 Section 6.10 Powers of Bond Insurer in Relation to the Trustee ................................. 40 ARTICLE VII MODIFICATION OR AMENDMENT OF THIS INDENTURE .......... 40 Section 7.1 Amendment With Consent of Owners .................................................... 40 Section 7.2 Effect of Supplemental Indenture........................................................... 41 Section 7.3 Endorsement or Replacement of Bonds After Amendment ................... 41 Section 7.4 Amendment by Mutual Consent............................................................. 42 Section 7.5 Notice to Standard & Poor' s.................................................................. f 42 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF OWNERS ................. 42 Section 8.1 Events of Default.................................................................................... 42 Section 8.2 Application of Funds.............................................................................. 43 Section 8.3 Power of Trustee to Control Proceedings ............................................... 44 Section 8.4 Limitation on Owner's Right to Sue ....................................................... 44 Section8.5 Non-Waiver............................................................................................44 Section 8.6 Actions by Trustee as Attorney -in -Fact .................................................. 45 Section 8.7 Remedies Not Exclusive......................................................................... 45 ARTICLE IX MISCELLANEOUS............................................................................... 45 Section 9.1 Benefits Limited to Parties..................................................................... 45 Section 9.2 Successor is Deemed Included in All References to Predecessor.......... 46 Section 9.3 Discharge of Indenture. "I'llo ol"I'll000l 'loll, 11111110 loll, ell 11 46 Section 9.4 Execution of Documents and Proof of Ownership by Owners ............... 47 Section 9.5 Disqualified Bonds... ........... o ..................... o ...... o ....... o.o ...... o .................... 47 Section 9.6 Waiver of Personal Liability................................................................... 48 Section 9.7 Destruction of Cancelled Bonds............................................................. 48 Section9.8 Notices....................................................................................................48 Section9.9 Partial Invalidity.....................................................................................48 Section 9.10 Unclaimed Moneys................................................................................. 49 Section 9.11 Execution in Counterparts... o .................................................................. 49 Section9.12 Governing Law....................................................................................... 49 Section 9.13 Provisions Relating to Bond Insurer....................................................... 49 Section 9.14 Payment Procedure Pursuant to the Financial Guaranty InsurancePolicy...................................................................................... 51 Section 9.15 Payment Procedure Pursuant to the Surety Bond ................................... 53 Section 9.16 Interested Parties..... ............ oo ......... o ................... oo,, ...... _ ...... o, ....... o 54 124/015610-0073 505001.03 a05/24/04 -11- 90 ATTACHMENT 5 Preliminary Official Statement Dated June 2004 Standard & Poor's: Moody's Investors Service: NEW ISSUE - FULL BOOK -ENTRY (__ Insured —See "Ratings" herein) In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming continuing compliance with covenants of the La Quinta Financing Authority (the "Authority") and the La Quinta Redevelopment Agency (the "Agency') intended to preserve the exclusion from gross income for federal income tax purposes of interest on the Bonds, interest on the Bonds is excludable from gross income forfederal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, such interest is also exempt from present State of California personal income taxes. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity is original issue discount. See TAX EXEMPTION herein for a discussion of the effect of certain provisions of the Code on Owners of the Bonds. $9090009000* LA QUINTA FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS 2004 SERIES A Dated: Closing Dabs Due: September 1, as shown below The Bonds be delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New New York ("DTC"), and will be available to ultimate purchasers ("Beneficial Owners") in the denomination of $5,000, or any: tegral multiple thereof, under the book -entry system maintained by DTC. Beneficial Owners will not be entitled to receive del of bonds representing their ownership interest in the Bonds. The principal of, premium, if any, and semiannual interest (due Marc�j11 and September 1 of each year, commencing September 1, 2004) on the Bonds will be payable by U.S. Bank National Associatiq�' St. Paul, Minnesota, as Trustee, to DTC for subsequent disbursement to DTC participants, so long as DTC or its nominee remains ob mastered owner of the Bonds (see "THE BONDS —Book -Entry System" herein). Bonds maturing on September 1, 2024, September 1, 2029 and September 1, 2034 are subject to mandatory redemption from Jernbersinking fund payments, in part by lot, on September 1, 2017, September 1, 2025 and September 1, 2030, respectively, and on t1 thereafter at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, remium, as described herein. The Bonds are subject to optional redemption prior to maturity, in whole or in part, on September 1, 2014 and on any date thereafter, t a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, without premium, as described herein. MATURITY SCHEDULE* / Maturity Date Principal Interest Maturity Date Principal Interest / (September 1) Amount Rate Yield (September 1) Amount Rate Yield 2005 $ 925,000 2011 $1,935,000 2006 1,700,000 2012 2,005,000 2007 1,730,000 2013 2,080,000 2008 1,770,000 2014 2,160,000 2009 1,820,000 2015 2,250,000 2010 1,875,000 2016 2,345,000 $23,130,000 — % Term Bonds due September 1, 2024 Yield — % $19,520,000 — % Term Bonds due September 1, 2029 Yield — % $24,755,000 — % Term Bonds due September 1, 2034 Yield — % The Bonds are being issued to provide a loan from the Authority to the Agency to finance projects benefiting low and moderate income housing in La Quinta Redevelopment Project Area No. 1 ("Project Area No. 1 ") and La Quinta Redevelopment Project Area No. 2 ("Project Area No. 2") (the "Project Areas") and to advance refund the Agency's Redevelopment Project Areas No. 1 and 2, 1995 Housing Tax Allocation Bonds of which $19,955,000 are currently outstanding (the "1995 Bonds"). The Bonds are payable from and secured by the Revenues as defined herein from the Authority. Taxes levied on the property within the Project Areas on that portion of the taxable valuation over and above the taxable valuation of the base year property roll (Fiscal Year 1983-84 for Project Area No. I and 1988-89 for Project Area No. 2) to the extent they constitute Pledged Tax Revenues shall be deposited in the Special Fund of the Agency, paid to the Authority and transferred to the Trustee for the payment of the principal of and interest on the Bonds. In addition, payment of the principal of and interest on the Bonds when due will be insured by a Financial Guaranty Insurance Policy to be issued by (" to or the "Bond Insurer") simultaneously with the delivery of the Bonds. This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of the Bonds. Investors should read the entire Official Statement to obtain information essential to making an informed investment decision. Attention is hereby directed to certain Risk Factors more fully described herein. The Bonds are not a debt of the City of La Quinta, the State of California or any of its political subdivisions and neither said City, said State or any of its political subdivisions is liable therefor. The principal of and interest on the Bonds are payable solely from the Pledged Tax Revenues allocated to the Agency from the Project Areas as defined herein and in the Indenture. The Bonds are offered when, as and if issued, subject to the approval of Rutan & Tucker, LLP, Costa Mesa, California, Bond Counsel. Certain legal matters will be passed on for the Authority by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel. It is anticipated that the Bonds will be available for delivery to DTC in New York, New York on or about June , 2004. WEDBUSH MORGAN SECURITIES The Date of this Official Statement is June _, 2004. * Preliminary, subject to change. 4 LA QUINTA FINANCING AUTHORITY LA QUINTA, CALIFORNIA Don Adolph, Chair Stanley Sniff, Vice Chair Terry Henderson, Member Lee Osborne, Member Ronald Perkins, Member LA QUINTA REDEVELOPMENT AGENCY Terry Henderson, ,Chair Ronald Perkins, Vice Chair Stanley Sniff, Member Don Adolph, Member Lee Osborne, Member CITY OF LA QUINTA Don Adolph, Mayor Stanley Sniff, Mayor Pro Tem Terry Henderson, Council Member Ronald Perkins, Council Member Lee Osborne, Council Member STAFF Thomas P. Genovese, Executive Director/City Manager Mark Weiss, Assistant City Manager Jerold Herman, Community Development Director John M. Falconer, Finance Director/Treasurer June S. Greek, City ClerklAgency Secretary M. Kathrine Jenson, Esquire, City/Agency Attorney Bond Counsel Rutan & Tucker, LLP Costa Mesa, California Disclosure Counsel Stradling Yocca Carlson & Rauth a Professional Corporation Newport Beach, California Trustee and Escrow Bank U.S. Bank National Association Los Angeles, California Underwriter Wedbush Morgan Securities Solana Beach, California Fiscal Consultant Rosenow Spevacek Group, Inc. Santa Ana, California 92 TABLE OF CONTENTS Page INTRODUCTION.......................................................... I LegalAuthority..........................................................1 FinancingPumose......................................................1 Tax Allocation Financing...........................................2 The City and the Aeencv............................................2 The Project Areas......................................................2 Municipal Bond Insurance.........................................3 ..................... .......................... 3 Continuing Disclosure ................................................ Other Information.......................................................3 SOURCE AND USES OF FUNDS................................4 THEBONDS.................................................................4 Authority for Issuance................................................4 Description of the Bonds............................................4 Book -Entry System....................................................4 Redemption and Purchase of Bonds ...........................6 SECURITY FOR THE BONDS....................................8 The Indenture............................................................. 8 LoanAgreement......................................................... 8 Pledged Tax Revenues...............................................8 Reserve Fund Surety Bond.........................................9 THEINDENTURE......................................................10 Allocation of Bond Proceeds...................................10 Investment of Moneys in Funds and Accounts ......... 10 Events of Default and Remedies..............................11 Amendments............................................................13 THE LOAN AGREEMENT.........................................14 Pledged Tax Revenues -Application .........................14 Issuance of Parity Debt.............................................15 Issuance of Subordinate Debt...................................16 Covenants of the Agency.........................................17 THE AUTHORITY......................................................20 Members and Officers..............................................20 LA QUINTA REDEVELOPMENT AGENCY ............ 21 Members and Officers..............................................21 AgencyPowers.........................................................21 Fiscal Consultant...................................................... 21 Tax Increment Financing..........................................21 Housing Set-Aside...................................................22 Factors Affecting Redevelopment Agencies Generally...............................................22 RISKFACTORS.......................................................... 23 Limitations on Remedies..........................................23 Reduction of Pledged Tax Revenues ........................23 Limited Obligations..................................................24 Development Risks..................................................24 Levy and Collection.................................................24 Reduction in Inflationary Rate.................................25 Bankruptcy and Foreclosure.....................................25 Property Held By FDIC............................................25 Page Seismic Factors..........................:.............................26 Proposition 8 Adjustments.......................................26 The Bezaire Case......................................................26 Educational Revenue Augmentation Fund; State Budget..................................................................27 Changes in Redevelopment Law .............................. 27 PROPERTY TAXATION IN CALIFORNIA ..............28 Property Tax Collection Procedures .........................28 Supplemental Assessments......................................28 Property Tax Administrative Costs ..........................29 Unitary Property ....................................................... 29 Article XIIIA of the State Constitution ....................29 Appropriations Limitation -Article XIIIB .................30 Personal Property Tax Special Subventions .............30 Future Initiatives.......................................................30 Recent Litigation Regarding Increase in Assessed Valuation...............................................30 Appeals of Assessed Values.....................................31 THE PROJECT AREAS..............................................32 Project No. 1—Background..................................... 32 Project No. 2—Background.....................................32 Redevelopment Plan Limitations .............................33 Location and Surrounding Area...............................34 Controls, Land Use and Building Restrictions ......... 34 Agreements with Various Taxing Agencies.............35 Largest Local Secured Taxpayers .............................36 LandUse..................................................................37 PLEDGED TAX REVENUES.....................................37 Historical Incremental Revenues..............................37 Projected Pledged Tax Revenues and Debt Service Coverage..................................................38 Annual Debt Service................................................39 BOND INSURANCE...................................................39 CONCLUDING INFORMATION...............................40 Ratings.....................................................................40 Underwriting............................................................40 LegalOpinion........................................................... 40 TaxExemption.........................................................41 NoLitigation............................................................42 Legality for Investment in California .......................42 Continuing Disclosure..............................................42 Miscellaneous........................................................... 43 SUPPLEMENTAL INFORMATION - THE CITY OF LA QUINTA....................................44 APPENDIX A - Definitions.......................................A-1 APPENDIX B - Redevelopment Fiscal Consultant's Tax Increment Projections ................. B-1 APPENDIX C - Specimen Financial Guaranty Insurance Policy ..................................................... C-1 For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, the Preliminary Official Statement and the Official Statement, as of their respective dates, are deemed final by the Authority and the Agency, provided, however, that pricing, underwriting and other information contained in the Preliminary Official Statement is subject to completion or amendment in accordance with Rule 15c2-12. No dealer, broker, salesman or other person has been authorized to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such information or representations must not be relied upon as having been authorized by the Authority and the Agency. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the Authority and the Agency or the Project Areas since the date hereof. The information set forth herein has been obtained from the Authority and the Agency and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness and is not to be construed as a representation of the Authority and the Agency. 93 (This Page Left Intentionally Blank) 94 OFFICIAL STATEMENT $9090009000* LA QUINTA FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS 2004 SERIES A INTRODUCTION This Official Statement, including the cover page, is provided to furnish information in connection with the sale by the La Quinta Financing Authority (the "Authority") of $90,000,000* aggregate principal amount of the Authority's Local Agency Revenue Bonds, 2004 Series A (the "Bonds"). This Introduction contains a brief summary of certain information contained in this Official Statement. It is not intended to be complete and is qualified by the more detailed information contained elsewhere in this Official Statement. Definitions of certain terms used in this Official Statement are set forth in "APPENDIX A — Definitions," herein. Legal Authority The Authority is 'a joint powers authority, duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement dated November 3, 1988, by and between the City of La Quinta (the City) and the La Quinta Redevelopment Agency (the "Agency"), and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act"), and is authorized pursuant to Article 4 of the Act (the "Bond Law") to borrow money and loan the proceeds to the Agency for the purpose of financing and refinancing public capital improvements of the Agency, including projects benefiting low and moderate income housing. Bonds are being issued in accordance with the Bond Law, a resolution (the "Resolution") adopted by the Authority on June , 2004 and an Indenture of Trust, dated as of June 1, 2004 (the "Indenture"), by and between the Authority and U.S. Bank National Association, as trustee (the "Trustee"). The Bonds are limited obligations of the Authority entitled, ratably and equally, to the benefits of the Indenture and are payable solely from and secured by an assignment and pledge of the Authority's interest in certain loan repayments to be made by the Agency under the First Supplemental Loan Agreement (the "Loan Agreement"). The Agency's obligations under the Loan Agreement are secured by a pledge of certain tax revenues derived from taxes assessed on property within two project areas of the Agency (the "Project Areas," as described herein) (the "Pledged Tax Revenues," as further defined herein; See "SECURITY FOR THE BONDS" herein). Financing Purpose The proceeds of the Bonds will be used to fund a loan (the "Loan") from the Authority to the Agency. The Loan proceeds will be used to (i) refund certain outstanding bonds of the Agency, (ii) assist the Agency in the financing and refinancing of housing activities, benefiting one or more of the Agency's redevelopment project areas, (iii) to fund the Reserve Account for the Loan (as described below); and (iv) to pay certain costs relating to the issuance of the Bonds and the making of the Loan. * Preliminary, subject to change. The Agency is required to fund and maintain a Reserve Account held by the Trustee under the Indenture. The Agency will initially deposit into such Reserve Account proceeds of the Loan in the amount equal to the Reserve Requirement, as defined herein, (the "Reserve Requirement"). See "SECURITY FOR THE BONDS" for further discussion of the Reserve Account and the Reserve Requirement. In the event that the Agency receives insufficient Pledged Tax Revenues from the Project Areas or otherwise defaults on payments under the Loan Agreement, the Agency is obligated to pay such amounts from the Reserve Account for the Loan Agreement. The Project Areas are located in the City, in the County of Riverside (the "County"). Certain general economic and demographic information with regards to the City and the County may be found in "SUPPLEMENTAL INFORMATION — The City of La Quinta," herein. NEITHER THE BONDS, NOR THE OBLIGATIONS OF THE AGENCY UNDER THE LOAN AGREEMENT ARE A DEBT OF THE CITY OR THE COUNTY NOR IS THE CITY OR COUNTY LIABLE THEREFOR. THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS ULTIMATELY ARE PAYABLE FROM AND SECURED BY A PLEDGE OF CERTAIN AMOUNTS PAYABLE BY THE AGENCY TO THE AUTHORITY UNDER THE LOAN AGREEMENT. Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project area. The taxable valuation of a redevelopment project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as indicated above. Taxes collected upon the increase in assessed valuations in the Project Areas and received on or after the date of issuance of the Bonds are referred to herein as the "Tax Revenues." Any future decrease in the taxable valuations in the Project Areas or in the applicable tax rates could reduce the Pledged Tax Revenues allocated to the Agency and, correspondingly, could have an adverse impact on the availability of Revenues to pay debt service on the Bonds. See "RISK FACTORS" herein. The City and the Agency The City of La Quinta (the "City") is located 127 miles east of Los Angeles and 20 miles east � of Palm Springs in Riverside County (the "County"). The City was originally a general law city incorporated on May 1, 1982, became a charter city in November, 1996 and provides for a Council - Manager form of government made up of five Council Members. The Mayor is directly elected by the citizens. The City encompasses an area of approximately 31.84 square miles and the 2004 population is estimated to be 32,500. The Agency was established on July 5, 1983 by the City Council of the City with the adoption of Ordinance No. 34, pursuant to the Law. The five members of the City Council serve as the governing body of the Agency, and exercise all the rights, powers, duties and privileges of the Agency. The Project Areas The Redevelopment Plan for the La Quinta Redevelopment Project Area No. 1 was approved by Ordinance No. 143 adopted by the City Council on December 29, 1983. The La Quinta M Redevelopment Project Area No. 1 ("Project Area No. 1 ") encompasses 17.5 square miles (11,200 acres) commercial, public and residential properties. The Redevelopment Plan for the La Quinta Redevelopment Project Area No. 2 was approved by Ordinance No. 139 adopted by the City Council on May 16, 1989. The La Quinta Redevelopment Project Area No. 2 ("Project Area No. 2") encompasses 3,116 acres of commercial, public and residential properties. Project Area No. 1 and Project Area No. 2 are referred to herein as the Project Areas, and the Redevelopment Plans for Project Area No. 1 and Project Area No. 2 are referred to herein as the Redevelopment Plans. Municipal Bond Insurance Concurrently with issuance of the Bonds, (the "Bond Insurer") will issue its Municipal Bond Insurance Policy (the "Policy") for the Bonds. The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Bonds which has become due for payment, but which is unpaid. See "BOND INSURANCE" and "APPENDIX C — Specimen Municipal Bond Insurance Policy". Continuing Disclosure The Agency has covenanted for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the Agency by not later than seven (7) months following the end of the Agency's fiscal year (which currently would be by January 31 each year based upon the June 30 end of the Agency's fiscal year), commencing January 31, 2005, with the report for the 2003-04 Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Agency with each Nationally Recognized Municipal Securities Information Repository, and with the appropriate State information depository, if any. The notices of material events will be filed by the Agency with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in "APPENDIX D — Form of Continuing Disclosure Agreement." These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The Agency has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. Other Information Following in this Official Statement are brief descriptions of the Bonds, the Authority, the Agency, the City, Revenues, Pledged Tax Revenues, the Project Areas, security for the Bonds, risk factors and limitations on Tax Revenues and Pledged Tax Revenues and certain other information relevant to the issuance of the Bonds. All references herein to the Indenture are qualified in their entirety by reference to the Indenture and all references to the Bonds are further qualified by reference to the definitive Bonds and to the terms thereof which are contained in the Indenture. All capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Indenture. During the period of the offering of the Bonds, copies of theforms of all documents are available at the offices of Wedbush Morgan Securities, 201 Lomas Santa Fe Drive, Suite 500, Solana Beach, California 92075 and thereafter from the City Clerk's office, City of La Quinta, 78- 495 Calle Tampico, La Quinta, California 92253. 