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Tab_C-2NEW ISSUE - FULL BOOK-ENTRY Rating: S&P: "A-" (See "RATIN " herein) In the opinion of Orrick, Herrington Sutcliffe LLP, Bond Counsel to the Commission, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2010A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2010A Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2010A Bonds. See "TAX MATTERS" herein. $11,015,000* ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION (LOS AN ELES COUNTY, CALIFORNIA) ROSEMEAD MER ED PROJECT AREA TAX ALLOCATION BONDS, SERIES 2010A Dated: Date of Delivery Due: December 1, as shown on inside cover THIS COVER PA E CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY, IT IS NOT A SUMMARY OF ALL OF THE PROVISIONS OF THE SERIES 2010A BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKIN OF AN INFORMED INVESTMENT DECISION. The Series 2010A Bonds will be issued in denominations of $5,000 or any integral multiple thereof as shown on the inside cover page of this Official Statement. Interest on the Series 2010A Bonds is payable on June 1 and December 1 of each year, commencing December 1, 2010. The Series 2010A Bonds will be payable from and secured by Pledged Revenues, as defined in the Indenture, dated as of June 1, 2010 (the "Indenture"), by and between the Commission and U.S. Bank National Association, as trustee (the "Trustee"). The Series 2010A Bonds will be issued in book-entry form, without coupons, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC" Purchasers of the Series 2010A Bonds will not receive physical certificates from the Commission representing their interests in the Series 2010A Bonds purchased. DTC will act as securities depository for the Series 2010A Bonds. The principal of and interest on the Series 2010A Bonds will be payable directly to DTC by U.S. Bank National Association, Los Angeles, California, as Trustee. Upon receipt of payments of such principal and interest, DTC is obligated to remit such principal and interest to the participants in DTC for subsequent disbursement to the beneficial owners of the Series 2010A Bonds. The Series 2010A Bonds are being issued by the Rosemead Community Development Commission (the "Commission") to provide funds to: (1) finance the costs of certain redevelopment projects within the Merged Project Area (as defined herein), including certain infrastructure improvements, the acquisition of land and improvements; (2) fund the Reserve Account for the Series 2010A Bonds, and (3) pay costs of issuance related to the Series 2010A Bonds. See "PLAN OF FINANCE" herein. The Series 2010A Bonds are subject to optional and mandatory redemption as described herein. The Series 2010A Bonds are limited obligations of the Commission and are payable, as to interest thereon and principal thereof, exclusively from the Pledged Revenues, and the Commission is not obligated to pay them except from the Pledged Revenues. All of the Series 2010A Bonds are equally secured by a pledge of, and charge and lien upon, all of the Pledged Revenues, and the Pledged Revenues constitute a trust fund for the security and payment of the interest on and the principal of the Series 2010A Bonds. The Series 2010A Bonds are not a debt of the City of Rosemead, the State of California or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable therefor, nor in any event will the Series 2010A Bonds be payable out of any funds or properties other than those of the Commission. The Series 2010A Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory limitation or restriction, and neither the members of the Commission nor any persons executing the Series 2010A Bonds are liable personally on the Series 2010A Bonds by reason of their issuance. For a discussion of some of the risks associated with the purchase of the Series 2010A Bonds, see "RISK FACTORS" herein. Legal matters incident to the issuance and sale of the Series 2010A Bonds are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel to the Commission. As Bond Counsel, Orrick, Herrington & Sutcliffe LLP undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the Commission in connection with the Series 2010A Bonds by Burke, Williams & Sorensen, LLP, Los Angeles, California, as counsel to the Commission, and by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Stradling Yocca Carlson & Routh, a Professional Corporation, Newport Beach, California. The Commission anticipates that the Series 2010A Bonds, in book entry form, will be available for delivery to DTC in New York, New York on or about July 2010. Dated: 2010 * Preliminary, subject to change. Maturity (December 1) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019 2020 2021 2022 2023 MATURITY SCHEDULE SERIES 2010A BONDS BASE CUSIPt $ Serial Bonds Interest CUSIP Amount Rate Yield Numbert CUSIP data, copyright 2010, American Bankers Association. CUSIP data herein are provided for convenience of reference only. Neither the Commission nor the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers set forth above. ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Gary A. Taylor, Chairperson Steven Ly, Vice Chairperson Sandra Armenta Margaret Clark Polly Low CITY/COMMISSION STAFF Jeff Allred City Manager and Executive Director of the Commission Matthew E. Hawkesworth Assistant City Manager Steve Brisco Director of Finance Gloria Molleda City Clerk Special Services U.S. Bank National Association Trustee Orrick, Herrington & Sutcliffe LLP Bond Counsel and Disclosure Counsel Burke, Williams & Sorensen, LLP Commission's Counsel Urban Futures, Inc. Fiscal Consultant NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OR SALE OF THE SERIES 2010A BONDS, OTHER THAN AS CONTAINED IN THIS OFFICIAL STATEMENT, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMMISSION, THE CITY OR THE UNDERWRITER. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE DESCRIBED ON THE INSIDE COVER PAGE OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOR WILL THERE BE ANY SALE OF THE SERIES 2010A BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OR SALE. THE OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE SERIES 2010A BONDS. Statements contained in this Official Statement which involve time estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been furnished by the Commission, the City, or other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Commission, the City or the Underwriter. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Commission or the City since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement is submitted in connection with the sale of securities referred to herein and may not be reproduced or be used, as a whole or in part, for any other purpose. IN CONNECTION WITH THE OFFERING OF THE SERIES 2010A BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2010A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER TO SELL THE SERIES 2010A BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE SERIES 2010A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE SERIES 2010A BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS Page INTRODUCTORY STATEMENT ...................................................................................................................1 The Series 2010A Bonds I The Commission and the Rosemead Merged Project Area 2 Sources of Payment and Security for the Bonds 2 Tax Allocation Financing 4 Tax Exemption 4 Continuing Disclosure 4 Additional Information 4 PLAN OF FINANCE 5 ESTIMATED SOURCES AND USES OF FUNDS 6 THE SERIES 2010A BONDS 6 Description of the Series 2010A Bonds 6 DTC and Book-Entry Only System 7 Redemption 7 Notice of Redemption 8 DEBT SERVICE SCHEDULES FOR THE BONDS 9 SECURITY FOR THE SERIES 2010A BONDS 9 Pledge and Allocation of Taxes 9 Reserve Account 13 Issuance of Additional Bonds 15 Series 2010A Bonds Not a Debt of the City or the State 16 Limitation on Issuance of Senior Bonds 17 RISK FACTORS 17 Real Estate and General Economic Risks 17 Reduction in Assessed Value 17 Assessment Appeals 18 Risks Related to Current Market Conditions 19 Foreclosures in the Merged Project Area 19 Reduction in Inflationary Rate 20 Real Estate and General Economic Risks 20 State Budget Deficit and Its Impact on Component Tax Revenues 20 Proposition IA 22 Limited Obligations 23 Hazardous Substances 23 Certain Bankruptcy Risks 23 Secondary Market 23 Loss of Tax Exemption 24 Risk of Earthquake 24 Teeter Plan 24 Concentration of Land Ownership 24 TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT 25 Introduction 25 Property Tax Rate and Appropriation Limitations 25 Unitary Property 26 Property Tax Administrative Costs 27 i TABLE OF CONTENTS (continued) Page Property Tax Collection Procedures 27 Plan Limitations 28 Low and Moderate Income Housing Fund 30 Assembly Bill 1290 31 Pass-Through Arrangements 31 Proposition 218 31 Future Initiatives 32 THE COMMISSION 32 Organization 32 Powers 32 THE MERGED PROJECT AREA 33 Merged Project Area Description 33 Project Area Description 33 Assessed Values 34 Project Status 36 Controls, Land Use and Building Restrictions 37 Largest Secured Taxpayers 37 TAX INCREMENT REVENUES 38 Projected Tax Revenues 40 Debt Service and Estimated