97 SOURCE AND USES OF FUNDS The estimated source and uses of funds, excluding accrued interest on the Bonds, is summarized as follows: Source Principal Amount of Bonds ................................................... $90.000,000.00* Uses Underwriter's Discount.......................................................... ReserveFund (1)................................................................... Costs of Issuance (2)............................................................. HousingFund........................................................................ TotalUses........................................................................ (1) An amount, initially funded by a Reserve Account Surety Bond issued by the Bond Insurer. (2) Includes the Financial Guaranty Insurance Policy and Surety Bond premium. THE BONDS Authority for Issuance The La Quinta Financing Authority, Local Agency Revenue Bonds, 2004 Series A, in an aggregate principal amount of $90,000,000* (the "Bonds"), were authorized for issuance pursuant to the Indenture. Description of the Bonds The Bonds will be issued as one fully registered Bond for each maturity, in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), as registered owner of all Bonds. See "Book -Entry System" below. The initially issued Bonds will be dated the date of delivery and mature on September 1 in the years and in the amounts shown on the cover page of this Official Statement. The Bonds will bear interest at the rates shown on the cover page of this Official Statement, payable semiannually on March 1 and September 1 in each year, commencing on September 1, 2004, by check mailed by first class mail on each Interest Payment Date to the registered owners thereof or upon the request of the Owners of $1,000,000 or more in principal amount of Bonds, by wire transfer to an account which shall be designated by such Owner to the Trustee on or before the Regular Record Date preceding the Interest Payment Date. Book Entry System DTC will act as securities depository for the Bonds. The Bonds will be issued as fully - registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). 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. DTC 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 securities that its participants (the "Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in * Preliminary, subject to change. Participants' accounts, thereby eliminating the need for physical movement of securities bonds. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York- Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchasers 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 Bond ("Beneficial Owners") is in turn recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are 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 Participants acting on behalf of the Beneficial Owners. Beneficial Owners will not receive bonds 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 Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Bonds with DTC and their registration in the name of Cede & Co. effect no 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 securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. 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. will consent or vote with respect to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to an issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal, sinking fund and interest payments with respect to the Bonds will be made to DTC. DTC's practice is to credit Participants' accounts on payment dates in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the date payable. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, the Authority or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. The Authority cannot and does not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium with respect to the Bonds paid to DTC or its nominee as the registered owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The Authority is not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to Beneficial Owners with respect to the Bonds or an error or delay relating thereto. The foregoing description of 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 interests in such 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. Discontinuance of Book -Entry. DTC may discontinue providing its services with respect to the Bonds at any time by giving notice to the Trustee and discharging its responsibilities with respect thereto under applicable law or the Authority may terminate participation in the system of book - entry transfers through DTC or any other securities depository at any time. In the event that the book -entry system is discontinued, the Agency will execute, and the Trustee will authenticate and make available for delivery, replacement Bonds in the form of registered bonds. In addition, the following provisions would apply: the principal of and redemption premium, if any, on the Bonds will be payable at the principal corporate trust office of the Trustee, and interest on the Bonds will be payable by check mailed on each Interest Payment Date to the Owners thereof as shown on the registration books of the Trustee as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable Interest Payment Date, or by wire transfer to Owners of $1,000,000 or more in aggregate principal amount of Bonds, upon request, as provided in the Indenture. The Bonds will be transferable and exchangeable on the terms and conditions provided in the Indenture. Transfer Fees. For every transfer and exchange of Bonds, Owners may be charged a sum sufficient to cover any tax, governmental charge or transfer fees that may be imposed in relation thereto, which charge may include transfer fees imposed by the Trustee, DTC or the DTC Participant in connection with such transfers or exchanges. Redemption and Purchase of Bonds Optional Redemption. The Bonds may be called before maturity and redeemed at the option of the Authority, in whole or in part, from the proceeds of refunding bonds or other available funds, on September 1, 2014 or on any date thereafter prior to maturity. Bonds called for redemption will be redeemed at the following redemption price (expressed as a percentage of the principal amount of Bonds to be redeemed) plus accrued interest to the redemption date: Redemption Date Redemption Price September 1, 2014 and thereafter 100% 6 00 The Term Bonds maturing on September 1, 2024, will be subject to mandatory redemption in part, by lot, on September 1, 2017, and on each September 1 thereafter to and including September 1, 2024, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the - redemption date, without premium, from minimum sinking fund payments on hand in the Debt Service Fund in the years and amounts as follows: Year Amount 2017 $2,445,000 2018 21560,000 2019 29680,000 2020 23,8109000 Year 2021 2022 2023 2024 (maturity) Amount $2,945,000 3,080,000 3,230,000 3,3 80,000 The Term Bonds maturing on September 1, 2029, will be subject to mandatory redemption in part, by lot, on September 1, 2025, and on each September 1 thereafter to and including September 1, 2029, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the redemption date, without premium, from minimum sinking fund payments on hand in the Debt Service Fund in the years and amounts as follows: Year 2025 2026 2027 2028 2029 (maturity) Amount $3,545,000 3,715,000 3,895,000 4,085,000 4,280,000 The Term Bonds maturing on September 1, 2034, will be subject to mandatory redemption in part, by lot, on September 1, 2030, and on each September 1 thereafter to and including September 1, 2034, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the redemption date, without premium, from minimum sinking fund payments on hand in the Debt Service Fund in the years and amounts as follows: Year Amount 2025 $3,5451000 2026 31,7153,000 2027 3,895,000 2028 4,085,000 2029 4,2801000 Year 2030 2031 2032 2033 2034 (maturity) Amount $49490,000 4,710,000 4,940,000 5,18%000 5,4359000 Notice of Redemption. As provided in the Indenture, notice of redemption will be given by first class mail, postage prepaid not less than thirty (30) nor more than sixty (60) days prior to the redemption date, to the registered owners of the Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither failure to receive such notice or any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption. In lieu of redemption, the Trustee, at the written direction of the Authority, shall purchase Bonds from amounts on deposit in the Redemption Fund on the open market at a price not to exceed the current redemption price on the next succeeding Interest Payment Date plus accrued interest, if any, to the date of purchase. 101 SECURITY FOR THE BONDS The Indenture The Bonds are limited obligations of the Authority entitled to the benefits of the Indenture and are payable solely from and secured by the funds and accounts held by the Trustee pursuant to the Indenture and by an assignment and pledge of the Authority's interest in the payments of principal and interest made by the Agency under the Loan Agreement. See "THE INDENTURE" and "THE LOAN AGREEMENT." The Loan is secured, and therefore the Bonds are secured, by a pledge of the Pledged Tax Revenues. See "SECURITY FOR THE BONDS — Pledged Tax Revenues" herein. Loan Agreement The Loan Agreement as modified by the First Supplemental Agreement is secured by a pledge of and lien on the Pledged Tax Revenues allocated and paid to the Agency from the Project Areas. "Pledged Tax Revenues" are defined in the First Supplemental Loan Agreement to be that portion of Tax Revenues set aside for Low and Moderate Income Housing pursuant to Section 33334.2 and 33334.3 of the Law, less amounts paid to the State or County as an administrative fee pertaining to the payment of the Tax Revenues (the "Housing Set -Aside Amounts"). The Bonds are secured by a pledge of Revenues, consisting primarily of the loan payment installments which the Agency is required to pay to the Authority pursuant to the Loan Agreement. Pledged Tax Revenues As provided in the Redevelopment Plans, pursuant to Article 6 of the Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in a redevelopment project area each year by or for the benefit of the State of California, any city, county, city and county, district, or other public corporation (herein sometimes collectively called "taxing agencies") after the effective date of the ordinance approving the Redevelopment Plan for Project Area No. 1 (being Ordinance No. 43 of the City of La Quinta, which became effective on December 29, 1983) and the Redevelopment Plan for Project Area No. 2 (being Ordinance No. 139 of the City of La Quinta, which became effective on May 15, 1989) will be divided as follows: (a) That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in a redevelopment. project area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to December 29, 1983 (being the effective date of Ordinance No. 43, referred to above) and may 15, 1989 (being the effective date of Ordinance No. 139, referred to above) shall be allocated to and when collected shall be paid into the funds of the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid; and (b) That portion of said levied taxes each year in excess of such amount shall be allocated to and when collected by the Agency shall be deposited in the Special Fund of the Agency. That portion of Tax Revenues set aside for Law and Moderate Income Housing pursuant to Section 33334.2 and 33334.3 of the Law, less amounts paid to the State or County as an administrative fee pertaining to the payment of the Tax Revenues will be deposited into the Low and Moderate Income Housing Fund held by the Agency and are referred to herein as "Pledged Tax Revenues." The Loan is payable from and is specifically secured by an irrevocable pledge of the Pledged Tax Revenues derived from the Project Areas, and interest earnings on funds held on deposit in trust for the Bondowners by the Trustee. The Agency has no power to levy and collect taxes, and various 8 102 factors beyond its control could affect the amount of Pledged Tax Revenues available in any year to pay the principal of and interest installments under the Loan Agreement (See "RISK FACTORS" herein). The Bonds are not a debt of the City of La Quinta, the State of California or any of its political subdivisions, and neither said City, said State or any of its political subdivisions is liable therefor. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Reserve Fund Surety Bond The Indenture requires the establishment of a Reserve Fund in an amount equal to the Reserve Requirement. The Loan Agreement authorizes the Agency to obtain a Surety Bond in place of fully funding the Reserve Fund. Accordingly, application has been made to the Bond Insurer for the issuance of a Surety Bond for the purpose of funding the Reserve Fund (see "THE INDENTURE" herein). The Bonds will only be delivered upon the issuance of such Surety Bond. The premium on the Surety Bond is to be fully paid at or prior to the issuance and delivery of the Bonds. The Surety Bond provides that upon the later of (i) one (1) day after receipt by the Bond Insurer of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Bonds when due has not been made or (ii) the interest payment date specified in the Demand for Payment submitted to the Bond Insurer, the Bond Insurer will promptly deposit funds with the Trustee sufficient to enable the Trustee to make such payments due on the Bonds, but in no event exceeding the Surety Bond Coverage, as defined in the Surety Bond. Pursuant to the terms of the Surety Bond, the Surety Bond Coverage is automatically reduced to the extent of each payment made by the Bond Insurer under the terms of the Surety Bond and the Agency is required to reimburse the Bond Insurer for any draws under the Surety Bond with interest at a market rate. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the Surety Bond Coverage. The reimbursement obligation of the issuer is subordinate to the Agency's obligations with respect to the Bonds. In the event the amount on deposit, or credited to the Reserve Fund, exceeds the amount of the Surety Bond, any draw on the Surety Bond shall be made only after all the funds in the Reserve Fund have been expended. In the event that the amount of deposit in, or credited to, the Reserve Fund, in addition to the amount available under the Surety Bond, includes amounts available under a letter of credit, insurance policy, surety bond or other such funding instrument (the "Additional Funding Instrument"), draws on the Surety Bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. The Indenture provides that the Reserve Fund shall be replenished in the following priority: (i) principal and interest on the Surety Bond shall be paid from first available Revenues. Principal and interest on the Surety Bond and on the Additional Funding Instrument shall be paid from first available Revenues on a pro rata basis; (ii) after all such amounts are paid in full, amounts necessary to fund the Reserve Fund to the required level, after taking into account the amounts available under the Surety Bond and the Additional Funding Instrument shall be deposited from next available revenues. The Surety Bond does not insure against nonpayment caused by the insolvency or negligence of the Trustee or the Paying Agent. 103 THE INDENTURE The following is a summary of certain provisions of the Loan Agreement and does not purport to be complete. Reference is hereby made to the Loan Agreement and to Appendix A for the definition of certain terms used herein. Copies of the Loan Agreement are available from the Authority upon request. All capitalized terms used herein and not otherwise defined shall have the same meaning as used in the Loan Agreement. Allocation of Bond Proceeds On the Closing Date the proceeds of sale of the Bonds in the amount of $ (representing the principal amount of the Bonds of $ , less underwriters' discount of $ , less original issue discount of $ ) shall be paid to the Trustee. Pursuant to the provisions of the Indenture, the Authority hereby establishes the following separate funds and accounts, which the Trustee shall maintain and hold in trust: (a) The Special Fund; (b) The Housing Fund and within the Housing Fund, the Cost of Issuance Account; (c) The Debt Service Fund and within the Debt Service Fund, the Interest Account, the Principal Account, the Redemption Account and the Residual account; and (d) The Reserve Fund. Application of Proceeds of Sale of Bonds. Upon the receipt of payment for the Bonds when the same shall have been sold by the Authority, the Authority shall authorize and direct the Trustee to set aside and deposit amounts of such proceeds in the following respective funds in the following order of priority: (a) The Trustee shall deposit in the Cost of Issuance Account of the Housing Fund the amount of $ , to be applied as provided in the Indenture. (b) The Trustee shall transfer the amount of $ for deposit payment to the Escrow Agreement. to the Escrow Bank (c) The Trustee shall deposit in the Reserve Fund the amount of $ , which shall be in the form of Surety Bond in the amount of the Reserve Requirement. (d) The Trustee shall deposit the remaining amount of such proceeds in the Housing Fund ($ ). Application of Revenue Fund. Notwithstanding the provisions of the Indenture, all Revenues shall be deposited by the Authority in the Special Fund and thereafter transferred and deposited by the Trustee in the Debt Service Fund and, if acquired, the Reserve Fund which shall be maintained by the Trustee hereunder. All Revenues deposited with the Trustee in the Debt Service Fund shall be applied by the Trustee to the payment of interest on, principal of and/or sinking fund payments on the Bonds. Investment of Moneys in Funds and Accounts Moneys in the funds established under the Indenture shall, in accordance with a Written Request of the Agency, be invested by the Trustee in Permitted Investments. The Trustee may 10 104 conclusively rely on any direction contained in a Written. Request of the Agency to invest in investments that such investments are Permitted Investments. In the absence of a Written Request of the Authority, the Trustee shall invest moneys in item (4) of the definition of Permitted Investments. The obligations in which moneys in the said funds are invested shall mature on or prior to the date on which such moneys are estimated to be required to be paid out thereunder. The obligations in which moneys in the Reserve Fund are so invested shall be invested in obligations maturing no later than five years after the date of investment; provided no such investment shall mature later than the final maturity of the Bonds; provided further, if such investments may be redeemed at par so as to be available on each Interest Payment Date, any amount of the Reserve Fund may be invested in such redeemable investments of any maturity on or prior to the final maturity of the Bonds. The Trustee shall sell or present for redemption any obligations so purchased whenever it may be necessary to do so in order to provide moneys to meet any payment required under the Indenture. Notwithstanding anything to the contrary, the Trustee shall not be responsible for any loss from investments, sales or transfers undertaken in accordance with the Indenture. Any interest, income or profits from the deposits or investments of all funds (except the Rebate Fund and, to the extent required by the Indenture, the Reserve Fund) shall be deposited in the Debt Service Fund. For purposes of determining the amount of deposit in any fund, all Permitted Investments credited to such fund shall be valued at market value. The Trustee shall annually, on or about September 1 of each year commencing on September 1, 2004 and at such times as the Authority shall deem appropriate, value the investments in such funds. Except as otherwise provided, Permitted Investments representing an investment of moneys attributable to any fund and all investment profits or losses thereon shall be deemed at all times to be a part of said fund. For purposes of the Indenture, the Trustee may act as principal or agent in the acquisition or disposition of investments. For purposes of the Indenture, the Trustee may commingle moneys in funds and accounts established under the Indenture. Events of Default and Remedies. The following events shall constitute Events of Default: (a) if default shall be made in the due and punctual payment of the principal of or interest on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by declaration or otherwise; (b) if default shall be made by the Authority in the observance of any of the covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, other than a default described in the preceding clause (a), and such default shall have continued for a period of sixty (60) days following receipt by the Agency of written notice from the Trustee or any Owner of the occurrence of such default; or (c) if the Authority shall commence a voluntary action under Title 11 of the United States Code or any substitute or successor statute. If an Event of Default has occurred and is continuing, the Trustee shall, if directed by the Bond Insurer, or if requested in writing by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding and consented to by the Bond Insurer, (a) declare the principal of the Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding, and (b) exercise any remedies available to the Trustee and the Owners in law or at equity. Immediately upon receiving notice or actual knowledge of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Bond Insurer and the Authority by telephone confirmed in writing. Such notice shall also state whether the principal of the Bonds 11 105 shall have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clauses (a) or (c) above the Trustee shall, and with respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Owners by mail, which shall include the statement that interest on the Bonds shall cease to accrue from and after the date, if any, on which the Trustee shall have declared the Bonds to become due and payable pursuant to the preceding paragraph (but only to the extent that principal and any accrued, but unpaid, interest on the Bonds is actually paid on such date). This provision, however, is subject to the condition that if, at any time. after the principal of the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority shall deposit with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal and interest (to the extent permitted by law) at the net effective rate per annum of the Bonds, and the reasonable expenses of the Trustee (including fees and expenses of its counsel), and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority and to the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Application of Funds. All of the Revenues and all sums in the funds and accounts established and held by the Trustee upon the date of the declaration of an Event of Default, and all sums thereafter received by the Trustee, shall be applied by the Trustee in the order following upon presentation of the several Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in exercising the rights and remedies set forth in the Indenture, including reasonable compensation to its agents, attorneys and counsel; and Second, to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the Outstanding Bonds (to the extent that such interest on overdue installments of principal and interest shall have been collected), and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties thereunder, whether upon the direction of the Bond Insurer or upon the request of the Owners of a majority in principal amount of the Bonds then Outstanding upon the consent of the Bond Insurer, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in principal amount of the Outstanding Bonds 12 106 thereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Limitation on Owner's Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities, including fees and expenses of its counsel, to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Amendments Upon the prior consent of the Bond Insurer, the Indenture and the rights and obligations of the Authority and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without consent of any Owners, to the extent permitted by law and only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Authority in the Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved to or conferred upon the Authority; (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners; (c) to provide for the issuance of Parity Debt pursuant to the Loan Agreement or the issuance of Subordinate Debt pursuant to the Loan Agreement, and to provide the terms and conditions under which such Parity Debt or Subordinate Debt may be issued, including, but not limited to, the establishment of special funds and accounts relating thereto and any other provisions relating solely thereto, subject to and in accordance with the provisions of the Loan Agreement; or (d) to amend any provision relating to the requirements of or compliance with the Code, to any extent whatsoever but only if , and to the extent such amendment will not adversely affect the exemption from federal income taxation of interest on any of the Bonds, in the opinion of nationally recognized bond counsel. Except as set forth in the preceding paragraph, upon the prior consent of the Bond Insurer, the Indenture and the rights and obligations of the Authority and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Agency to pay the principal or interest at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. 13 107 THE LOAN AGREEMENT The following is a summary of certain provisions of the Loan Agreement as modified by the First Supplemental Agreement and does not purport to be complete. Reference is hereby made to the Loan Agreement and to Appendix A for the definition of certain terms used herein. Copies of the Loan Agreement are available from the Agency upon request. All capitalized terms used herein and not otherwise defined shall have the same meaning as used in the Loan Agreement or Indenture. Establishment of Funds and Accounts to be held by the Trustee. Pursuant to the provisions of the Loan Agreement, the Agency hereby establishes the Project Debt Service Fund and the Redemption Fund, which the Trustee shall maintain and hold in trust. Application of Proceeds of the Loan and Other Funds. The net proceeds of the Loan, to be determined at the time such Loan is funded, but which shall be in the approximate amount of $ shall be deposited as directed by the Agency, including: (1) Transfer such amounts as directed by the Agency to the Escrow Bank for deposit in the Escrow Fund relating to the 1995 Bonds, if applicable; (2) Transfer such amounts as directed by the Agency for deposit in the Housing Fund; and (3) Transfer such amounts as directed by the Agency to the Debt Service Fund. Housing Fund. There is continued a separate fund known as the Housing Fund (the "Housing Fund"), which the Agency covenants and agrees to cause to be maintained and which shall be held in trust by the Trustee. The moneys in the Housing Fund shall be used in the manner provided by the . Law solely for the purpose of aiding in financing of housing activities in the Redevelopment Projects. The Trustee shall pay moneys from the Housing Fund to the Agency upon receipt of claims thereon. The Agency has warranted that no funds on deposit in the Housing Fund shall be applied for any purpose not authorized by the Law. Pledged Tax Revenues - Application There is established a special fund to be known as the "Agency Special Fund," which shall be held by the Agency. The Agency shall deposit the Pledged Tax Revenues received in any Bond Year in the Agency Special Fund promptly upon receipt thereof by the Agency, until such time during such Bond Year as the amounts on deposit in the Agency Special Fund equal the aggregate amounts required to be transferred to the Trustee for deposit into the Debt Service Fund and the Reserve Fund in such Bond Year pursuant to the Indenture and for deposit in such Bond Year in the funds and accounts established with respect to Parity Debt, as provided in any Supplemental Indenture. Any Pledged Tax Revenues received by the Agency during any Bond Year in excess of the amount required to be deposited in the Special Fund during such Bond Year shall be released from the pledge and lien for the security of the Bonds and may be applied by the Agency for any lawful purposes of the Agency, including but not limited to the payment of Subordinate Debt. Prior to the payment in full of the principal of and interest on the Bonds and the payment in full of all other amounts payable under the Indenture and under any Supplemental Indentures, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except as may be provided in the Indenture and in any Supplemental Indenture. 14 108 Notwithstanding the provisions of the Loan Agreement, including, without limitation, Section 5.01 of the Loan Agreement, all Pledged Tax Revenues shall be transferred not later than two days prior to each Interest Payment Note to the Trustee on behalf of the Authority and deposited by the Trustee in the Debt Service Fund. All Pledged Tax Revenues as Loan Payments deposited with the Trustee in the Debt Service Fund shall be disbursed (i) to .pay the principal of and interest and redemption premium, if any, on the Bonds, and (ii) to pay lawful expenses, with such amounts as may be remaining paid to the Agency. Surplus. The Agency shall not be required to deposit in the Special Fund in any Bond Year an amount of Pledged Tax Revenues which, together with other available amounts in the Special Fund, exceeds the amounts required to be transferred to the Trustee from the Special Fund with respect to such Bond Year pursuant to the Indenture. In the event that, for any reason whatsoever, any amount shall remain on deposit in the Special Fund on the last day of any Bond Year (being the applicable September 1) after making all of the transfers from the Special Fund with respect to such Bond Year required to be made pursuant to the Indenture the Agency may withdraw such amount from the Special Fund to be used for any lawful purpose of the Agency. Issuance of Parity Debt In addition to the Bonds, the Agency may, by Supplemental Indenture, issue or incur Parity Debt payable from Pledged Tax Revenues on a panty with the Bonds to finance additional redevelopment activities with respect to the Project Areas in such principal amount as shall be determined by the Agency. The Agency may issue or incur any such other Parity Debt subject to the following specific conditions all of which are made conditions precedent to the issuance and delivery of such Parity Debt issued under the Indenture: (a) The Agency shall be in compliance with all covenants set forth in the Indenture and all Supplemental Indentures; (b) The Pledged Tax Revenues estimated to be received for the then current Fiscal Year based on the most recent assessed valuation of property in the Project Areas as evidenced in written documentation from an appropriate official of the County, shall be at least equal to 130% of Maximum Annual Debt Service on all Bonds and Parity Debt which will be Outstanding immediately following the issuance of such Panty Debt; provided, however, for the purpose of this subsection (b), Pledged Tax Revenues shall be exclusive of the product of the following: (i) Tax Revenues attributable to all property subject to pending appeals within the Project Areas, times (ii) the percentage representing, (x) the actual amount of reduction in assessed valuation as compared to (y) the aggregate assessed valuation of such properties prior to the reduction as a result of successful appeals; provided further, the percentage set forth in (ii) above shall be based on the County -wide experience, as verified by an Independent Redevelopment Consultant, for the last two Fiscal Years; (c) The Supplemental Indenture providing for the issuance of such Parity Debt shall provide that interest thereon shall be payable on March 1 and September 1, and principal thereof shall be payable on September 1 in any year in which principal is payable; (d) The Supplemental Indenture providing for the issuance of such Parity Debt may provide for the establishment of separate funds; (e) The aggregate amount of the principal of and interest on all Outstanding Bonds, Parity Debt, if any, and Subordinate Debt coming due and payable following the issuance of such Parity Debt shall not exceed the maximum amount of tax increment revenues permitted under the Plan Limit to be allocated and paid to the Agency following the issuance of such Parity Debt; 15 109 (f) The aggregate principal amount of the Outstanding Bonds, the Parity Debt and Subordinate Debt following the issuance of such Parity Debt shall not exceed the maximum principal amount of indebtedness permitted under the Redevelopment Plans; (g) The Agency shall deliver to the Trustee a Written Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth above have been satisfied and that an amount equal to the Reserve Requirement is on deposit in the Reserve Fund as of the delivery of such Parity Debt; (h) For purposes of the issuance of Parity Debt or release of escrowed proceeds, unless otherwise approved by the Bond Insurer, Pledged Tax Revenues shall be calculated by multiplying the most recent assessed value in the Project Areas as certified by the County by the basic 1 % tax rate (without regard to overrides) and shall be further reduced by: (i) the amount of subventions paid by the State or any other amount appropriated by the State for the Agency; (ii) unless the "Teeter Plan" is currently in effect and the County has made no announcement that the plan would terminate, the amount derived by applying the average percentage by which the actual tax collections in the Project Areas are less than the amount of the tax levy in the Project Areas for the immediately preceding two (2) Fiscal Years; (iii) the maximum percentage of Tax Revenues payable to a taxing entity pursuant to all non -subordinated Pass -Through Agreements, regardless of whether such maximum percentage is in effect for that year. If a Pass -Through Agreement includes a step up provision or takes effect upon the occurrence of some event , that pass -through shall be calculated 'at the maximum rate pursuant to the step up or as if the event has already taken place; (iv) the percentage of Tax Revenues which must be deposited to the Low and Moderate Income Housing Fund with the exception of amounts which, in the opinion of Bond Counsel, may be used to pay Debt Service; and (v) The amount required to be paid to the County for administrative expenses. (i) Prior to the issuance of Parity Debt or the release of escrowed proceeds an Independent Redevelopment Consultant shall certify that Pledged Tax Revenues, adjusted pursuant to the parity test, are at least 1.3Ox Maximum Annual Debt Service on the Bonds and Parity Debt Outstanding after the issuance of the proposed Parity Debt; and 0) If the Agency has outstanding or proposes to issue bonds bearing interest at a variable rate, the interest on such bonds shall be assumed to be the maximum interest rate allowable under the financing document in all instances where an assumption about interest rates is necessary unless the interest rate is "synthetically" fixed with a Bond Insurer approved interest rate swap or cap agreement which is in effect for the life of the Bonds, in which case the synthetically fixed rate shall be used. Issuance of Subordinate Debt In addition to the Bonds, the Agency may incur Subordinate Debt in such principal amount as shall be determined by the Agency. The Agency may issue or incur such Subordinate Debt subject to the following specific conditions precedent: 16 110 (a) The Agency shall be in compliance with all covenants set forth in the Indenture and all Supplemental Indentures; (b) If, and to the extent, such Subordinate- Debt is payable from tax increment revenues within the Plan Limit, then the aggregate amount of the principal of and interest on all Outstanding Bonds, all Subordinate Debt and Parity Debt coming due and payable following the issuance of such Subordinate Debt shall not exceed the maximum amount of tax increment revenues permitted under the Plan Limit to be allocated and paid to the Agency following the issuance of such Subordinate Debt. (c) Except with respect to any Subordinate Debt issued and delivered on the Closing Date, the Agency shall deliver to the Trustee a Written Certificate of the Agency certifying that the conditions precedent to the issuance of such Subordinate Debt set forth in subsections (a) and (b) above have been satisfied. Covenants of the Agency As long as the Agency Loan is Outstanding and unpaid, the Agency will (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Loan Agreement, including the following covenants and agreements for the benefit of the Authority which are necessary, convenient and desirable to secure the Loan and will tend to make the Bonds of the Authority more marketable; provided, however, that said covenants do not require the Agency to expend any funds other than the Pledged Tax Revenues: Covenant 1. Punctual Payment. The Agency shall punctually pay or cause to be paid the principal and interest to become due in respect to the Loan together with the premium thereon, if any, in strict conformity with the terms of the Loan and of the Loan Agreement. The Agency shall faithfully observe and perform all of the conditions, covenants and requirements of the Loan Agreement. Nothing therein contained shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes referred to in the Indenture and Loan Agreement. Covenant 2. Limitation on Additional Indebtedness; Against Encumbrances. The Agency covenants that, so long as the Agency Loan is Outstanding, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from all or any part of the Pledged Tax Revenues, excepting only the Loan, any Parity Debt and any Subordinate Debt, and the Agency will not otherwise encumber, pledge or place any charge or lien upon any of the Pledged Tax Revenues or other amounts pledged to the repayment of the Loan superior to or on a parity with the pledge and lien created in the Loan Agreement. Any Pass -Through Agreements entered into by the Agency pursuant to Section 33401 of the Law or any other applicable provisions of the Law after the date of the Indenture, shall provide that payment of any amounts thereunder shall be subordinate to the pledge in the Loan Agreement of Pledged Tax Revenues or other amounts pledged to the payment of the Bonds. Covenant 3. Extension of Payment. The Agency will not, directly or indirectly, extend or consent to the extension of the time for the payment of the Loan or claim for interest on any of the Loan and will not, directly or indirectly, be a party to or approve any such arrangement by purchasing or funding the Bonds or claims for interest in any other manner. In case the maturity of any such Bond or claim for interest shall be extended or funded, whether or not with the consent of the Agency, such Bond or claim for interest so extended or funded shall not be entitled, in case of default, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. Covenant 4. Payment of Claims. The Agency shall promptly pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the properties owned by the Agency or upon the Pledged Tax Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Loan. Nothing shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Covenant 5. Books and Accounts; Financial Statements; Annual Calculation of Available Tax Revenues. The Agency shall keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Projects, the Tax Revenues and the Agency Special Fund. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Owners of not less than ten percent (10%) in aggregate principal amount of the Bonds then Outstanding, or their representatives authorized in writing. The Agency will cause to be prepared and filed with the Trustee annually, within one hundred and eighty (180) days after the close of each Fiscal Year so long as the Agency Loan is Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, all disbursements of Tax Revenues and the financial condition of the Redevelopment Projects, including the balances in all funds and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year. The Agency shall furnish a copy of such statements to any Owner upon reasonable request and at the expense of such Owner. Covenant 6. Protection of Security and Rights of Authority. The Agency will preserve and protect the security of the Loan and the rights of the Authority. From and after the Closing Date, the Loan shall be incontestable by the Agency. Covenant 7. Payments of Taxes and Other Charges. Except as otherwise provided, the Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Areas, or upon the revenues therefrom when the same shall become due. Nothing shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Redevelopment Projects or any part thereof. Covenant 8. Taxation of Property. All amounts derived by the Agency pursuant to Section 33673 of the Law with respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of the Indenture. Covenant 9. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Areas to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plans in effect on the date of the Indenture) so that such disposition shall, when taken together with other such dispositions, aggregate more than 10 percent of the land area or more than 10 percent of the most recent assessed valuation of the property in the Project Areas unless such disposition is permitted as provided in the Indenture. If the Agency proposes to participate in such a disposition, it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loan or the rights of the Authority will not be materially impaired by said proposed disposition, the Agency may thereafter make such disposition. If said Report concludes that such security will be materially impaired by said proposed disposition, the Agency shall disapprove said proposed disposition. 18 112 Covenant 10. Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Law to insure the allocation and payment to it of the Tax Revenues, including, without limitation, the timely filing of any necessary statements of indebtedness with appropriate officials of the County and, in the case of amounts payable by the State, appropriate officials of the State. No amendment to the Redevelopment Plans will reduce Pledged Tax Revenues as certified by an Independent Redevelopment Consultant unless consented to by the Bond Insurer. Covenant 11. Tax Covenants. The Agency covenants and agrees to contest by court action or otherwise any assertion by the United States of America or any department or agency thereof that the interest received by the Bondowners is includable in gross income of the recipient under federal income tax laws. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of interest with respect to the Bonds and any Parity Debt will not be adversely affected for federal income tax purposes, the Agency covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income. Covenant 12. Compliance with the Code. The Agency shall take any and 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 Code as in effect on the date of issuance of the Bonds. Covenant 13. Compliance with the Law; Housing Fund. The Agency shall ensure that all activities undertaken by the Agency with respect to the redevelopment of the Project Areas are undertaken and accomplished in conformity with all applicable requirements of the Redevelopment Plans and the Law. In the event the Agency shall amend the Redevelopment Plans, the Agency shall receive prior written approval of such amendment from the Bond Insurer, which approval shall not be unreasonably withheld, in particular, with respect to those provisions which do not adversely affect the Agency's pledge of Pledged Tax Revenues under the Loan Agreement. Without limiting the generality of the foregoing, the Agency covenants that it shall deposit or cause to be deposited in the Housing Fund established pursuant to Section 33334.3 of the Law, all amounts when, as and if required to be deposited therein pursuant to the Law and shall expend amounts deposited in the Low and Moderate Income Housing Fund, including, without limitation, proceeds of any Parity Debt deposited therein, solely in accordance with Section 33334.2 of the Law. Covenant 14. Management and Operation of Properties. The Agency will manage and operate all properties owned by the Agency and comprising any part of the Redevelopment Projects, in a sound and businesslike manner, and will keep such properties insured at all times in conformity with sound business practice. Covenant 15. Annual Review of Tax Revenue. On the first Business Day of each Fiscal Year, the Agency will review (i) the total amount of Tax Revenues remaining available to be received by the Agency under the Redevelopment Plans, and (ii) the outstanding principal of and interest on the Bonds, the Parity Debt, if any, and Subordinate Debt, if any. In the event the Agency shall determine that its acceptance of Tax Revenues in any Fiscal Year will cause the amount remaining under the Plan Limit to be less than the outstanding principal of and interest on the Bonds, the Parity Debt, if any, and Subordinate Debt, if any, the Agency shall (i) deposit Tax Revenues in the Special Fund in an amount equal to the principal of and interest on the Bonds for that Fiscal Year, and (ii) deposit the remaining Tax Revenues in an escrow fund to be then established and held by the Agency for the purpose of redeeming all the then outstanding Bonds, the Parity Debt, if any, and the Subordinate Debt, if any. Covenant 16. Covenant With Respect to Mortgages. The Agency covenants that the proceeds of the Bonds will not be used directly or indirectly for mortgages (or similar security 19 113 instruments) on owner -occupied residences so as.to cause the Bonds to be subject to the provisions of Section 143 of the Code and the Tax Regulations promulgated thereunder. Covenant 17. Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Indenture. Covenant 18. Continuing Disclosure. The Agency hereby covenants and agrees that it will comply with and carry out all of . the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Indenture, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking a mandate or specific performance by court order. THE A UTHORITY The La Quinta Financing Authority (the "Authority") was created by a Joint Exercise of Powers Agreement, dated November 3, 1988, by and between the City and the Agency. Such agreement was entered into pursuant to the provisions of Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code. The Authority was created for the purpose of assisting the financing or refinancing of certain public capital facilities within the City. Under the JPA Law, the Authority has the power to purchase bonds issued by any local agency at public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale. The Authority is governed by a five -member Board of Directors (the "Board") which consists of the members of the City Council of the City of La Quinta. The Chair and Vice Chair are elected by the City Council. The City Manager acts as its Executive Director, the City Clerk acts as its Secretary and the Finance Director of the City acts as the Treasurer of the Authority. Members and Officers The members and officers of the Authority and the expiration dates of their terms are as follows: Name and Office Expiration of Term Don Adolph, Chair November, 2004 Stanley Sniff, Vice Chair November, 2004 Terry Henderson, Member November, 2006 Ronald Perkins, Member November, 2006 Lee Osborne, Member November, 2004 LA QUINTA REDEVELOPMENT AGENCY Members and Officers The members and officers of the Agency and the expiration dates of their terms are as follows: Name and Office Terry Henderson, Chair Ronald Perkins, Vice Chair Stanley Sniff, Member Don Adolph, Member Lee Osborne, Member Expiration of Term November, 2006 November, 2006 November, 2004 November, 2004 November, 2004 20 114 The Agency was established on July 5, 1983 by the City Council of the City with the adoption of Ordinance No. 34, pursuant to the Law. The five members of the City Council serve as the governing body of the Agency, and exercise all the rights, powers, duties and privileges of the Agency. Agency Powers All powers of the Agency are vested in its governing body. Pursuant to the Law, the Agency is a separate public body which may exercise broad governmental functions and authority to accomplish its purposes, including, but not limited to, the right of eminent domain, the right to issue bonds or notes and expend their proceeds and the right to acquire, sell, rehabilitate, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements including streets, sidewalks, and public utilities. The Agency may not construct or develop buildings, with the exception of public facilities and housing, but must sell or lease cleared property to redevelopers for construction and development in accordance with the Redevelopment Plans. Fiscal Consultant The Agency retained Rosenow Spevacek Group, Inc. (RSG), to serve as both redevelopment implementation and fiscal consultant. RSG provides redevelopment, planning, and financial services to local governments throughout California. Frank Spevacek, Principal of RSG, is assigned to the Agency to provide administrative support. In this capacity he has been assisting the Agency in formulating and implementing many of its redevelopment programs. Tax Increment Financing The Law authorizes the financing of redevelopment projects through the use of tax increment revenues. This method provides that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming the taxable valuation never drops below the base year level, the taxing agencies thereafter receive that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency is allocated the remaining portion produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency may be pledged to the payment of agency obligations. Generally, tax increment revenues from one .project area may not be used to repay indebtedness incurred for another project area. Redevelopment agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See "RISK FACTORS." The Law authorizes redevelopment agencies to make payments to school districts and other taxing agencies to alleviate any financial burden or detriments to such taxing agencies caused by a redevelopment project. The Agency has entered into a number of agreements for this purpose. See "THE PROJECT AREAS —Agreements with Various Taxing Agencies." Housing Set Aside In accordance with Section 33334.2 of the Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency shall be used by the Agency for purposes of improving, increasing and preserving the City's supply of housing for persons and families of low or moderate income. This requirement is applicable unless the Agency makes the finding that: 1. No need for such housing exists in the City; 21 115 2. Less than twenty percent (20%) is sufficient to meet such housing needs of the City; or 3. A substantial effort is presently being carried out with other funds (either local, State or federal) and that such efforts are equivalent in impact to twenty percent (20%) of all taxes which are allocated to the Agency. Both the "no need" finding (item 1 above) and the "less than 20% finding" (item 2 above) must apply to very low income as well as low and moderate income households, must be consistent with the housing element of the community's general plan and the annual report of its planning agency, and do not become effective until after certain filings have been made with the State Department of Housing and Community Development ( HCD ). Neither finding can be made unless the housing element is in proper form and up to date and has been filed with HCD. The "equivalent effort" finding (item 3 above) must apply to the community's share of regional housing needs as well as its own existing and projected needs. After June 30, 1993, no agency may make this finding unless it can show evidence that it is required in order to meet contractual obligations to bondholders or other private entities incurred prior to May 1, 1991 and made in reliance on the ability to make the finding. Funds available from the twenty percent (20%) requirement may be used outside the Project Areas on a finding by the Agency and the City Council that such use will be of benefit to the Project Areas. See "THE PROJECT AREAS —Redevelopment Plan Limitations." The Law also permits agencies with more than one project area to set aside less than twenty percent (20%) of the taxes allocated to the agency from one project area if the difference is made up from another project area in the same year and if the agency and the legislative body of the community find that such use of funds will benefit such other project area. Factors Affecting Redevelopment Agencies Generally Other features of California law which bear on redevelopment agencies include general provisions which require public agencies to let contracts for construction only after competitive bidding. The Law provides that construction in excess of $5,000 undertaken by the Agency shall be done only after competitive bidding. California statutes also provide for offenses punishable as felonies which involve direct or indirect interest of a public official in a contract made by such official in his official capacity. In addition, the Law prohibits any Agency or City official or employee who, in the course of his duties, is required to participate in the formulation or approval of plans or policies, from acquiring any interest in property in the Project Areas. Under a State initiative enacted in 1974, public officials are required to make extensive disclosures regarding their financial interests by filing such disclosures as public records. As of the date of this Official Statement, the members of the City Council and the Agency, and other City and Agency officials have made the required filings. California also has strict laws regarding public meetings (known as the Ralph M. Brown Act) which generally makes all Agency and City meetings open to the public. Filing of Statement of Indebtedness. Section 33675 of the Law provides for the filing not later than the first day of October of each year with the County Auditor of a statement of indebtedness certified by the chief fiscal officer of the Agency for each redevelopment plan which provides for the allocation of taxes. The statement of indebtedness is required to contain the date on which the bonds were delivered, the principal amount, term, purposes and interest rate of the bonds and the outstanding balance and amount due on the bonds. Similar information must be given for 22 116 each loan, advance or indebtedness that the Agency has incurred or entered into which is payable from tax increment. Section 33675 also provides that payments of tax increment revenues- from the County Auditor to the Agency may not exceed the amounts shown on the Agency's statement of indebtedness. The Section further provides that the statement of indebtedness is prima facie evidence of the indebtedness of the Agency, but that the County Auditor may dispute the amount of indebtedness shown on the statement in certain cases and the disputed amount may be withheld from allocation and payment to the Agency. Provision is made for time limits under which the dispute can be made by the County Auditor as well as provisions for a determination by the Superior Court in a declaratory relief action of the proper disposition of the matter. The issue in any such action shall involve only the amount of the indebtedness and not the validity of any contract or debt instrument, or any expenditures pursuant thereto. Payments to a trustee under a bond indenture or indenture or payments to a public agency in connection with payments by such public agency pursuant to a bond issue shall not be disputed in any action under Section 33675. RISK FACTORS Limitations on Remedies The enforceability of the rights and remedies of the Owners of the Bonds and the Trustee and the obligations incurred by the Agency may be subject to the following: the federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise of the United States of America of the powers delegated to it by the federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations or modification of their rights. Reduction of Pledged Tax Revenues Pledged Tax Revenues allocated to the Agency (which constitute the ultimate source of payments of principal and interest on the Bonds, as discussed herein) are determined by the amount of incremental valuation of taxable property in the Project Areas, the current rate or rates at which property in the Project Areas is taxed and the percentage of taxes collected in the Project Areas. Although the Agency believes the projections of Pledged Tax Revenues contained herein are reasonable, several types of events which are beyond the control of the Agency could occur and cause a reduction in available Pledged Tax Revenues. First, a reduction of taxable values of property or tax rates in the Project Areas or a reduction of the rate of increase in taxable values of property in the Project Areas caused by economic or other factors beyond the Agency's control (such as a relocation out of the Project Areas by one or more major property owners, successful appeals by property owners for a reduction in a property's assessed value, a reduction of the general inflationary rate, a reduction in transfers of property, construction activity or other events that permit reassessment of property at lower values, or the destruction of property caused by natural or other disasters, including earthquake) could occur, thereby causing a reduction in Pledged Tax Revenues. The risk increases in proportion to the percent of total assessed value attributable to any single assessee in the Project Areas. Second, the State electorate or Legislature could adopt limitations with the effect of reducing Pledged Tax Revenues payable to the Agency. Third, a reduction in the tax rate applicable to property in the Project Areas by reason of discontinuation of certain override tax levies approved prior to January 1, 1989, in excess of the 1% basic levy, will reduce Pledged Tax 23 117 Revenues available to pay debt service. Such override can be expected to decline over time until it reaches the 1 % basic levy and may be discontinued at any time, which may cause a reduction in Pledged Tax Revenues. Fourth, delinquencies in the payment of property taxes by the owners of land in the Project Areas could have an adverse effect on the Agency's ability to make timely debt service payments. The Agency believes the historical delinquency experience in the Project Areas has not been greater than the City-wide historical experience. Any reduction in Pledged Tax Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on the Agency's ability to pay the principal of and interest on the Bonds or to issue refunding bonds to refund the Bonds at or prior to maturity. Limited Obligations The Bonds are special obligations of the Agency secured by and solely payable from Pledged Tax Revenues and amounts on deposit in the indicated Funds and Accounts established under the Indenture. The Bonds are not a debt, liability or obligation of the City, the State or any political subdivisions thereof (except the Agency) and neither the City, the State nor any political subdivisions thereof (except the Agency) are liable for payment on the Bonds. The Bonds do not constitute an indebtedness within the meaning of any State constitutional or statutory debt limitation. Development Risks The Agency's collection of Pledged Tax Revenues is directly affected by the economic strength of the Proj ect Areas. Projected additional development within the Project Areas will be subject to all the risks generally associated with real estate development projects, including unexpected delays, disruptions and changes. Real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in real estate market and interest rates, unexpected increases in development costs and other similar factors. Further, real estate development operations within the Project Areas could be adversely affected by future governmental regulations or policies, including governmental regulations or policies to restrict or control development. If projected development in the Project Areas is delayed or halted, the economy of the Project Areas could be affected, causing a reduction in Pledged Tax Revenues available to pay debt service on the Bonds. Levy and Collection The Agency has no power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues, and accordingly, could have an adverse effect on the ability of the Agency to pay debt service on the Bonds. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency's ability to make timely debt service payments. Reduction in Inflationary Rate As described in greater detail below, Article XIIIA of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. In January 1996, the State Board of Equalization reported an actual annual inflation rate of 1.11 %. This marked only the third time since the adoption of Article XIIIA in 1978 that the actual inflation rate has been less than 2%. Should the assessed value of secured property not increase at the estimated annual rates incorporated herein, the Agency's receipt of future Pledged Tax Revenues may be adversely affected. 24 118 Bankruptcy and Foreclosure On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclosure on the property and retain all the proceeds of the sale except the amount of the pre -petition taxes. According to the courts ruling, as administrative expenses, post -petition taxes would be paid if the debtor had sufficient assets to do so after all authorized payment to secured creditors. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that time become subject to current ad valorem taxes. To the extent the rule of Glasply is applied to properties within the Project Areas, .any resultant reduction or delay in the collection of property taxes could reduce the amount of Tax Revenues available to the Agency to make timely payments of debt service on the Bonds. Property Held By FDIC The ability of the Agency to receive Pledged Tax Revenues derived from delinquent taxes may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation ("FDIC") has or obtains an interest. In the event that any financial institution making any loan which is secured by real property within the Project Areas is taken over by the FDIC and prior thereto or thereafter, the tax installments go into default, the ability of the County to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid taxes may be limited. The FDIC's policy statement regarding the payment of State and local real property taxes (the "Policy Statement") provides that the FDIC intends to pay valid real property taxes, interest and penalties, in accordance with State law, on property which at the time of the tax levy is owned by institutions in an FDIC receivership, unless abandonment of the FDIC interest is determined to be appropriate. Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, it will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will it pay or recognize liens for any penalties, fines or similar claims imposed for the nonpayment of taxes. The Agency is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency on a parcel within the Project Areas in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Seismic Factors The City is located in an area of seismic activity and, therefore, could be subject to potentially destructive earthquakes. Numerous active and inactive fault lines pass through, or near, the area in which the City is located. The occurrence of severe seismic activity in the City could result in substantial damage to property located in the Project Areas, and could lead to successful appeals for reduction of assessed values of such property. Such a reduction could result in a decrease in Tax Revenues received by the Agency. 25 119 Proposition 8 Adjustments Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed on a following lien date up to the lower of the then - current fair market value or the factored base year value. Properties in the Project Areas have not been subject to Proposition 8 adjustments made by the County Assessor in any significant amount. The Bezaire Case On November 2, 2001, in an Orange County Superior Court case styled County of Orange v. Orange County Assessment Appeals Board No. 3, Case No. OOCCO3385 ("Bezaire'), the Orange County Superior Court issued a Minute Order holding that the Orange County Assessor (the "Assessor") had violated the 2% maximum annual inflation adjustment limit of Article XIIIA of the California Constitution. The Assessor had increased the assessed value of a single family residential property by 4% in one year, after subject the property to no increase the previous year, when the market value of the property declined below its taxable value. The Assessor established the 4% value increase by determining that the property's then -current market value was greater than the assessed value would have been if the 2% annual inflation adjustment had been applied the previous year. The State Board of Equalization had approved this methodology for increasing assessed values in similar circumstances. The Orange County Superior Court has entered a ruling which allows restatement of the complaint as a class action. Should the matter be upheld on appeal it could limit the rate at which county assessors can increase the assessed value of properties which have been subject to reductions in assessed value. In December 2002, the court certified a "class action" status for the case and defined the class of potential plaintiffs to include all of the people in Orange County subject to the recapture. In 2002, two other Superior Courts (Los Angeles and San Diego) ruled differently on the recapture issue. The Superior Court in the Bezaire Case entered a Final Judgment on April 18, 2003. On June 12, 2003, the Orange County Assessor and Tax Collector, in conjunction with the County of Orange, filed a notice of appeal of action in the Court of Appeal of the State of California, and on March 26, 2004, the Court of Appeal of the State of California, Fourth Appellate District, filed its opinion reversing the trial court's judgment, holding that the trial court erred in ruling that assessments are always limited to no more than two percent of the previous year's assessment and remanding to the trial court with directions to enter judgment in favor of the County of Orange petitioners. The Court of Appeal held that the 2% annual inflation adjustment provision permits a maximum 2% annual increase calculated against the original acquisition cost base, rather than calculated against any reduced base resulting from any intervening downward reassessment in the wake of a decline in property values, such as might happen with a general deflation or a disaster. On May 5, 2004, the Respondent filed a petition to the California Supreme Court for a review of the decision published by the Court of Appeal on March 26, 2004. The California Supreme Court is expected to issue its decision to accept or deny this petition for review within 60 to 90 days. The Agency is unable to predict whether or not the Bezaire Case will rule on this petition or if they do decide to take the appeal, how the Court will rule on the case. Educational Revenue Augmentation Fund; State Budget The Agency's Tax Increment Revenues may be reduced by specific legislative shifts in property tax allocations. The State budget for fiscal year 1993-94 transferred $2.6 billion to school F 120 districts from cities, counties and other local governments, including redevelopment agencies. As part of the budget's transfer of moneys to school districts, the State Legislature required redevelopment agencies to transfer approximately $65 million to the Educational Revenue Augmentation Fund (TRAP) in both fiscal years 1993-94 and 1994-95. The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. Faced with a projected massive budget gap for fiscal year 2002-03, the State enacted as urgency legislation AB 1768, Chapter 1127, Statutes of 2002 ("Chapter 1127") requiring redevelopment agencies to pay into ERAF in fiscal year 2002-03 an aggregate amount of $75 million. Chapter 1127 requires the payment into ERAF in fiscal year 2002-03 only. Chapter 1127 provides that one-half of an Agency's ERAF obligation is calculated based on the gross tax increment received by such Agency and the other one-half of such Agency's ERAF obligation is calculated based on the net Tax Increment Revenues (after any pass -through payments to other taxing entities), as such amounts are shown in the fiscal year 2000-01 Annual Report of the California Controller. The Agency's ERAF obligation for FY 2002-03 was $723,518 for both of its project areas. On July 27, 2003 the California Senate passed a budget bill, AB 1765, as well as a list of budget trailer bills, including AB 1755 (collectively, the Senate Package"). The Senate Package provides for a transfer on a statewide basis of $250 million from redevelopment agencies to the ERAF for fiscal year 2003-04. The application of the ERAF transfer under AB 1765 appears to be similar to that which was applied in 1993-94 and as to 2002-03. On July 29, 2003, the California Assembly approved SB 1045, a budget trailer bill substantially identical to AB 1765 except that it provides for a statewide transfer of $135 million from redevelopment agencies to ERAF for fiscal year 2003-04. Following concurrence by the California Senate, AB 1045 was signed by the Governor on September 1, 2003. Pursuant to SB 1045, the Agency's ERAF share would be approximately $1,467,995 for both of its project areas. The Agency expects to pay such amount from Tax Revenues surplus to Pledged Tax Revenues or from a City loan for such purpose. The budget bills do not resolve the State's budget deficit. It is therefore anticipated that there will be additional future legislation which addresses this situation. The Agency cannot predict what measures may be proposed or implemented for the current fiscal year or in the future. Given the magnitude of the State's budgetary deficit, it is possible that future legislation will further reduce Tax Revenues. Changes in Redevelopment Law There can be no assurance that the State electorate will not at some future time adopt initiatives or that the State Legislature will not enact legislation that will amend the Redevelopment Law or other laws or the Constitution of the State resulting in a reduction of Pledged Tax Revenues, and consequently, have an adverse effect on the Agency's ability to pay debt service on the Bonds. PROPERTY TAXATION IN CALIFORNIA Property Tax Collection Procedures In the State, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens on the secured property arising pursuant to State law, regardless of the time of the creation of other liens. 