Coverage 44 CERTAIN INFORMATION CONCERNING THE CITY 46 FINANCIAL STATEMENTS 46 THE AUTHORITY 46 CERTAIN LEGAL MATTERS 46 TAX MATTERS 46 LITIGATION 48 RATING 49 UNDERWRITING 49 MISCELLANEOUS 49 APPENDIX A - FISCAL CONSULTANT'S REPORT ................................................................................A-1 APPENDIX B - SUPPLEMENTAL INFORMATION CONCERNING THE CITY OF ROSEMEAD...... B-1 APPENDIX C - AUDITED FINANCIAL STATEMENTS OF THE COMMISSION FOR THE FISCAL YEAR ENDED JUNE 30, 2009 C-1 APPENDIX D - DEFINITIONS AND SUMMARY OF INDENTURE .......................................................D-1 APPENDIX E - FORM OF OPINION OF BOND COUNSEL E-1 APPENDIX F - DTC AND BOOK-ENTRY ONLY SYSTEM F-1 APPENDIX G - FORM OF CONTINUING DISCLOSURE AGREEMENT ..............................................G-1 ii OFFICIAL STATEMENT $11,015,000` ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION (LOS ANGELES COUNTY, CALIFORNIA) ROSEMEAD MERGED PROJECT AREA TAX ALLOCATION BONDS, SERIES 2010A INTRODUCTORY STATEMENT This Official Statement, including the cover page, the inside cover page and appendices hereto, is provided to furnish information regarding the Commission's $11,015,000* aggregate principal amount of Rosemead Merged Project Area Tax Allocation Bonds, Series 2010A (the "Series 2010A Bonds"). The Series 2010A Bonds are to be issued by the Rosemead Community Development Commission (the "Commission"). The Series 2010A Bonds will be payable from and secured by Pledged Revenues, as defined in the Indenture, dated as of June 1, 2010 (the "Indenture"), by and between the Commission and U.S. Bank National Association, as trustee (the "Trustee"). Within the Merged Project Area, the Commission has two component project areas: (1) the redevelopment project area formerly designated as the Commission's "Project Area No. 1" described in the redevelopment plan approved and adopted by Ordinance No. 340, adopted by the City Council of the City on June 27, 1972 (the "Project Area No. 1 Component"); and (2) the redevelopment project area formerly designated as the Commission's "Project Area No. 2" described in the redevelopment plan approved and adopted by Ordinance No. 809, adopted by the City Council of the City on June 27, 2000 (the "Project Area No. 2 Component"). By Ordinance No. 871 adopted by the City Council on February 10, 2009, the City Council adopted a merger amendment, merging the Redevelopment Plans for the Project Area No. 1 Component and the Project Area No. 2 Component (as merged, the "Merged Project Area"). The 2010A Bonds are being issued for sale to the Rosemead Financing Authority (the "Authority") pursuant to the Marks-Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code (the "JPA Law"). See "THE AUTHORITY" below. The 2010A Bonds purchased by the Authority will be resold concurrently to E. J. De La Rosa & Co., Inc. (the "Underwriter"). See "UNDERWRITING." The Series 2010A Bonds The Series 2010A Bonds are being issued pursuant to the Constitution and the laws of the State of California (the "State"), including the California Community Redevelopment Law (Part 1, commencing with Section 33000 of Division 24 of the Health and Safety Code of the State (the "Redevelopment Law"). Additionally, the Series 2010A Bonds are being issued pursuant to a Resolution adopted by the Commission on June 22, 2010, and pursuant to and secured by the Indenture. See "SECURITY FOR THE SERIES 2010A BONDS" herein. The Series 2010A Bonds are being issued by the Commission to provide funds to: (1) finance the costs of certain redevelopment projects within the Merged Project Area (as defined herein), including certain infrastructure improvements, the acquisition of land and improvements; (2) fund the Reserve Account for the Series 2010A Bonds, and (3) pay costs of issuance related to the Series 2010A Bonds. See "PLAN OF FINANCE" herein. * Preliminary, subject to change. The Commission and the Rosemead Merged Project Area The Commission. The Rosemead Community Development Commission, formerly known as the Rosemead Redevelopment Agency, was activated in 1972 by City ordinance. The City Council Members serve as the Members of the Commission. The Commission is a separate public body which plans and implements projects in accordance with the requirements of the Redevelopment Law. The Commission has two component project areas, the Project Area No. 1 Component and the Project Area No. 2 Component. By Ordinance No. 871 adopted by the City Council on February 10, 2009, the City Council adopted a merger amendment, merging the Redevelopment Plans for the Project Area