27 121 Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes which are delinquent. The taxing authority has four ways of collecting unsecured personal property taxes: (i) initiating a civil action against the taxpayer, (ii) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer, (iii) filing a certificate of delinquency for record in the county recorder's office to obtain a lien on certain property of the taxpayer, and (iv) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is sold to the State on or about March 30 of each fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10% penalty also applies to delinquent taxes with respect to property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The valuation of property is determined as of the January 1 lien date as equalized in August of each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1 and become delinquent August 31. Historically, tax payment practices by the County provided for payment to the agencies of approximately 50% of the secured taxes by the third week in January of each year, an additional 50% of the secured taxes in early May of each year. In accordance with the County's current policy, the Agency expects to receive approximately 50% of the secured taxes by the third week in January of each year and approximately 50% of the secured taxes in early May of each year. Supplemental Assessments California Revenue and Taxation Code Section 75.70 provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Prior to the enactment of this law, the assessment of such changes was permitted only as of the next tax lien date following the change, and this delayed the realization of increased property taxes from the new assessments for up to 14 months. This statute provides increased revenue to redevelopment agencies to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January 1 lien date. To the extent such supplemental assessments occur within the Project Areas, Pledged Tax Revenues may increase. Property Tax Administrative Costs In 1990, the Legislature enacted SB 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions in proportion to the tax -derived revenues allocated to each. SB 1559 (Chapter 697, Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. For Fiscal Year 2002-03 and Fiscal Year 2003-04 the County's administrative charge to the Agency for both Project Areas was $443,254 and $497,234 as of the date of this Official Statement. 28 122 Unitary Property AB 454 (Statutes of 1987, Chapter 921) provides the method of reporting and allocating property tax revenues generated from most State -assessed unitary -properties. Under AB 454, the State reports to each county auditor -controller only the county -wide unitary taxable value of each utility, without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor -controllers to use in order to determine the allocation of unitary property taxes generated by the county -wide unitary value, which are: (i) for revenue generated from the 1 % tax rate, each jurisdiction is to receive up to 102% of its prior year unitary property tax increment revenue; however, if county -wide revenues generated from unitary properties are greater that 102% of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction's share of secured property taxes; (ii) for revenue generated from the application of the debt service tax rate to county -wide unitary taxable value, each jurisdiction is to receive a percentage share of revenue based on the jurisdiction's annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State -assessed property, except railroads and non - unitary properties the valuation of which will continue to be allocated to individual tax rate areas. AB 454 allows, generally, valuation growth or decline of State -assessed unitary property to be shared by all jurisdictions within a county. Due to the limited amount of unitary property within the Project Areas, the Agency does not expect the impact of AB 454 or the settlement agreement to have an adverse effect on the Agency's ability to pay debt service on the Bonds. Article XMA of the State Constitution Article XIIIA limits the amount of ad valorem taxes on real property to 1 % of "full cash value" of such property, as determined by the county assessor. Article XIIIA defines "full cash value" to mean "the County Assessor's valuation of real property as shown on the 1975-76 tax bill under 'full cash value,' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." Furthermore, the "full cash value" of all real property may be increased to reflect the rate of inflation, as shown by the consumer price index, not to exceed 2% per year, or may be reduced. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by substantial damage, destruction or other factors, and to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstances. Article XIIIA (i) exempts from the 1 % tax limitation taxes to pay debt service on (a) indebtedness approved by the voters prior to July 1, 1978 or (b) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition; (ii) requires a vote of two-thirds of the qualified electorate to impose special taxes, or certain additional ad valorem taxes; and (iii) requires the approval of two-thirds of all members of the State Legislature to change any State tax laws resulting in increased tax revenues. The validity of Article XIIIA has been upheld by both the California Supreme Court and the United States Supreme Court. 29 123 Appropriations Limitation - Article XIIIB Article XIIIB limits the annual appropriations of the State and its political subdivisions to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. The "base year" for establishing such appropriations limit is the 1978/79 fiscal year, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Section 33678 of the Redevelopment Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by an agency of proceeds of taxes levied by or on behalf of an agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. The constitutionality of Section 33678 has been upheld in two California appellate court decisions. On the basis of these decisions, the Agency has not adopted an appropriations limit. Personal Property Tax Special Subventions Government Code Section 16112.7 generally provides that on or after July 31, 1990, no redevelopment agency shall pledge special personal property tax subvention payments as security for payments of the principal and interest on bonds. Future Initiatives Article XIIIA, Article XIIIB and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Agency's ability to expand revenues. Recent Litigation Regarding Increase in Assessed Valuation On November 2, 2001, the Orange County, California Superior Court issued a Minute Order in the case of County of Orange v. County of Orange County Assessment Appeals Board No. 3. The case involved the assessed value of a property that exceeded the prior year's assessed value by more than 2%. The increase of a property's assessed value by more than 2% is a common practice among California assessors when the prior year value of the property is less than the base year value of the property (the value assigned upon change of ownership or new construction) and the current year, market value of property is equal to or higher than the computed base year value for the current year. Such instances occur when the prior year value of the property was determined by an appeal or assessor initiated reduction and the condition causing reduction (e.g., recession in the real estate market) has ceased to influence the value of property. The court ruled that the California Constitution and the California Revenue and Taxation Code limit the year to year change in value of property to 2% except in situations described in law but not limited to the instances mentioned above. The court also found that the California Constitution does not authorize a temporary decline in the base value of property that can be restored at a rate higher than 2%. At this time, the Orange County Superior Court is considering possible class certification for a challenge to the Orange County assessor's practice. It is unclear whether, or to what extent, this potential class may affect assessments outside of Orange County. The Agency is unable to predict the effect on Tax Revenues if the ruling described above is ultimately determined to have applicability to the County of Riverside and the Tax Revenues 30 124 allocated to the Agency. The Fiscal Consultant has not made any adjustment in its projections of Tax Revenues shown in the text of this Official Statement and in Appendix B by reason of the foregoing litigation. Pledged Tax Revenues that secure the Bonds under the Indenture could be reduced, which in turn could impair the ability of the Agency to make payments on the Bonds when due if the above described litigation is upheld and any similar litigation is brought with respect to the Project Areas. No Impact on Pledged Tax Revenues Arising from Santa Ana Litigation. The State Court of Appeals recently upheld a Superior Court decision which held the Santa Ana Unified School District had the right to receive payments from the Orange County Redevelopment Agency pursuant to a resolution adopted by the School District in 1996 under former Section 33676(a) of the California Redevelopment Law (Santa Ana Unified School District v. Orange County Redevelopment Agency; App. 4 Dist. 2001 108 Cal. Rptr.2d 770, 90 Cal.App 4th 404, review ' denied). Former Section 33676(a)(2) provided that, unless a negotiated tax sharing agreement had been entered into, upon passage of a resolution prior to adoption of a redevelopment plan, affected taxing agencies and every school and community college district could elect to be allocated increases in the assessed value of taxable property in the project areas based on inflation growth (the "2% Property Tax Increase"). Former Section 33676(a)(2) was repealed as part of major revisions made to the California Redevelopment Law pursuant to the Reform Act of 1993 ("AB 1290"). The changes to the California Redevelopment Law contained in AB 1290 were effective as of January 1, 1994. The Court of Appeals affirmed the lower court ruling that due to an amendment to former Section 33676(a) which occurred in 1984, school and community college districts were to automatically receive the 2% Property Tax Increase even without adopting the appropriate resolution prior to the adoption of a redevelopment plan. The following school and/or community college districts are located within the Project Areas: County of Riverside Superintendent of Schools, Desert Community College District, Desert Sands Unified School District and Coachella Valley Unified School District. Each of the districts listed has negotiated a tax sharing agreement with the Agency and is therefore not subject to pass through requirement with respect to the 2% Property Tax Increase. Appeals of Assessed Values Pursuant to California law, a property owner may apply for a reduction of the property tax assessment for such owner's property by filing a written application, in a form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. In the County, a property owner desiring to reduce the assessed value of such owner's property in any one year must submit an application to the County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of each application by the staff of the County Assessor's Office, the staff makes a recommendation to the Appeals Board on each application which has not been rejected for incompleteness or untimeliness or withdrawn. The Appeals Board holds a hearing and either reduces the assessment or confirms the assessment. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal's filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre -reduction level for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of comparable values that the property continues to be overvalued (known as "ongoing hardship"), the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year as well. Appeals for reduction in the base year value of an assessment, which generally must be made within three years of the date of change in ownership or completion of new construction that determined the base year, if successful, reduce the assessment for the year in which the appeal is taken and prospectively 31 125 thereafter. Moreover, in the case of any reduction in any one year of assessed value granted for "ongoing hardship" in the then current year, and also in any cases involving stipulated appeals for prior years relating to base year and personal property assessments, the Agency's tax increment attributable to such properties will be reduced in the then current year. In practice, such a reduced assessment may remain in effect beyond the year in which it is granted. See "THE PROJECT AREAS —Largest Local Secured Taxpayers" for information regarding the assessed valuations of the top ten property owners within the Project Areas. THE PROJECT AREAS Project Area No. 1-Background On November 29, 1983, following requisite studies and hearing by the Planning Commission and the Agency, the City Council passed Ordinance No. 43 which approved and adopted the Redevelopment Plan. The Ordinance became effective December 29, 1983. The Project Area No. 1 Redevelopment Plan provides for the elimination of blight and deterioration which were found to exist in the Project Area. In December, 1994 and March, 1995, the Agency amended the Project Area No. 1 Redevelopment Plan in order to better address infrastructure and economic development needs within the Project Area. The Plan Amendment (a) increased the aggregate tax increment limit for the Project Area to $2 billion and the outstanding bonded indebtedness limit to $200 million, (b) expanded the list of infrastructure and public facility projects the Agency may fund with tax increment revenues and (c) established new time frames within which the Agency may incur indebtedness for the Project Area, use eminent domain for property acquisition and undertake redevelopment projects, and receive tax increment revenue. Project Area No. 2-Background On May 16, 1989, following requisite studies and hearing by the Planning Commission and the Agency, the City Council passed Ordinance No. 139 which approved and adopted the Redevelopment Plan for the La Quinta Redevelopment Project Area No. 2.. The Ordinance became effective June 16, 1989. The Project Area No. 2 Redevelopment Plan was amended on March 16, 2004 to increase the tax increment limit from $400,000,000 to $1,500,000,000. The Project Area No. 2 Redevelopment Plan provides for the elimination of physical blight and economic obsolescence which was found to exist in the Project Area. Redevelopment Plan Limitations As amended, the Project Area No. 1 Redevelopment Plan terminates on November 29, 2024, with the Agency collecting tax increment revenues through November 29, 2034 in compliance with Section 33333.6 of the Redevelopment Law. Limitation Plan Limit Time Limitations Duration of Redevelopment Plan 11 /29/2024 Final Date to Collect Tax 11 /29/2034 Increment Revenue Financial Limitations Cumulative Tax Increment Limit $2,00%0005000 Source: Redevelopment Plan — Project Area No. 1. Notes May collect beyond this time limit to pay debts incurred prior to Jan. 1, 1994, and to satisfy housing production obligations. 32 126 As amended, the Project Area No. 2 Redevelopment Plan terminates on May 1, 2030, with the Agency collecting tax increment revenues through May 1, 2040 in compliance with Section 3 3 3 3 3.6 of the Redevelopment Law. Limitation Plan Limit Time Limitations Duration of Redevelopment Plan 5/l/2030 Final Date to Collect Tax 5/1/2040 Increment Revenue Financial Limitations Cumulative Tax Increment Limit $19,5001,0003,000 Source: Redevelopment Plan — Project Area No. 2. Notes May collect beyond this time limit to pay debts incurred prior to Jan. 1, 1994, and to satisfy housing production obligations. Extension of Plan Limits. The California Legislature recently enacted SB211, Chapter 741, Statutes 2001, effective January 1, 2002 ("SB211 ".) SB211 provides, among other things, that, at anytime after its effective date, the limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994, may be deleted by ordinance of the legislative body. However, such deletion will trigger statutory tax sharing with those taxing entities that do not have tax sharing agreements. Tax sharing will be calculated based on the increase in assessed valuation after the year in which the limitation would otherwise have become effective. SB211 also authorizes the amendment of a redevelopment plan adopted prior to January 1, 1994 to extend for not more than 10 years the effectiveness of the redevelopment plan and the time to receive tax increment revenues and to pay indebtedness. Any such extension must meet certain specified requirements, including the requirement that the redevelopment agency establish the existence of both physical and economic blight within a specified geographical area of the redevelopment project and that any additional tax increment revenues received by the redevelopment agency because of the extension be used solely within the designated blighted area. SB211 authorizes any affected taxing entity, the Department of Finance, or the Department of Housing and Community Development to request the Attorney General to participate in the proceedings to effect such extensions. It also would authorize the Attorney General to bring a civil action to challenge the validity of the proposed extensions. SB211 also prescribes additional requirements that a redevelopment agency would have to meet upon extending the time limit on the effectiveness of a redevelopment plan, including requiring an increased percentage of new and substantially rehabilitated dwelling units to be available at affordable housing cost to persons and families of low or moderate income prior to the termination of the effectiveness of the plan. The Agency has adopted ordinances pursuant to the authorization contained in SB211 to delete the current January 1, 2004 limit on the Agency's authority to incur loans, advances and indebtedness for both Project Areas. However, the Agency currently has no expectations of undertaking proceedings to extend the effectiveness of the Redevelopment Plans or to extend the time to receive tax increment revenues and to pay indebtedness. The Agency cannot predict what effect subsequent State legislation, if any, will have on the Agency's Pledged Tax Revenues and, consequently, on its ability to timely pay principal and interest on the Bonds. 33 127 Location and Surrounding Area Project Area No. 1 encompasses approximately 17.5 square miles (11,200 acres) accounting for approximately fifty-six percent (56%) of the total current corporate area of the City. Project Area No. 2 encompasses approximately 4.9 square miles (3,116 acres) accounting for approximately sixteen percent (16%) of the total corporate area of the City. Controls, Land Use and Building Restrictions All real property in the Project Areas is subject to the controls and restrictions of the Redevelopment Plans. The Redevelopment Plans require that new construction shall comply with all applicable State statutes and local laws in effect, including the City zoning ordinances and City codes for building, electrical works, heating, ventilating, housing and plumbing. The Redevelopment Plans further provide that no new improvement or addition to an existing building. shall be substantially modified, altered, repaired or rehabilitated except in accordance with architectural, landscape and site plans submitted to and approved by the Agency. The Redevelopment Plans allow commercial, residential, public and institutional uses within the Project Areas but specifies the particular land use area in which such use is permitted. The Agency may permit an existing but nonconforming use to remain so long as the existing building is in good condition and is generally compatible with other surrounding development uses. The owner of such property must be willing to enter into a participation agreement and abide by any reasonable restriction deemed necessary to protect the development and use of the Project Areas. The owner - participant must receive prior authorization and approval from the Agency to make additions, repairs, alternations or other improvements to his nonconforming use structure. Within the limits, restrictions and controls established in the Redevelopment Plans, the Agency is authorized to establish heights of buildings, land coverage, setback requirements, design criteria, traffic circulation, traffic access and other development and design controls necessary for proper development of both private and public segments within the Project Areas. Under certain circumstances, the Agency is authorized to permit a variation from the limits, restrictions and controls granted which changes a basic land use or which permits other than a minor departure from the Redevelopment Plans provisions. In permitting a variation, the Agency shall impose such conditions as are necessary to protect the public health, safety or welfare and to assure compliance with the purposes of the Redevelopment Plans. Any variation permitted by the Agency shall not supersede any other approval required under City codes and ordinances. The Agency currently has several developments under construction or plan approval process in the Project Areas. These developments are described in "APPENDIX B—Redevelopment Fiscal Consultant's Tax Increment Projections" herein. Agreements with Various Taxing Agencies Pursuant to the Law, the Agency has entered into tax sharing agreements with affected taxing agencies in Project Area No. 1. These pass -through agreements are subordinated to the Pledged Tax Revenues and are included for information only: (1) Coachella Valley Unified School District; (2) Coachella Valley Mosquito and Vector Control District; (3) Coachella Valley Water District; (4) Riverside County Superintendent of Schools; (5) Coachella Valley Public Cemetery; (6) Coachella Valley Recreation and Park District; 34 128 (7) Coachella Valley Resource Conservation District; (8) City of La Quinta; (9) County of Riverside; (10) Desert Sands Unified School District; and (11) Desert Community College District. Pursuant to the Law, the Agency has entered into tax sharing agreements with affected taxing agencies in Project Area No. 2. These pass -through agreements are subordinated to the Pledged Tax Revenues and are included for information only: (1) County of Riverside; (2) Desert Community College District; (3) Riverside County Superintendent of Schools; (4) Coachella Valley Water District; (5) Coachella Valley Recreation and Park District; (6) Desert Sands Unified School District; and (7) Coachella Valley Mosquito and Vector Control District. Largest Local Secured Taxpayers Set forth below are the ten largest local secured taxpayers in Project Area No. 1 based on the 2003-04 secured property tax roll. These taxpayers represent approximately 11.65% of the total secured valuation in Project Area No. 1 of $3,062,917,787. Owner Parcels Existing Land Use(s) 2003-04 Secured Assessed Percent Valuation of Total KSL Development 293 Residential, Hotel, Misc. $ 2073,8323,407 6.79% Sunrise Desert Partners 109 Residential, Vacant 547374,474 1.78 Quarry La Quinta Inc. 6 Residential, Vacant 193,882,689 0.65 LQ Inv. 6 Commercial, Vacant 1252583,291 0.40 Tradition Community Assn. 67 Residential, Golf Course, Vacant 11,775,309 0.38 PGA West Residential Assn. 100 Residential, Vacant 113,6763,648 0.38 La Quinta RDA 76 Commercial, Residential, Misc. 113,3001,370 0.37 RJT Homes 162 Residential, Golf Course, Vacant 101622,836 0.35 Santa Rosa Cove Association 12 Vacant Property 83,5393,588 0.28 SA Toll II 89 Vacant Property 8,435,503 0.28 Total Top Ten Taxpayers 22Q 356,698,115 11.65% Source: Metroscan. Information is deemed reliable but is not guaranteed. Set forth below are the ten largest local secured taxpayers in Project Area No. 2 based on the 2003-04 secured property tax roll. These taxpayers represent approximately 8.53% of the total secured valuation in Project Area No. 2 of $1,530,241,213. 35 129 Owner Parcels Existing Land Use(s) 2003-04 Secured Assessed Valuation Percent of Total TD Desert Development LTD 161 Residential, Vacant $33,4651483 2.19% Aventine Development LLC 2 Residential, Vacant 21,900,745 1.43 Wal Mart Real Estate Business 3 Commercial, Vacant 15,8913,421 1.04 Eagle Hardware & Garden Inc. 1 Commercial 131,3441,640 0.87 JDD 1 Commercial 101088,039 0.66 One Eleven La Quinta LLC 13 Commercial, Vacant 8,301,316 0.54 La Quinta SPC 2 Industrial 83,264,123 0.54 Credit Suisse Leasing 1 Commercial 63,9979,467 0.46 Washington Adams Partnership 3 Commercial 61,925,706 0.45 Stater Bros. Markets 2 Commercial 5,306,036 0.35 Total Top Ten Taxpayers M 13 0-,48A 8.53% Source: Metroscan. Information is deemed reliable but is not guaranteed. Land Use A breakdown of total valuation by land use in Project Area No. 1 for Fiscal Year 2003-04 is as follows: Land Use Residential Vacant Commercial (1) Recreational Institutional (2) Miscellaneous/Unknown Total Project Area No. 1 Total Secured Value Percent of Total $25670,0141,127 84.39% 335,3993,838 10.60 1183,8049,680 3.76 37,7571,250 1.19 13,1431,792 0.04 696,704 0.02 $3,163.816.391 100.00% A breakdown of total valuation by land use in Project Area No. 2 for Fiscal Year 2003-04 is as follows: Land Use Residential Vacant Commercial (1) Recreational Institutional (2) Industrial Total Project Area No. 2 Total Secured Value Percent of Total $19273,968,936 85.26% 78,738,176 5.27 115,4423,571 7.73 2,3791,146 0.16 33,6901,590 0.25 19,982,374 1.34 $1,494,201,793 100.00% 1) Includes agriculture and office building uses. 2) Includes government buildings, medical services, and churches. Source: Rosenow Spevacek Group, Inc. 36 130 PLEDGED TAX REVENUES Pledged Tax Revenues (as described in the section "SECURITY FOR THE BONDS" herein) are to be deposited in the Special Fund, paid to the Authority, transferred to the Trustee and applied to the payment of the principal of and interest on the Bonds. Historical Incremental Revenues The following table is a schedule of the taxable valuations and resulting incremental revenues in the Project Areas for the Fiscal Years 2000-01 through 2003-04. The base year valuation for Project Area No. 1 was established in Fiscal Year 1983-84, and Project Area No. 2 was established in Fiscal Year 1988-89. Project Area No. 1 Secured Valuation Unsecured Valuation Total Valuation Base Year Valuation Incremental Valuation Incremental Revenues (1) Housing Set Aside Project Area No. 2 Secured Valuation Unsecured Valuation Total Valuation Base Year Valuation Incremental Valuation Incremental Revenues (1) Housing Set Aside 2000-01 $11,927,812,440 14,948,366 $199423,7603,806 (199,398,233) $1,74353625573 17,433,626 $ 3,4863,725 2000-01 $7901754,123 9,600,421 $8005,3543,544 (95,182,755) $705,1711789 7,051,718 $ 1,410,344 2001-02 $2,2873,7249,601 14,486,563 $23,3021,211,164 (199,398,233) $21,102,812,931 21,0289129 $ 41205,626 2001-02 $11003,6531582 12,084,137 $1,01517371719 (95,182,755) $ 9205,5541,964 91205,550 $ 11841,110 2002-03 $2,715,936,389 13,130,556 $23,7293,0663,945 (199,398,233) $2,5293,668,712 25,296,687 $ 5,05%337 2002-03 $1926%121,204 14,535,754 $1,27416569958 (95,182,755) $13,1793,4745203 11,794,742 $ 2,358,948 (1) Incremental Revenues are based on a one percent (1 %) tax rate. Source: Rosenow Spevacek Group, Inc. See Appendix B herein. Projected Pledged Tax Revenues and Debt Service Coverage 2003-04 $33,0623,9173,787 13,537,804 $390763,4553,591 (199,398,233) $2,8771057,358 287770,575 $ 5,754,115 2003-04 $1,51010731642 20,167,571 $1,530,241,213 (95,182,755) $194355,0589,458 14,350,585 $ 29,870,117 The Agency has retained Rosenow Spevacek Group, Inc. of Santa Ana, California to provide projections of taxable valuation and Pledged Tax Revenues from developments in the Project Areas. The Agency believes the assumptions (set forth in "APPENDIX B" herein) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see "RISK FACTORS"). Therefore, the actual Pledged Tax Revenues received during the forecast period may vary from the projections and the variations may be material. 37 131 Set forth below is the estimated debt service coverage of the Bonds using projected Fiscal Year 2004-05 through 2008-09 Pledged Tax Revenues. Pledged Annual Fiscal Tax Annual Debt Debt Service Year Revenues Service (1) Coverage 2004-05 $ 8,898,611 $5,707,457 1.56x 2005-06 9,181,222 5,704,127 1.61 x 2006-07 91472,311 51,7009127 1.66x 2007-08 99,772,133 597005337 1.71x 2008-09 10,080,950 53,702,547 1.77x (1) Maximum Annual Debt Service on the Bonds is payable in the year 2005 as shown herein. Annual Debt Service Set forth below is the estimated annual debt service (assuming minimum sinking fund payments) for the term of the Bonds. Maturity Date September 1 of 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Total Principal $ 9253,000.00 13,7001,000.00 1,73%000.00 13,7703,000.00 158203,000.00 1,8751,000.00 15935,000.00 21,0059000.00 210809000.00 291605000.00 23,2503,000.00 23,345,000.00 23,4453,000.00 21,560,000.00 256805000.00 21,8109,000.00 29945,000.00 3,0803,000.00. 33,2305000.00 33,3801,000.00 33,5451,000.00 33,7155000.00 358959000.00 .490853,000.00 4,2803,000.00 4,4903,000.00 457103,000.00 43,9401,000.00 5,1809000.00 5,4353,000.00 $9090002000.00 Interest $ 41)782,457.14 404,127.50 3,9703,127.50 31,930,337.50 3,8829547.50 3,827,947.50 3,766,072.50 31,6979380.00 316229192.50 3954%032.50 33,452,552.50 3,3583,052.50 33,2585,390.00 39142,252.50 350209652.50 2,893,352.50 2,7599877.50 2,6193,990.00 23,473,690.00 2,320,265.00 2,159,715.00 1,987,782.50 1,807,605.00 1,618,697.50 1,420,575.00 112125,995.00 992,985.00 762,195.00 520,13 5.00 266,315.00 $813,071,297.14 Total Debt Service (1) $ 59,7075457.14 59,7049,127.50 53,700,127.50 51,700,337.50 517025547.50 53,702,947.50 5,7015072.50 55702,380.00 5,702,192.50 517009032.50 557025,552.50 53,703,052.50 55703,390.00 5,702,252.50 5,700,652.50 5,703,352.50 557045877.50 53,6991,990.00 557033,690.00 53,7003,265.00 55704,715.00 517023,782.50 517023,605.00 597033,697.50 55,70%575.00 53,7025995.00 5,702,985.00 51,7021,195.00 517005135.00 5,701,315.00 $171 X 15297.14 (1) The Bonds debt service is based on an estimated net interest rate of 4.832%. W: 132 BOND INSURANCE The information relating to the Bond Insurer set forth below has been furnished by . No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date of this Official Statement. [Information to follow] CONCL UDING INFORMATION Ratings Standard & Poor's Ratings Services and Moody's Investors Service, Inc. have assigned their respective municipal ratings of "AAA" and "Aaa" to this issue of Bonds with the understanding that upon delivery of the Bonds, a policy insuring the payment when due of the principal of and interest on the Bonds will be issued by These ratings reflect the, rating agencies' views of the creditworthiness of the Bond Insurer. In addition, S&P has assigned a municipal bond rating of " " to the Bonds. This rating reflects the view of S&P as to the credit quality of the Bonds without regard to the delivery of the Financial Guaranty Insurance Policy. The explanation of the significance of the ratings may be obtained from Standard & Poor's Ratings Services, 55 Water Street, New York, New York 10041 (212) 438-2124 or Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007, (212) 553-0300. There is no assurance that the ratings will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the respective rating agency, if in the judgment of the rating agency circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Bonds. Underwriting The Bonds have been sold at a net interest rate of . %. The original purchase price to be paid is $ for the Bonds. The Underwriter intends to offer the Bonds to the public initially at the price or yields set forth on the cover page of this Official Statement, which price or yields may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. In reoffering Bonds to the public, the underwriter may overallocate or effect transactions which stabilize or maintain the market prices for Bonds at levels above those which might otherwise prevail. Such stabilization, if commenced, may be discontinued at any time. Legal Opinion The opinion of Rutan & Tucker LLP, Costa Mesa, California, Bond Counsel, approving the validity of the Bonds and stating that interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is also exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the purchaser at the time of 39 133 delivery of the Bonds at the expense of the Agency. Compensation for Bond Counsel's services is entirely contingent upon the sale and delivery of the Bonds. A copy of such opinion, certified by an officer of the Agency by his facsimile signature, will be printed on the back of each definitive Bond. No charge will be made to the purchaser for such printing or certification. The legal opinion is only as to legality and is not intended to be nor is it to be interpreted or relied upon as a disclosure document or an express or implied recommendation as to the investment quality of the Bonds. The law firm of Rutan & Tucker, LLP (the "Firm") has been engaged by the Agency in two capacities: as Agency Attorney and as Bond Counsel in connection with the execution and delivery of the Bonds. While the Firm and the Agency believe that this dual engagement is not prohibited under California law, the Agency and the Firm acknowledge that the purpose of the Firm's engagement in each such capacity may differ in certain respects which may be of interest to the potential purchasers of the Bonds. As Bond Counsel, the Firm will render its legal opinion, which addresses, among other matters, the legality and validity of the Bonds and the exclusion of interest thereon from gross income for federal income tax purposes. Notwithstanding the Firm's engagement by the Agency in any other capacity, such opinion of the Firm as Bond Counsel is intended to be and is considered by the Firm and the Agency to be rendered objectively and without bias in favor of the Agency or any interests of the Agency. However, potential purchasers of the Bonds should be aware that the Agency will compensate the Firm for its services as Bond Counsel contingent upon the successful issuance and sale of the Bonds and that the Agency has instructed and authorized the Firm in its capacity as Bond Counsel and in its capacity as Agency Attorney to take all proper actions which the Firm may take in such capacities to assist the Agency in completing the issuance and sale of the Bonds. In addition, certain legal matters will be passed on for the Agency by Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California, Disclosure Counsel. Compensation for Disclosure Counsel's services is entirely contingent upon the sale and delivery of the Bonds. Tax Exemption In the opinion of Rutan & Tucker LLP, Costa Mesa, California, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is exempt from present State of California personal income taxes, 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; however, Bond Counsel notes that, with respect to corporations (as defined for federal income tax purposes), interest on the Bonds will be included in determining adjusted current earnings, a portion of which may increase the alternative minimum taxable income of such corporations. The difference between the initial offering prices to the public (excluding bond houses and brokers) at which the Bonds are sold and the amount payable at maturity thereof constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. Such discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the paragraphs above. The original issue discount accrues over the term to maturity of each such maturity of each Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted 40 134 basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bonds. The Internal Revenue Code of 1986, as amended, contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Bond Counsel's opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the Bonds is based upon certain representations of fact and certifications made by the Agency, the Underwriter and others and is subject to the condition that the Agency complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds to assure that interest (and original issue discount) on the Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements could cause interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The Agency has covenanted to comply with all such requirements. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring after the date of issuance of the Bonds may affect the tax status of interest on the Bonds. Bond Counsel's opinion may be affected by action taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions taken or events are taken or do occur. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the Agency continues to comply with certain requirements of the Code, the accrual or receipt of interest (and original issue discount) on the Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient's particular tax status and other items of income or deductions. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the Bonds. No Litigation There is no action, suit or proceeding known to the Agency to be pending or threatened, restraining or enjoining the execution or delivery of the Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing or any proceedings of the Agency taken with respect to any of the foregoing. Legality for Investment in California The Law provides that obligations authorized and issued under the Law shall be legal investments for all banks, trust companies and savings banks, insurance companies, and various other financial institutions, as well as for trust funds. The Bonds are also authorized security for public deposits under the Law. The Superintendent of Banks of the State of California has previously ruled that obligations of a redevelopment agency are eligible for savings bank investment in California. Continuing Disclosure Pursuant to a Continuing Disclosure Agreement (the "Disclosure Agreement"), the Agency has agreed to provide, or cause to be provided, to each nationally recognized municipal securities 41 135 information repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2-12(b)(5) (the "Rule") adopted by the Securities and Exchange Commission (each, a "Repository") certain annual financial information and operating data, including its audited financial statements and information of the type set forth in this Official Statement under the heading "PLEDGED TAX REVENUES." In addition, the Agency has agreed to provide, or cause to be provided, to each Repository in a timely manner notice of the following "Listed Events" if material: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) modifications to rights of Owners of Bonds; (4) Bond calls; (5) defeasances; (6) rating changes; (7) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; (8) unscheduled draws on the Reserve Fund reflecting financial difficulties; (9) unscheduled draws on the Financial Guaranty Insurance Policy reflecting financial difficulties; (10) substitution of the provider of the Financial Guaranty Insurance Policy, or any failure by the Bond Insurer to perform thereon; and (11) release, substitution or sale of property securing repayment of the Bonds. These covenants have been made in order to assist the Underwriter in complying with the Rule. The Agency has never failed to comply in all material respects with any previous undertakings with regard to the Rule to provide annual reports or notices of material events. The Agency may amend the Disclosure Agreement, and any provision of the Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the providing of annual reports, the contents of annual reports or a delinquency in the payment of principal or interest on the Bonds, 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 identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings in the Disclosure Agreement, 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 Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. In addition, the Agency's obligations under the Disclosure Agreement shall terminate upon the defeas4nce or payment in full of all of the Bonds. The provisions of the Disclosure Agreement are intended to be for the benefit of the Owners and shall be enforceable by the Trustee on behalf of such Owners, provided that any enforcement action by any such person shall be limited to a right to obtain specific enforcement of the Agency's obligations under the Disclosure Agreement and any failure by ;the Agency to comply with the provisions thereof shall not be an event of default under the Indenture. Miscellaneous All of the preceding summaries of the Indenture, the Law, other applicable legislation, the Redevelopment Plans for the Project Areas, agreements and other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Agency for further information in connection therewith. 42 136 This Official Statement does not constitute a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement by its Executive Director has been duly authorized by the Authority. LA QUINTA FINANCING AUTHORITY By: isi Executive Director 43 137 SUPPLEMENTAL INFORMATION THE CITY OF LA QUINTA The following information concerning the City of La Quinta (the "City'), Riverside County (the "County') and the State of California (the "State') is presented as general background data. The Bonds are not an obligation of the City, the County or the State and the taxing power of the City, the County and the State is not pledged to the payment of the Bonds. General Background For centuries before Columbus discovered America, the area which is now La Quinta was the winter home of the Cahuilla Indians. The history of modern La Quinta began with the construction of the La Quinta Hotel in 1926, and La Quinta became a retreat for discriminating seclusion -seekers from Hollywood and around the world. It was incorporated as a City in 1982 encompassing an area of 18.36 square miles and a population of approximately 4,500, and today encompasses an area of approximately 31.84 square miles, with a population of approximately 32,500. La Quinta is one of California's fastest growing cities. Surrounded by the Santa Rosa Mountains, La Quinta is home to the PGA West Golf Resort. The Coachella Valley attracts a high - end market of over 2 million tourists each year, all with substantial disposable income and the time to shop. As a year-round multi -recreational resort community, it attracts golf and tennis enthusiasts from all over the world. Population The City's population has increased each year since incorporation in 1982. The following table sets forth population estimates for the City of La Quinta, the County of Riverside and the State of California for the past ten years: Year (January 1) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 CITY OF LA QUINTA ESTIMATED POPULATION City of La Quinta 17,600 18,050 19,200 20,450 21,900 24,250 26,300 28,700 30,450 32,500 Source: State of California Department of Finance. Location Riverside County 1,355,600 1,381,900 13400,400 154411000 1,481,200 115575800 1,609,400 1,644,300 1,7059500 1,776,700 State of California 31,910,000 32,223,000 32,670,000 33,226,000 33,766,000 34,207,000 34,8185000 351037,000 35,591,000 36,144,000 Located in the eastern portion of the County known as the Coachella Valley, La Quinta is 20 miles from Palm Springs and 127 miles from Los Angeles. The City motto is "The Gem of the Desert." 44 i 38 Climate Period CITY OF LA QUINTA Climate Average Temperature Rain Humidity Min ° Mean" Max ° Inches Daily Average January 37.8 54.1 70.4 .5 38 April 57.0 72.3 87.5 .1 32 July 76.9 92.1 107.2 .12 37 October 58.7 75.5 92.2 .23 37 Annual 57.2 73.1 89.0 3.38 36 Prevailing winds: Northwest 7 mph. Source: National Weather Service. City Government and Administration The City of La Quinta was originally incorporated on May 1, 1982 and became a charter city in November, 1996 with a Council/Manager form of government. The City Council is comprised of a Mayor and four Council Members. The Mayor is elected for a two-year term and the Council Members are elected for four-year terms. Budgetary Policies The City Manager submits a preliminary budget to the City Council before each fiscal year. A public meeting is then held prior to July 1 to receive public comment. A budget is required to be adopted before the beginning of the fiscal year. Amendments to the budget or budget transfers between funds require Council approval. Budget transfers within funds require City Manager approval. The City also maintains an encumbrance system as one budget technique. All fiscal year end appropriations and encumbrances lapse at year end unless specifically approved by the Council for inclusion in the following year's appropriations. Each Department receives a monthly budget -to -actual expenditure report. In addition, each department can access on-line budgetary data from the financial information system available throughout the City-wide computer network. The City Council is also given an Executive level Summary of Revenues and Expenditures on a monthly basis. Economic Growth and Trends La Quinta includes the La Quinta Resort, several world class golf resorts, quality neighborhoods of single family and multi -dwelling homes and light commercial industries. Outdoor recreation activities such as hiking and camping are also enjoyed in the area. Community and neighborhood parks offer swimming, picnicking, sports fields, tot lots, recreation programs, and community events. There are several hiking trails leading into the majestic Santa Rosa Mountains. La Quinta's active arts community plays host to the renowned Annual La Quinta Arts Festival. Major retail developments continue to diversify and enhance La Quinta's economic base. The Centre at La Quinta auto mall site includes three auto dealerships and can accommodate up to nine dealerships, plus 400,000 square feet of retail anchored by a Super Walmart; Washington Park 45 139 has a Target, Washington Mutual Bank, and Stein Mart under construction; La Quinta Corporate Center, which contains a fitness center, offices, and a post office site; La Quinta Court, a specialty shopping center with fine restaurants and a gourmet food market; La Quinta Professional Plaza, under construction, which includes Palm Desert National Bank, professional offices and restaurants; Jefferson Plaza, anchored by Home Depot, I -Hop, and Jack in the Box; One Eleven Center, anchored by Staples, Ross Dress 4 Less, and Big 5 Sporting goods store; Point Happy, anchored by two restaurants; and Old Town La Quinta, a 140,000 square foot commercial/retail center under construction in the Village area. Several resort -oriented projects which will expand the economic diversity of the City are under construction, including an Embassy Suites hotel and development of Centre Point, a 50-acre site at the corner of Miles Avenue and Washington Street which will include a mid -priced hotel, a boutique hotel, and a 165,000 square foot medical facility. A residential component is also part of the project, with a neighborhood park. Quality residential communities, including PGA West, Rancho La Quinta and the Traditions have increased the assessed valuation of the City, and several other large projects have been approved and are moving forward. Since 1992, assessed valuations have grown to more than $5.453 billion and in the last decade, assessed values have increased 190%, substantially higher than the region's average growth rate. Tourism La Quinta is well known for its many championship golf courses. The City is home to 21 championship courses, and many more are in the planning or development stages. In addition to quantity, la Quinta has some of the highest rated courses in the world of golf. Various golf tournaments, including the prestigious Bob Hope Chrysler Classic, are exposing La Quinta internationally as a quality destination and golf resort area. La Quinta's Trilogy Golf Club will be hosting the internationally televised Skins Game in 2004 and 2005. The City acquired 525 acres of previously undeveloped property adjacent to Jefferson Street and Avenue 52. This project, Silver Rock Resort, will include two 18-hold golf courses, hiking trails, residential casita units, as well as two or three hotels and commercial areas for retail and restaurants and will be a future host golf course for the Bob Hope Chrysler Classic. The nationally recognized La Quinta Arts Festival attracts many visitors from around the country each year to the City of La Quinta and the Coachella Valley, and has relocated to a new site along Washington Street. Hotel room sales in La Quinta enjoyed continued success with revenues estimated at $36.7 million in 2004. The La Quinta Hotel, the largest destination resort in the Coachella Valley, was the largest contributor to this increase. Capital Improvements The City completed almost $16 million in capital improvements during fiscal year 2002-03. Projects completed or nearing completion include the Civic Center Campus landscape, anchored on one corner by the Civic Center, another corner by the Senior Center and Community Facilities and a third corner dedicated to the planned City library; Jefferson Street Phase I widening; improvements or construction of a number of city parks, including Monticello, Cove mini -park, Cove Oasis and Cahuilla Trail, Fritz Burns Park Phase 2, and the 18-acre La Quinta Park, which includes lighted soccer fields. Several significant projects which are continuing, planned or already approved include Civic Center expansion and a new library. Recently completed projects in 2004 include Avenida La Fonda improvements and construction of the City's third fire station. 