No. 1 Component and the Project Area No. 2 Component, creating the Merged Project Area. Redevelopment Project Area No. I Component. The Project Area No. 1 Component is a contiguous area of about 511 acres and is roughly triangular with Garvey Avenue, San Gabriel Boulevard and Walnut Grove Avenue being the major thoroughfares traversing the area. The Project Area No. 1 Component is within a few miles of the City's Civic Center and is located between the San Bernardino and Pomona Freeways to the north and south, respectively. On March 9, 2006 the Commission issued $14,005,000 aggregate principal amount of Redevelopment Project Area No. 1 Tax Allocation Bonds, Series 2006A (the "Series 2006A Bonds"). On December 21, 2006 the Commission issued $24,230,000 aggregate principal amount of Redevelopment Project Area No. 1 Tax Allocation Refunding Bonds, Series 2006B (the "Series 2006B Bonds" and, together with the Series 2006A Bonds, the "Series 2006 Bonds") $34,490,000 of which are currently outstanding. The Series 2006A Bonds and the Series 2006B Bonds are payable from and secured by a lien and charge upon Pledged Tax Revenues (as defined herein) under the Indenture, dated as of October 1, 1993, as supplemented (the Senior Bond Indenture as defined herein), by and between the Commission and U.S. Bank National Association, as successor in interest to State Street Bank and Trust Company of California, N.A., as trustee (the Senior Bond Trustee herein). The Senior Bond Indenture permits the issuance of parity bonds for the purposes of refunding purposes only. See "SECURITY FOR THE SERIES 2010A BONDS - Limitation on Issuance of Senior Bonds." The Series 2006 Bonds and any such additional parity bonds are collectively referred to as the "Senior Bonds." Payments of debt service on the Series 2010A Bonds to the extent payable from Project Area No. 1 Component Tax Revenues (as defined herein) are subordinate to payments on the Senior Bonds. The Senior Bonds do not have a pledge of, or lien on, Project Area No. 2 Component Tax Revenues or any Subsidy Payments(each as defined herein). Redevelopment Project Area No. 2 Component. The Project Area No. 2 Component is a contiguous area of about 205 acres and encompasses Valley Boulevard from the eastern and western boundaries of the City and Rosemead Boulevard from the southern and northern boundaries of the City. There are currently no tax increment bonds outstanding payable from tax increment revenues of the Project Area No. 2 Component. Sources of Payment and Security for the Bonds The Commission has previously issued its Series 2006 Bonds in two series payable from Pledged Tax Revenues under the Senior Bond Indenture. As defined in the Senior Bond Indenture, the term "Pledged Tax Revenues" means, for each Fiscal Year, the taxes (including, except to the extent limited by law, all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Commission pursuant to the Redevelopment Law in connection with the Project Area No. 1 Component, excluding (a) amounts, if any, required to be deposited by the Commission in the Housing Fund and used for certain housing purposes, provided, however, that such amounts shall not be excluded if and to the extent that the Commission makes such amounts available as Pledged Tax Revenues, (b) amounts, if any, payable pursuant to the County Agreement, but only to the extent such amounts are not subordinated to the payment of debt service on the Bonds, (c) amounts, if any, payable pursuant to Section 33607.5 of the Redevelopment Law, but only to the extent such amounts are not subordinated to the payment of debt service on the Bonds and (d) amount, if any, received by the Commission pursuant to Section 16111 of the Government Code, as provided in the Redevelopment Plan for the Project Area No. 1. Pursuant to the Senior Bond Indenture, the term "Housing Fund" means the Low and Moderate Income Housing Fund, established pursuant to Section 33334.3 of the Redevelopment Law with respect to the Project Area No. 1 Component and held by the Commission. As described in detail herein, the Bonds are payable from and secured by Pledged Revenues, as defined in the Indenture. All the Pledged Revenues and all money in the Revenue Fund, to be established under the Indenture, and in the funds or accounts so specified and provided for in the Indenture (except the Rebate Fund), will be irrevocably pledged to the punctual payment of the interest on and principal of and redemption premiums, if any, on the Bonds, and the Pledged Revenues and such other money shall not be used for any other purpose while any of