46 140 The City's Capital Improvement Program (CIP) continues to increase to meet the demands of growth, and totals $10.5 million for 2004-05. This major commitment in infrastructure will continue to provide for both the current and future growth that the City has experienced. The City has several significant community facility projects under way. A skateboard park and dog park have been completed and the 18-acre La Quinta Park has been completed. The park hosts a variety of community amenities, including lighted soccer fields, ball fields, a basketball court, a children's in-service area and space for a future skateboard park. Development of the City's first municipal golf course, designed by Arnold Palmer, SilverRock Resort, will significantly add to amenities available to residents of La Quinta. SilverRock Resort is under design and expected to be open in 2005. Commercial Activity The County is served by a number of major banks. They include Bank of America National Trust and Savings Association, Wells Fargo Bank, Union Bank and Washington Mutual having the largest number of branch offices. The following table demonstrates the growth in the number of business permits and taxable transactions in the City of La Quinta: CITY OF LA QUINTA TAXABLE TRANSACTIONS (in thousands) Retail Stores Total Outlets Number of Taxable Number of Taxable Year Permits Transactions Permits Transactions 1992 84 489008 263 76,178 1993 107 703,859 305 1021,994 1994 112 78,171 309 110,861 1995 147 871,366 367 1213,428 1996 146 95,852 361 132,892 1997 154 112,997 399 159,146 1998 167 1579724 414 2133,973 1999 176 1859,731 426 2403,453 2000 197 248,586 436 3181,057 2001 222 2683,789 478 3339840 2002 246 309,182 531 372,039 2003 (1) 257 1891,440 540 22%748 (1) Through the second quarter. Source: State Board of Equalization. 47 141. Building Activity The following presents the residential building permit valuations for the City of La Quinta for the calendar years 2000 through March, 2004: RESIDENTIAL BUILDING PERMIT VALUATIONS CITY OF LA QUINTA (Valuation in 000) 2000 2001 2002 2003 2004 1 Residential Single Unit $253,659 $17%777 $1319062 $217,283 $61,844 Multiple Units 11,670 0 8,395 13,756 0 Total Residential $265,329 $1791,777 $1393,457 $2319,039 $61,844 No. of New Dwelling Units 1,293 916 657 1,116 283 Single Unit Multiple Units 200 0 192 279 0 Total Units 11493 916 849 1,395 283 (1) Through March, 2004. Source: California Building Permit Activity, Economic Sciences Corporation. City's Taxable Valuation Taxable valuation within the City is established by the Riverside County Assessor, except for utility and other unitary property, which is assessed by the State Board of Equalization. Article XIII A of the State Constitution provides that, beginning with the 1978-79 fiscal year, property taxes in California are limited to one percent of full cash value, except for taxes to pay debt service on indebtedness approved by the voters prior to July 1, 1978. Article XIII A defines full cash value as the County Assessor's valuation of real property as shown on the 1975-76 tax bill ("base year"), except in the case of newly -constructed property or property which undergoes a change in ownership. Yearly taxable value increases following the base year are limited to the growth in the consumer price index, but may not exceed two percent annually. For assessment and collection purposes, property is classified either as "secured" or "unsecured", and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property and property the taxes on which are a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll". 142 below. The assessed valuation of property within the City since fiscal year 1993-94 is summarized CITY OF LA QUINTA ASSESSED VALUATIONS Total Before Total After Redevelopment Redevelopment Local Secured Unsecured Increment Increment 1993-94 $13,8685,9751,801 $ 7,9659504 $158763,9411,305 $5571138,934 1994-95 159235910,024 2293899215 15946,2991,238 56591011,273 1995-96 23,0291,5023,307 1655269331 21046,0285638 5779,3205,140 1996-97 2,0361,6563,118 23,801,872 2,060,457,990 5889,198,073 1997-98 2,1909320,969 2295111720 23,2125,832,689 622,9145480 1998-99 29,33050119857 18,8449,880 25,3483,856,737 5943,09%348 1999-00 21,6533,9013,813 189,7123,736 211672,614,549 6229,5179,545 2000-01 311433,5253,319 303,2613,882 3,17397873,201 6653,244,894 2001-02 31769,276,869 32,276,382 39801,5531251 6899553,009 2002-03 495749,3561,323 361,5483,473 496091,9041,796 7581,8743,854 2003-04 53,3745,0965046 3999463,848 5,4143,0429894 814,694,338 Source: California Municipal Statistics, Inc. General Plan/Zoning The land within the City of La Quinta is approximately zoned as follows: Industrial: Institutional: Commercial: Residential: Industry 0 acres 120 acres 1,240 acres 12,320 acres La Quinta contains two major commercial areas. It is currently creating master development plans for the first, a 100-acre downtown area. Approximately 50% of this area has yet to undergo actual development. Additionally there remains approximately 680 undeveloped acres of commercial property on Highway 111 between Palm Springs and Indio. Top Taxpayers The largest local secured taxpayers in the City are as follows: Property Owner 1. KSL La Quinta Hotel Corp. 2. KSL PGA West Corporation 3. Sunrise Desert Partners 4. KSL Landmark Corporation 5. KSL Land Corporation 6. KSL La Quinta Corporation 7. TD Desert Development 8. La Quinta Golf Properties, Inc. 9. M&H Realty Partnership 10. Washington Adams Partnership Source: City of La Quinta. Land Use Hotel Residences Condominiums Vacant Land Residential Land Golf Courses Residential Land Golf Course Shopping Centers Commercial 49 143 Labor Force In July, 1987, the City Council adopted Resolution No. 85-86 originally acknowledging the formation of the La Quinta Employee's Association. The Resolution was amended in March, 1994. The Assistant City Manager, Mark Weiss, currently serves as the employee relations officer. The following listing sets forth the top employers in the City of La Quinta and the surrounding area: CITY OF LA QUINTA Major Employers and Number of Employees (As of June 30, 2003) Employer La Quinta Resort and Club PGA West Desert Sands Unified Wal-Mart Rancho La Quinta The Home Depot Lowes Home Improvement Stater Bros. Imperial Irrigation District Vons Ralph's Tradition City of La Quinta Cliff House Source: City of La Quinta Approximate No. of Emvlovees 1,500 1,100 550 250 200 180 150 126 110 103 100 97 78 75 Type of Business Resort Hotel Golf Resort School Administration Offices Retailer Golf Resort Home Improvement Home Improvement Groceries Utility Company Groceries Groceries Golf Resort Government Restaurant 50 144 As of April, 2004, employers located in the County that employed more than 500 employees were reported to be as follows: RIVERSIDE COUNTY Largest Employers (April, 2004) Location/ Employer Headquarters Product/Service Employees County of Riverside Riverside Government 17,236 Stater Bros. Markets Colton Grocery Retailer 5,600 Corona -Norco Unified School District Norco Public Education 5,000 Riverside Unified School District Riverside Public Education 4,000 Riverside Community College Riverside Higher Education 3,350 Moreno Valley Unified School District Moreno Valley Public Education 3,162 Kaiser Permanente Medical Center Riverside Health Care 2,886 Fleetwood Enterprises Riverside Manufactured Housing 2,200 Temecula Valley Unified School District Temecula Public Education 2,146 Eisenhower Medical Center Rancho Mirage Health Care 1,972 Lake Elsinore Unified School District Lake Elsinore Public Education 1,950 Jurupa Unified School District Riverside Public Education 1,794 Riverside County Office of Education Riverside Public Education 1,790 Valley Health System Hemet Health Care System 1,756 Coachella Valley Unified School District Thermal Education 1,750 Alvord Unified School District Riverside Public Education 1,669 Riverside Community Hospital Riverside Hospital 1,641 KSL Desert Resorts, Inc. La Quinta Hotel Resort 1,500 Desert Regional Medical Center Palm Springs Health Care 1,500 Vons, a Safeway Co. Arcadia Grocery Retailer 1,500 Murrieta Valley Unified School District Murrieta Public Education 1,350 City of Corona Corona City Government 1,118 SBC Riverside Telecommunications 1,100 Val Verde Unified School District Perris Public Education 1,100 The Press -Enterprise Co. Riverside Printing, Publishing 1,090 Casino Morongo Cabazan Gaming 1,075 Corona Regional Medical Center Corona Hospital 1,050 Sears Roebuck and Co. Hoffinan Estates, IL Retail and Services 1,000 Naval Surface Warfare Center Corona Military Research 857 Bank of America Newport Beach Financial Services 791 The Gas Co. — a Sempra Energy Utility San Diego Utility 765 Amtrak Moreno Valley Call Center (Railroad) 700 John F. Kennedy Memorial Hospital Indio Acute Health Care 700 Verizon Pomona Telecommunications 650 Fender Corona Musical Instruments 625 Goodrich Aerostructures Riverside Aerospace Manufacturing 580 Renaissance Esmoraldo Resort and Spa Indian Wells Resort 571 Desert Sands Unified School District La Quinta Public Education 550 Source: Economic Development Agency, Riverside, California. 51 145 Employment and Industry Employment data is not separately reported on an annual basis for the City but is compiled for the Riverside/San Bernardino PMSA, which includes all of Riverside and San Bernardino Counties. In addition to varied manufacturing employment, the PMSA has large and growing commercial and service sector employment, as reflected in the table below. Overall, in the past five years, total employment rose approximately 18%, while population increased approximately 12% in the County of Riverside. As of March, 2004, unemployment in the PMSA was 5.7%. The City estimates that unemployment rate in La Quinta is similar to that shown in the following table for the Riverside/San Bernardino Primary Metropolitan Statistical Area ("PMSA") as a whole: Riverside -San Bernardino Labor Market Area 2001 2002 2003 2004 (3) Agriculture 21,700 203,900 203,300 201,200 Natural Resources and Mining 1,300 11)200 11200 11,200 Construction 8% 100 88,400 9%900 963,900 Manufacturing 120,100 1185600 115,400 112,500 Trade, Transportation and Utilities 21231200 2191,400 225,400 237,700 Information 129900 1400 14,100 13,100 Financial Activities 343,800 38,200 395500 431,500 Professional and Business Services 973,000 1019,700 1065800 1165100 Educational and Health Services 102,200 1061000 112,400 1179600 Leisure and Hospitality 10%800 1049400 1073,200 1133,200 Other Services 35,000 373,100 389,100 373,600 Government 200,200 212,700 211,400 213,300 Total, All Industries 4 Total Civilian Labor Force (2) 195081,000 195623,300 11,6383,800 197249100 Total Unemployment 771,200 783,200 961,300 985100 Unemployment Rate 5.1 % 5.0% 5.9% 5.7% (1) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers and workers on strike. (2) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers and workers on strike. (3) Through March, 2004. Source: State Employment Development Department, Labor Market Information Division. 52 146 Direct and Overlapping Debt A statement of the City's direct and overlapping debt is as follows: 2003-04 Assessed Valuation: $5,414,042,894 Redevelopment Incremental Valuation: 4,599,348,556 Adjusted Assessed Valuation: $ 814,,338 OVERLAPPING TAX AND ASSESSMENT DEBT: to Aolicable Debt 511104 Coachella Valley Unified School District 9.267% $ 1,690,234 Desert Sands Unified School District 7.733 4,794,460 Desert Sands Unified School District Lease Tax Obligations 7.733 1,939,050 Coachella Valley County Water District, I.D. No. 55 66.678 5,087,531 Coachella Valley County Water District, I.D. No. 58 4.216 191,406 Desert Sands Unified School District Community Facilities District No. 1 100.000 2,155,000 City of La Quinta 1915 Act Bonds 100.000 3,735,000 Coachella Valley Water District, Assessment District No. 68 86.247 2,160,487 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $21,753,168 DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: Riverside County General Fund Obligations 0.905% $ 5,910,417 Riverside County Board of Education Certificates of Participation 0.905 119,098 Coachella Valley Unified School District Certificates of Participation 9.267 1,760,730 Desert Sands Unified School District Certificates of Participation 7.733 1,199,388 Coachella Valley County Water District, I.D. No. 71 Storm Water Unit Certificates of Participation 6.298 660,345 Coachella Valley Recreation and Park District Certificates of Participation 7.762 210,350 City of La Quinta General Fund Obligations 100.000 6,890,000 (1) TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $16,750,328 Less: Riverside County self-supporting obligations 197,530 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $16,552,798 GROSS COMBINED TOTAL DEBT $38,503,496 (2) NET COMBINED TOTAL DEBT $38,305,966 Ratios to 2003-04 Assessed Valuation: Total Overlapping Tax and Assessment Debt .................. 0.40% Ratios to Adjusted Assessed Valuation: Combined Direct Debt($6,890,000) ............................... 0.85% Gross Combined Total Debt ............................................. 4.73% Net Combined Total Debt ..................... :.......................... 4.70% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/03: $0 �1 Excludes issue to be sold. 2� Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and. tax allocation bonds and non -bonded capital lease obligations. Source: California Municipal Statistics, Inc. 53 147 Utilities The main utility providers in the City are as follows: Electricity: Imperial Irrigation District Gas: Sempra Energy Telephone: Verizon Water: Coachella Valley Water District Sewer Service: Coachella Valley Water District Transportation Access to job opportunities in Riverside County, San Bernardino County, Orange County and Los Angeles County has been one of the major factors in Riverside County's employment and population growth. Several major freeways and highways provide access between Riverside County and all parts of Southern California. U.S. Highways 10 and 60 extend in an east -west direction through the northern portion of the County, Intrastate Highway 91 extends in an east -west direction through the central portion of the county until connecting with U.S. Highway 15, and U.S. Highways 15 and 215 extend in a north -south direction through the central portion of the County, each linking the major cities in the County to other parts of the County and to the Los Angeles, San Bernardino and Orange metropolitan areas and to San Diego County. Local bus service is provided by Sunline Transit and by Greyhound Bus Lines. Passenger service is also provided by AMTRAK, which makes train trips daily each way through the County. Southern Pacific Railroad and Santa Fe Railway handle most of the freight movement in the County. The County seat in the City of Riverside is within a 1-hour drive of La Quinta. It is a 1-1 /2 hour drive to the Ontario Airport and a 3 hour drive to LAX and Orange County. Numerous major truck lines serve the City of La Quinta, making available overnight delivery service to major California cities. Education The educational needs of La Quinta are met by three public elementary schools, two junior high schools and one high school, all a part of the Desert Sands Unified School District and the Coachella Valley Unified School District. Post -secondary education is served by College of the Desert, Chapman University, California State University, San Bernardino Extension, Ambition Computer Technology, Propper College and Professional Career College. Community Services La Quinta has one Immediate Care facility and a senior citizens' center within the City limits, with approved plans for expanding medical services to the City. Other nearby hospitals are located in Rancho Mirage, Indio and Palm Springs. The City is served by four churches, numerous radio stations, three local TV channels, one TV cable system, one savings and loan bank and six full -service banks. Recreational facilities include major resort hotels, several country clubs, several golf courses and Lake Cahuilla Regional Park. The La Quinta Arts Festival is held annually in March. The Bob Hope Chrysler Classic is a nationally acclaimed golfing event which is held yearly in the City. 54 148 (This Page Left Intentionally Blank) 149 APPENDIX A DEFINITIONS 150 (This Page Left Intentionally Blank) 151 DEFINITIONS The following are definitions of certain terms contained in the Indenture and/or the Loan Agreement and used in this Official Statement. Aggqcy means the La Quinta Redevelopment Agency, a public body corporate and politic duly organized and existing under the Law. Alternative Reserve Account Security means one or more letters of credit, Surety Bond or bond insurance policies, for the benefit of the Trustee in substitution for or in place of all or any portion of the Reserve Requirement. Annual Debt Service means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, assuming that the Outstanding term Bonds are redeemed from mandatory sinking fund payments as scheduled and (b) the principal. amount of the Outstanding Term Bonds scheduled to be paid or redeemed from mandatory sinking fund payments in such Bond Year. Authorized Representative means the Executive Director of the Agency or such other person designated in writing by the Chairman of the Agency. Average Annual Debt Service means the amount determined by dividing the sum of all Annual Debt Service amounts due in each of the Bond Years following the date of such calculation by the number of such Bond Years. Bond or Bonds means the La Quinta Financing Authority, Local Agency Revenue Bonds, 2004 Series A and, if the context requires, any Parity Debt, authorized by and at any time Outstanding pursuant to the Indenture and any Supplemental Indenture. Bond Counsel means an attorney or firm of attorneys acceptable to the Agency of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America or the District of Columbia. Bond Insurer or Ambac Assurance means Ambac Assurance Corporation, a Wisconsin - domiciled stock insurance company, or any successor thereto. Bondowner or Owner of Bonds, or any similar term, means any person who shall be the registered owner or his duly authorized attorney, trustee or representative. For the purpose of Bondowners' voting rights or consents, Bonds owned by or held for the account of the Agency shall not be counted. Bond Year means any twelve-month period beginning on September 2 in any year and extending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shall commence on the Closing Date and end on September 1, 2004. Business Day means a day of the year on which banks in Los Angeles, California, are not required or permitted to be closed and on which the Federal Reserve System is not closed. Chair means the chair of the Agency appointed pursuant to Section 33113 of the Health and Safety Code of the State of California, or other duly appointed officer of the Agency authorized by the Agency by resolution or bylaw to perform the functions of the chairman in the event of the chairman's absence or disqualification. A-1 152 Ci1y means the City of La Quinta, California. Closing Date means the date on which the Bonds are delivered by the Agency to the original purchaser thereof. Code means the Internal Revenue Code of 1986, as amended and any regulations, rulings, judicial decisions, and notices, announcements and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it, or any applicable regulations adopted under the Internal Revenue Code of 1954, as amended. Computation Year means the period beginning on the Closing Date and ending on August 31, 2004 and each August 31 thereafter until there are no longer any Bonds Outstanding. Continuing Disclosure Agreement means the agreement by that name of the Agency dated the Closing Date and any amendment or supplement thereto. Costs of Issuance means the costs and expenses incurred in connection with the issuance and sale of the Bonds, including, but not limited to, any rating agency fees, recording fees, Financial Guaranty Insurance Policy premiums, Alternative Reserve Account Security premiums, the acceptance and initial annual fees and expenses of the Trustee, legal fees and expenses, costs of printing the Bonds and Official Statement, fees of financial consultants and other fees and expenses set forth in a Written Certificate of the Agency to be paid from the Costs of Issuance Account of the Redevelopment Fund. Coupmeans the County of Riverside, a county duly organized and existing under the laws of the State. Debt Service means the scheduled amount of interest and amortization of principal payable on the Bonds and on any Parity Debt during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. Depository means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to the Indenture. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Federal Securities means any noncallable, direct general obligations of the United States - of America, the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America. Financial Guaranty Insurance Policy means the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein. Fiscal Year means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other twelve-month period selected and designated by the Agency to the Trustee in writing as its official fiscal year period. Indenture means the Indenture of Trust, dated as of June 1, 2004, by and between the Authority and the Trustee, as originally entered into or as it may be amended or supplemented by any Supplemental Indenture entered into pursuant to the provisions thereof. A-2 153 Independent Financial Consultant, Independent Engineer, Independent Certified Public Accountant or Independent Redevelopment Consultant means any individual or firm engaged in the profession involved, appointed by the Agency, and who, or each of whom, has a favorable reputation in the field in which his opinion or certificate will be given, and: (a) is in fact independent and not under domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. Information Services means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, loth Floor, Jersey City, New Jersey 07202, Attention: Editor; Kenny Information Services' "Called Bond Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's Investors Service "Municipal and Government," 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Called Bond Department; Standard & Poor's Corporation "Called Bond Record," 55 Water Street, New York, New York 10041; 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 the redemption of bonds as the Agency may designate in a Request of the Agency delivered to the Trustee. Interest Payment Date means March 1 and September 1 in each year commencing September 1, 2004 so long as any of the Bonds remain Outstanding under the Indenture. Investment Agreement means the unconditional obligation of one or more banks, insurance companies or other financial institutions with a long -tern unsecured debt rating of "A" or better by Standard & Poor's or Moody's (or a claims -paying rating of "A" by Standard & Poor's or Moody's) as of the date of execution thereof, providing for the investment of moneys held under the Indenture. Each Investment Agreement must be reviewed and approved by Standard & Poor's or Moody's, as the case may be, and must at all times provide for payments to the Trustee which, together with all then scheduled payments and payments under other Permitted Investments, are sufficient in time and amount to permit the delivery of a cash flow certificate meeting the requirements of the definition thereof; provided that any Investment Agreement also: (i) shall contain a provision for collateralization at a level acceptable to Standard & Poor's or Moody's, as the case may be, and (ii) shall clearly state the exact rating requirements to be maintained with respect thereto. Extensions of the term of an Investment Agreement shall not require the consent of the Owners of the Bonds. The Agency shall not withdraw moneys from an Investment Agreement in a manner or at a time which would result in it having to pay a breakage or withdrawal penalty thereunder unless such fee is paid from the Redevelopment Fund or the Agency has delivered to the Trustee a cash flow certificate which assumes that such withdrawal has been made and such penalty has been paid. JPA Law means the provisions of Articles 1 through 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State, as amended. Law means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto. Maximum Annual Debt Service means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the interest payable A-3 154 on the Outstanding Bonds and any Parity Debt in such Bond Year, assuming that Outstanding serial Bonds are retired as scheduled and that any Outstanding Term Bonds are redeemed from mandatory sinking fund payments as scheduled, (b) the principal amount of Outstanding Bonds and any parity Debt payable by their terms in such Bond Year, and (c) the principal amount of any Outstanding Term Bonds scheduled to be redeemed from mandatory sinking fund payments in such Bond Year. If any proceeds of outstanding Parity Debt shall be on deposit in an escrow fund from which amounts may not be released to the Agency unless the amount of Pledged Tax Revenues for the most recent Fiscal Year (as evidenced in a written document from an appropriate official of the County), at least equals 130% of the amount of Maximum Annual Debt Service, which would result if the amount on deposit in such escrow fund were to be released to the Agency from such escrow fund in accordance with the terms of the related Supplemental Indenture, then for purposes of calculating Maximum Annual Debt Service, the Annual Debt Service on such Parity Debt shall be determined as if the amounts then on deposit in the escrow fund were withdrawn therefrom and applied to pay or redeem such Parity Debt in accordance with the terms of the related Supplemental Indenture. Mood s or Moody's Investors Service means Moody's Investors Service, Inc., New York, New York, and its successors and assigns. Nominee means (a) initially, Cede & Co., as nominee of DTC, and (b) any other nominee of the Depository designated pursuant to the Indenture. Opinion of Counsel means a written opinion of an attorney or firm of attorneys of favorable reputation in the field of municipal bond law. Any opinion of such counsel may be based upon, insofar as it is related to factual matters, information which is in the possession of the Agency as shown by a certificate or opinion of, or representation by, an officer or officers of the Agency, unless such counsel knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which his or her opinion may be based, as aforesaid, is erroneous. Outstanding, when used as of any particular time with reference to Bonds, means subject to the provisions of the Indenture, all Bonds except: (a) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds paid or deemed to have been paid pursuant to the Indenture; and . (c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant to the Indenture or any Supplemental Indenture. Owner means, with respect to any Bond, the person in whose name the ownership of such Bond shall be registered on the Registration Books. Partly Debt means any additional tax allocation bonds (including, without limitation, bonds, notes, interim certificates, debentures or other obligations) issued by the Agency as permitted by the Indenture which are on a parity with the Bonds. Participating Underwriter shall have the meaning ascribed thereto in the applicable Continuing Disclosure Certificate. Paying Agent means any paying agent appointed by the Agency pursuant to the Indenture. A-4 155 Permitted Investments means any of the following: A. The following obligations may be used as Permitted Investments for all purposes, including defeasance investments in refunding escrow accounts. (1) Cash (insured at all times by the Federal Deposit Insurance Corporation); (2) Obligations of, or obligations guaranteed as to principal and interest by the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including: • U.S. treasury obligations • All direct or fully guaranteed obligations • Farmers Home Administration • General Services Administration • Guaranteed Title XI financing • Government National Mortgage Association (GNMA) • State and Local Government Series (3) Obligations of Government -Sponsored Agencies that are not backed by the full faith and credit of the U.S. Government: • Federal Home Loan Mortgage Corp. (FHLMC) Debt obligations • Farm Credit System (formerly: Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives) • Federal Home Loan Banks (FHL Banks) • Federal National Mortgage Association (FNMA) Debt obligations • Financing Corp. (FICO) Debt obligations • Resolution Funding Corp. (REFCORP) Debt obligations • U.S. Agency for International Development (U.S.A.I.D.) Guaranteed notes Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). U.S.A.I.D. securities must mature at least four business days before the appropriate payment date. B. The following obligations to be used as Permitted Investments for all purposes other than defeasance investments in refunding escrow accounts. (1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: Export -Import Bank, Rural Economic Community Development Administration, U.S. Maritime Administration, Small Business Administration, U.S. Department of Housing & Urban Development (PHAs), Federal Housing Administration and Federal Financing Bank; (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States A-5 156 of America: senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC), obligations of the Resolution Funding Corporation (REFCORP), senior debt obligations of the Federal Home Loan Bank System and senior debt obligations of other Government Sponsored Agencies approved by the Bond Insurer; (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "A-1" or "A-1+" by S&P and "P-1" by Moody's and maturing no more than 360 calendar days after the date of purchase (Ratings on holding companies are not considered as the rating of the bank); (4) Commercial paper which is rated at the time of purchase in the single highest classification, "A-1+" by S&P and "P-1" by Moody's and which matures not more than 270 calendar days after the date of purchase; (5) Investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P; (6) Pre -refunded Municipal Obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice, and (A) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of S&P or Moody's or any successors thereto; or (B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (7) Municipal obligations rated "Aaa/AAA" or general obligations of states with a rating of at least "A2/A" or higher by both Moody's and S&P; (8) Investment agreements approved in writing by the Bond Insurer (supported by appropriate opinions of counsel); and (9) Other forms of investments (including_ repurchase agreements) approved in writing by the Bond Insurer. A-6 157 C. The value of the above investments shall be determined as of the end of each month as follows: (1) For securities: (a) the closing bid price quoted by Interactive Data Systems, Inc.; or (b) a valuation performed by a nationally recognized and accepted pricing service acceptable to the Bond Insurer whose valuation method consists of the composite average of various bid price quotes on the valuation date; or (c) the lower of two dealer bids on the valuation date. The dealers or their parent holding companies must be rated at least investment grade by Moody's and S&P and must be market makers in the securities being valued. (2) As to certificates of deposit and bankers' acceptances: the face amount thereof, plus accrued interest; and (3) As to any investment not specified above: the value thereof established by prior agreement between the Agency, the Trustee and the Bond Insurer. . Plan Limits means the limitation contained in the Redevelopment Plans as to the number of dollars of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plans, as such limitation may be required by, or pursuant to, the Law. Pledged Tax Revenues means the Housing Set -Aside Amount. Project Areas means the territory within Project Area No. 1 and Project Area No. 2, as described in the Redevelopment Plans. Qualified Sure Bond means an insurance policy or surety bond issued by a company licensed to issue an insurance policy or surety, the claims -paying ability of which is rated in the highest rating category by A.M. Best & Company (if rated by such), Standard & Poor's and Moody's. Rating Categories means any one of the investment grade rating categories (without regard to plus or minus signs or other numerical or qualifying designation) of Standard & Poor's and Moody's, or their respective successors or assigns. Rebate Regulations means the final, proposed and temporary Treasury Regulations promulgated under Section 148(f) of the Code. Record Date means, with respect to any Interest Payment Date, the close of business on the fifteenth (15th) calendar day of the month preceding such Interest Payment Date, whether or not such fifteenth (15th) calendar day is a Business Day. Redevelopment Plans means the Redevelopment Plan for the project designated as the "La Quinta Redevelopment Project Area No. 1," adopted and approved by Ordinance No. 43, which became effective on December 29, 1983 and the Redevelopment Plan for the project designated as the "La Quinta Redevelopment Project No. 2" adopted and approved by Ordinance A-7 158 No. 139, which became effective on June 15, 1989, together with any amendments duly enacted pursuant to the Law. Redevelopment Project Areas, Redevelopment Projects, or Project Areas means the project areas defined and described in the Redevelopment Plans. Report means a document in writing signed by an Independent Financial Consultant and including: (a) A statement that the person or firm making or giving such Report has read the pertinent provisions of the Indenture to which such Report relates; (b) A brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) A statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. Reserve Requirement means, with respect to the Bonds, including any Parity Debt, an amount equal to the least of (i) ten percent (10%) of the proceeds of the Bonds, including any Parity Debt, (ii) Maximum Annual Debt Service, or (iii) 125% of Average Annual Debt Service. Revenues means the Pledged Tax Revenues together with all other moneys held by the Trustee in any Fund or Account and the interest earnings thereon. Securities Depositories means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax (516) 2274039 or 4190; Midwest Securities Trust Company, Capital Structures -Call Notification, 440 South La Salle Street, Chicago, Illinois 60605, Fax (312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Fax (215) 496-5058; and, in accordance with the current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Agency may designate in a Written Request of the Agency delivered to the Trustee. Six -Month Period shall mean the period of time beginning on the Closing Date and ending six months thereafter, and each six-month period thereafter until the latest maturity date of the Bonds (and any obligations that refund the Bonds). SLGS means U.S. Treasury Securities State and Local Government Series. Standard & Poor's or S&P means Standard & Poor's Ratings Services, New York, New York, and its successors and assigns. State means the State of California. Subordinate Debt means any loans, advances or indebtedness issued or incurred by the Agency pursuant to the Indenture, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Pledged Tax Revenues; or (b) secured by a pledge of or lien upon the Pledged Tax Revenues which is subordinate to the pledge of and lien upon the Pledged Tax Revenues for the security of the Bonds and the Parity Debt. Supplemental Indenture or supplemental indenture means any indenture then in full force and effect which has been duly entered into by the Agency under the Law, or any act A-8 159 supplementary thereto and amendatory thereof, at a meeting of the Agency duly convened and held, at which a quorum was present and acted thereon, amendatory of or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder. Surety Bond means the surety bond issued by the Bond Insurer guaranteeing certain payments into the Reserve Fund as provided therein and subject to the limitations set forth therein. Tax Revenues means that portion of taxes levied upon taxable property in the Project Areas and received by the Agency on or after the date of issue of the Bonds for the Project Areas of the Agency pursuant to Article 6 of Chapter 6 of the Law and Section 16 of Article XVI of the Constitution of the State of California, or pursuant to other applicable State laws, and as provided in the Redevelopment Plans, and (to the extent permitted by law) all payments, subventions and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations. Term Bonds means the Bonds maturing in the year 2008, 2024, 2029 and 2034. Treasurer or Treasurer of the Agency means the officer who is then performing the functions of Treasurer of the Agency. Trustee means U.S. Bank National Association, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Indenture. Trust Office means such corporate trust office of the Trustee as may be designated from time to time by written notice from the Trustee to the Agency, initially being Los Angeles, California, except that with respect to presentation of Bonds for payment of, registration. of, transfer, and exchange, such term shall mean the office of the Trustee in St. Paul, Minnesota or such other office designated by the Trustee. Written Request of the Agency or Written Certificate of the Agency means a request or certificate, in writing signed by the Executive Director, Deputy Executive Director, Secretary or Treasurer of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose. A-9 160 (This Page Left Intentionally Blank) 161 APPENDIX B REDEVELOPMENT FISCAL CONSULTANT'S TAX INCREMENT PROJECTIONS 162 (This Page Left Intentionally Blank) 163 APPENDIX C SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY 164 (This Page Left Intentionally Blank) 165 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by and among the La Quinta Redevelopment Agency (the "Agency"), the La Quinta Financing Authority (the "Authority"), and U.S. Bank Trust National Association, a national banking association, duly authorized to accept the duties of the Dissemination Agent herein set forth (the "Dissemination Agent'), in connection with the issuance by the Authority of its $ La Quinta Financing Authority, Local Agency Revenue Bonds, 2004 Series A (the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust, dated as of June 1, 2004 between the Agency and U.S. Bank Trust National Association, as Trustee (the "Indenture") by and between the Authority and the Trustee. The Agency and the Dissemination Agent covenant and agree as follows: Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Authority, the Agency and the Dissemination Agent for the benefit of the holders and beneficial owners of the Bonds in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in the Disclosure Agreement, unless otherwise defined, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Dissemination Agent" shall mean U.S. Bank Trust National Association, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Trustee a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Currently, the following are National Repositories: Bloomberg Municipal Repositories P.O. Box 840 Princeton, NJ 08542-0840 (609) 279-3200 FAX (609) 279-5962 E-mail: Munis@Bloomberg.com 124/015610-0073 498750.02 a05/14/04 166 Kenny Information Systems, Inc. Attn: Xenny Repository Service 65 Broadway, 16th Floor New York, NY 10006 (212) 770-4595 FAX (212) 797-7994 DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 (201) 346-0701 FAX (201) 947-0107 E-mail: nrmsir@dpcdata.com Thomson NRMSIR Attn: Municipal Disclosure 395 Hudson Street - 3rd Floor New York, NY 10014 Phone: (212) 807-5001 or (800) 689-8466 Fax: (212) 989-2078 E-mail: Disclosure c@Muller.com "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this 0 3ifleNre Agreement, there is no State Repository. Section 3. Provisions of Annual Reports. (a) The Agency shall, or shall cause the Dissemination Agent to, not later than seven (7) months after the end of the Agency's fiscal year (which date currently would be January 31, 2005, based upon the June 30 end of the Agency's fiscal year), commencing with the report for the 2003-2004 fiscal year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the 124/015610-0073 -2- 498750.02 a05/14/04 167 audited financial statements of the Agency may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. The Dissemination Agent (if other than the Agency) shall have no duty to review or approve the content of the Annual Report, or any part thereof. If the Agency's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the Agency is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Agency shall send a notice on or before such date to the Municipal Securities Rulemaking Board and to the appropriate State Repository (if any) in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the Agency, and if, and to the extent it can confirm such filing of the Annual Report, file a report with the Agency certifying that the Annual Report has been provided to the Repositories pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The Agency's Annual Report shall contain or incorporate by reference the following: (a) Audited Financial Statements prepared in accordance with generally accepted auditing standards as promulgated to apply to governmental entities from time to time by the California State Controllers office. If the Agency's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed and provided to the Repositories in the same manner as the Annual Report when they become available. (b) The following financial information and operating data set forth in the final Official Statement: (i) Ten largest property tax payers in the Project Area, including name, assessed valuation and percent of total assessed valuation substantially the format set forth under the caption "Largest Local Secured Taxpayers" of the Official Statement; (ii) Annual assessed valuations, tax increment values, Pledged Tax Revenues (as defined in the Indenture) and ratio of Pledged Tax Revenues to debt service on Bonds, in substantially the formats of the tables set forth under the captions "PLEDGED TAX REVENUES - Historical. Tax Revenues" and "Projected Pledged Tax Revenues and Debt Service Coverage" of the Official Statement. 124/015610-0073 498750.02 a05/14/04 -3- 168 (iii) Discussion of any property tax appeals, which, either alone or in the aggregate could have greater than a 10% adverse effect on Pledged Tax Revenues. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the - following events with respect to the Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform under the terms of the credit enhancement or the obligation to provide liquidity. the security. Bonds. (vi) Adverse tax opinions or events affecting the tax-exempt status of (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the (xi) Rating changes. (b) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall as soon as possible determine if such event would be material under applicable Federal securities law. The Dissemination Agent shall have no responsibility for such determination and shall be entitled to conclusively rely on the Agency's determination. 124/015610-0073 498750.02 a05/14/04 -4- 169 (c) If the Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Agency shall promptly file a notice of such occurrence with the Municipal Services Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Indenture. Section 6. Termination of Reporting _ Obligation. The Agency's and the Dissemination Agent's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. (a) The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Agency pursuant to this Disclosure Agreement. The Agency may replace the Dissemination Agent with or without cause. If at any time there is no designated Dissemination Agent appointed by the Agency, or if the Dissemination Agent so appointed is unwilling or unable to perform the duties of Dissemination Agent hereunder, the Agency shall be the Dissemination Agent and undertake or assume its obligations hereunder. Any company succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. The Dissemination Agent may resign its duties hereunder at any time upon written notice to the Agency, which resignation shall be effective upon receipt of such notice with or without the appointment of a successor Dissemination Agent. (b) The Dissemination Agent shall be paid compensation by the Agency for its services provided hereunder and for reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder in accordance with its schedule of fees agreed to between the Dissemination Agent and the Agency from time to time. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the Agency hereunder and, when acting in the capacity of Dissemination Agent hereunder, shall not be deemed to be acting in any fiduciary capacity for the Agency, holders or beneficial owners of the Bonds, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any written direction from the Agency or an opinion of nationally recognized bond counsel. Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Agency may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: 124/015610-0073 _ 5 498750.02 a05/14/04 170 (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 not, in the opinion of nationally recognized bond counsel, have violated the requirements of the Rule had the amendment or waiver been in effect 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 Indenture for amendments to the Indenture 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. 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 Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in the Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Agency shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default.. In the event of a failure of the Agency to comply with any provision of this Disclosure Agreement, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, 124/015610-0073 _6_ 498750.02 a05/14/04 171 including seeking mandate or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Agency to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. All of the immunities, indemnities, and exceptions from liability in Article IX of the Indenture insofar as they relate to the Trustee shall apply to the Trustee and the Dissemination Agent in this Disclosure Agreement. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and shall have no liability to the Agency for performance or failure to perform its duties hereunder, other than for its own negligence or willful misconduct. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any written direction from the Agency or an opinion of nationally recognized bond counsel. The obligations and rights of the parties under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Agency, the Trustee or Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Agency, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. [SIGNATURES ON NEXT PAGE] 124/015610-0073 498750.02 a05/14/04 172 Dated: June 1, 2004 LA QUINTA REDEVELOPMENT AGENCY m Executive Director LA QUINTA FINANCING AUTHORITY Bv: Executive Director U.S. BANK TRUST NATIONAL ASSOCIATION, as Dissemination Agent 0 Authorized Signatory 124/015610-0073 498750.02 a05/14/04 173 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD [AND (Add name of State Repository, if any)] OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: La Quinta Financing Authority Name of Bond Issue: $ La Quinta Financing Authority Local Agency Revenue Bonds, 2004 Series A Date of Issuance: June _, 2004 NOTICE IS HEREBY GIVEN that the La Quinta Redevelopment Financing Authority (the "Issuer") has not provided an Annual Report with respect to the above -named Bonds as required by the Indenture of Trust, dated as of May 1, 2004, and a First Supplemental Indenture of Trust, dated as of May 1, 2004, both by and between the Issuer and U.S. Bank Trust National Association, as trustee. The Issuer anticipates that the Annual Report will be filed by Dated: 72004 cc: U.S. Bank Trust National Association 550 South Hope Street, Suite 500 Los Angeles, CA 90071 LA QUINTA REDEVELOPMENT AGENCY By: Title: LA QUINTA FINANCING AUTHORITY By: Title: 124/015610-0073 A-1 498750.02 a05/14/04 1,74