the Bonds remain Outstanding; subject to the provisions of the Indenture permitting application thereof for the purposes and on the terms and conditions set forth in the Indenture. This pledge shall constitute a first and exclusive lien on the Pledged Revenues and such other money for the payment of the Bonds in accordance with the terms thereof. See "SECURITY FOR THE SERIES 2010A BONDS" herein. Pursuant to the Indenture, the term "Pledged Revenues" means Combined Component Tax Revenues and Subsidy Payments; provided that to the extent legally available, Project Area No. 1 Component Tax Revenues shall be applied to the payment of the principal of and interest on Bonds issued hereunder prior to the use of any other Pledged Revenues. The term "Combined Component Tax Revenues" means Project Area No. 1 Component Tax Revenues and Project Area No. 2 Component Tax Revenues. As defined in the Indenture, the term "Surplus Tax Revenues" means all of the Tax Revenues released from the pledge and lien of the Senior Bond Indenture in accordance with the terms of the Senior Bond Indenture. Surplus Tax Revenues also includes Tax Revenues which may be required by the Law to be set aside for certain housing purposes, if such amounts may be lawfully made available as Tax Revenues. The Senior Bond Indenture secures payments on the Senior Bonds. The term "Project Area No. 1 Component Tax Revenues" means Surplus Tax Revenues derived from the Project Area No. 1 Component. Payments of debt service on the Series 2010A Bonds to the extent payable from Project Area No. 1 Component Tax Revenues are subordinate to payments on the Senior Bonds. The term "Project Area No. 2 Component Tax Revenues" means Tax Revenues derived from the Project Area No. 2 Component. The term "Tax Revenues" means, for each Bond Year, the taxes (including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Commission pursuant to the Law in connection with the Project Area as provided in the Redevelopment Plan (excluding to the extent there are any (i) amounts received by the Commission pursuant to Section 16111 of the Government Code; (ii) amounts payable pursuant to the County Agreement and (iii) amounts payable to taxing agencies pursuant to Section 33607.5 of the Law, except to the extent that such payments are subordinated pursuant to Subsection (e) of such Section 33607.5. "Tax Revenues" include amounts deposited by the Commission in the Housing Fund pursuant to Section 33334.2 or Section 33334.6 of the Law, as provided in the Redevelopment Plan, but only to the extent such amounts are used to pay principal or interest or other financing charges with respect to bonds or other obligations issued to increase, improve or preserve the supply of low and moderate income housing within or of benefit to the Project Area. The term "Housing Fund" means the Low and Moderate Income Housing Fund established pursuant to Section 33334.3 of the Law and held by the Commission. Tax Allocation Financing Pursuant to the Redevelopment Law, a portion of all property tax revenues, including certain reimbursements by the State of California, collected by or for each taxing agency on any increase in the taxable value of certain property within each redevelopment project over that shown on the assessment rolls for the base year applicable to each such redevelopment project may be pledged to the repayment of indebtedness incurred by the Commission in connection with project redevelopment. Under the Indenture, the Commission has pledged to the payment of the principal of, premium, if any, and interest on the Series 2010A Bonds certain tax increment revenues consisting solely of Pledged Revenues. See "SECURITY FOR THE SERIES 2010A BONDS" herein. Certain events, including any future decrease in the taxable valuation in the Merged Project Area or in the applicable tax rates or increased delinquencies in the payment of property taxes within the Merged Project Area may reduce tax increment allocated to and received by the Commission, and correspondingly may adversely impact the ability of the Commission to pay debt service on the Series 2010A Bonds. See "RISK FACTORS" herein. Tax Exemption For a summary of the opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Special Counsel, see "TAX MATTERS" herein. Continuing Disclosure The Commission has covenanted for the benefit of owners of the Series 2010A Bonds to provide, so long as the Series 2010A Bonds are outstanding, certain financial information and operating data relating to the Commission by not later than 270 days following the end of the Commission's fiscal year (which is currently June 30), commencing March 31, 2011, for the 2009-10 fiscal year report (the "Annual Report") and to provide notices of the occurrences of certain enumerated events, if material. These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5). The Commission has never failed to comply in all material respects with any continuing disclosure undertakings with regard to Rule 15c2-12(b)(5) to provide annual reports or notices of material events. The specific nature of the information to be contained in the Annual Report or the notices of material events by the Commission is set forth in APPENDIX G - "FORM OF CONTINUING DISCLOSURE AGREEMENT." Additional Information There follows in this Official Statement brief descriptions of the Series 2010A Bonds, the security for the Series 2010A Bonds, the Indenture, the Senior Bond Indenture, the Commission, the Merged Project Area, and certain other information relevant to the issuance of the Series 2010A Bonds. All references herein to the Indenture are qualified in their entirety by reference to the definitive form thereof and all references to the Series 2010A Bonds are further qualified by references to the information with respect thereto contained in the Indenture. Selected information regarding the City of Rosemead and the County of Los Angeles is included in Appendix B. A copy of the Audited Financial Statements of the Commission for the Fiscal Year ended June 30, 2009 is included in Appendix C. Definitions and a summary of certain provisions of the Indenture are included in Appendix D. The proposed form of legal opinion for the Series 2010A Bonds is set forth in Appendix E. Certain information relating to DTC and the book-entry only system is included in Appendix F. The proposed form of Continuing Disclosure Agreement is included in Appendix G. All capitalized terms used herein and not normally capitalized have the meanings assigned to them in the Indenture, as applicable, unless otherwise stated in this Official Statement. The information set forth herein and in the Appendices hereto has been furnished by the Commission and includes information which has been obtained from 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 by the Underwriter. Copies of the Indenture and the Commission's audited financial statements regarding the Merged Project Area for the Fiscal Year ended June 30, 2009, are available upon request of the Commission. The Commission's address and telephone number for such purpose are as follows: 8838 East Valley Boulevard, P.O. Box 399, Rosemead, California 91770, Attn: City Manager. PLAN OF FINANCE The Series 2010A Bonds are being issued by the Commission to provide funds to: (1) finance the costs of certain redevelopment projects within the Merged Project Area (as defined herein), including certain infrastructure improvements, the acquisition of land and improvements; (2) fund the Reserve Account for the Series 2010A Bonds, and (3) pay costs of issuance related to the Series 2010A Bonds. Current projects include: Aquatic Center at Rosemead Park. The proposed renovation of Rosemead Pool will include demolition of the entire existing facility and construction of new pool, deck area, shade structure, covered bleachers, turf area, chemical and mechanical systems, and bath house. Design development is currently underway. The project is expected to take approximately six months to complete once design development is approved. Rosemead Community Center and Parking Lot Expansion. The proposed Rosemead Community Center and Parking Lot Expansion will include the creation of a civic center campus with increased and unified parking between City Hall, the library, and Rosemead Community Recreation Center, expanded pedestrian areas, landscape and lighting improvements, and a 2500 square foot expansion of the Rosemead Community Recreation Center to include offices, teen center, and community computer lab as well as roof/HVAC repairs. Only such portions of the project as allowable under Redevelopment Law will be charged to the Commission. City Park and Playground Facilities. To the extent that net proceeds of the 2010A Bonds are not applied to the projects above, the Commission has several proposed projects for the improvement, construction, renovation and equipping of existing park and playground facilities and equipment within the City including, without limitation, the installation of ADA accessible systems and safety surfacing, turf and grading improvements at existing facilities and the acquisition and development of a parcel currently owned by SCE as a neighborhood park to include turf and landscaped areas, playground, walking path, and benches. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds for the Series 2010A Bonds are as follows: ESTIMATED SOURCES AND USES OF FUNDS Sources of Funds: Principal Amount of Series 2010A Bonds (Less)/Plus Original Issue (Discount)/Premium TOTAL SOURCES OF FUNDS Uses of Funds: Deposit to Redevelopment Fund Deposit to Reserve Fund Deposit to Expense Fund(') TOTAL USES OF FUNDS Includes underwriter's discount, the fees and expenses of Bond Counsel and Disclosure Counsel, the Trustee (including counsel fees), the rating agencies, other costs incidental to the issuance of the Series 2010A Bonds, and the costs of printing. THE SERIES 2010A BONDS Description of the Series 2010A Bonds The Series 2010A Bonds will be dated, will bear interest at the annual rates and will mature, subject to prior redemption or acceleration, as shown on the inside cover page of this Official Statement. The Series 2010A Bonds will be issued in denominations of $5,000 or any integral multiple of $5,000 in excess thereof. Interest on the Series 2010A Bonds will be payable on June 1 and December 1 of each year (each an "Interest Payment Date"), commencing December 1, 2010. Principal and redemption premiums, if any, on the Series 2010A Bonds will be payable upon the surrender thereof at maturity or the earlier redemption thereof at the principal corporate trust office of the Trustee and will be paid in lawful money of the United States of America. Interest on the Series 2010A Bonds will be computed on the basis of a 360-day year of twelve 30-day months. The Series 2010A Bonds will bear interest from the Interest Payment Date next preceding the date of registration thereof, unless such date of registration is during the period from the 16th day of the month next preceding an Interest Payment Date to and including such Interest Payment Date, in which event they will bear interest from such Interest Payment Date, or unless such date of registration is on or before September 15, 2010, in which event they will bear interest from their Dated Date; provided, however, that if, at the time of registration of any Series 2010A Bond, interest is then in default on the outstanding Series 2010A Bonds, such Series 2010A Bond will bear interest from the Interest Payment Date to which interest previously has been paid or made available for payment on the outstanding Series 2010A Bonds. Payment of interest on the Series 2010A Bonds due on or before the maturity or prior redemption of such Series 2010A Bonds will be made to the person whose name appears on the bond registration books of the Trustee as the registered owner thereof, as of the close of business on the 15th day of the month next preceding the Interest Payment Date, such interest to be paid by check mailed on the Interest Payment Date by first class mail to such registered owner at his address as it appears on such books or, upon written request received by the Trustee prior to the 15th day of the month preceding an Interest Payment Date of an Owner of at least $1,000,000 in aggregate principal amount of Series 2010A Bonds, by wire transfer in immediately available funds to an account within the continental United States designated by such Owner. DTC and Book-Entry Only System DTC will act as securities depository for the Series 2010A Bonds. The Series 2010A Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully registered certificate will be issued for each series and for each year in which the Series 2010A Bonds mature in denominations equal to the aggregate principal amount of the Series 2010A Bonds of each series maturing in that year, and will be deposited with DTC. So long as Cede & Co. is the registered owner of the Series 2010A Bonds, as nominee of DTC, references herein to the owners of the Series 2010A Bonds or Bondowners means Cede & Co. and does not mean the actual purchasers of the Series 2010A Bonds (the "Beneficial Owners"). See APPENDIX F - "DTC AND BOOK-ENTRY ONLY SYSTEM," herein, for a further description of DTC and its book-entry system. Redemption Optional Redemption. The Series 2010A Bonds due on or before December 1, 20 are not subject to redemption prior to their respective stated maturities. Series 2010A Bonds maturing on or after December 1, 20__ are be subject to redemption prior to their respective maturities at the option of the Commission on or after December 1, 20, as a whole on any date, or in part (in such amounts and maturities as are designated to the Trustee by the Commission no later than 45 days prior to the redemption date or, if the Commission fails to designate such maturities, on a proportional basis among maturities) on any date, from funds derived by the Commission from any source, at the principal amount of Series 2010A Bonds called for redemption), together with interest accrued thereon to the date fixed for redemption. Mandatory Sinking Account Redemption. The Series 2010A Bonds maturing on December 1, 20 are also subject to mandatory redemption in part by lot in each year, commencing December 1, 20, from Sinking Account Installments deposited in the Sinking Account, at the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts and in the respective years as set forth in the following table: Sinking Payment Date Principal Amount to (December 1) be Redeemed 20 Final Maturity. In each case, if some but not all of such Term Series 2010A Bonds have been redeemed pursuant to other redemption provisions of the Indenture, the total amount of all future Sinking Account payments set forth above shall be reduced by the aggregate principal amount of such Term Series 2010A Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Commission Selection of Bonds for Redemption. Whenever less than all the Outstanding Bonds maturing on any one date are called for redemption at any one time, the Trustee shall select the Bonds to be redeemed, from the Outstanding Bonds maturing on such date not previously selected for redemption, by lot in any manner which the Trustee deems appropriate; provided, however, that if less than all the Outstanding Term Bonds of any maturity are called for redemption at any one time, the Commission shall specify a reduction in any Sinking Account Installment payments required to be made with respect to such Bonds (in an amount equal to the amount of Outstanding Term Bonds to be redeemed) which, to the extent practicable and based upon a Consultant's Report, results in approximately equal annual debt service on the Bonds Outstanding following such redemption. Purchase in Lieu of Redemption. In lieu of redemption of any Term Bond, amounts on deposit in the Special Fund or in the Sinking Account therein may also be used and withdrawn by the Trustee at any time, upon the Request of the Commission, for the purchase of such Term Bonds at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as the Commission may in its discretion determine, but not in excess of the principal amount thereof plus accrued interest to the purchase date. The principal amount of any Term Bonds so purchased by the Trustee in any twelve-month period ending 60 days prior to any Principal Payment Date in any year shall be credited towards and shall reduce the principal amount of such Term Bonds required to be redeemed on such Principal Payment Date in such year. Notice of Redemption So long as DTC is acting as securities depository for the Series 2010A Bonds, notice of redemption, containing the information required by the Indenture, will be mailed by first class mail, postage prepaid, by the Trustee to DTC (not to the Beneficial Owners of any Series 2010A Bonds designated for redemption) at least 30 days but not more than 60 days prior to the redemption date. If less than all of the Series 2010A 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. Each notice of redemption will state the date of such notice, the Bonds to be redeemed, the date of issue of such Bonds, the redemption date, the redemption price, the place or places of redemption (including the name and appropriate address or addresses), the CUSIP number (if any) of the maturity or maturities, and, if less than all of any such maturity are to be redeemed, the distinctive certificate numbers of the Bonds of such maturity to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on said date there will become due and payable on each of such Bonds the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon will cease to accrue, and will require that such Bonds be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Failure by the Trustee to give notice pursuant to above to any one or more of the Information Services or Securities Depositories, or the insufficiency of any such notice will not affect the sufficiency of the proceedings for redemption. The failure of any Owner to receive any redemption notice mailed to such Owner and any defect in the notice so mailed will not affect the sufficiency of the proceedings for redemption. The Commission will have the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption will be canceled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Series 2010A Bonds then called for redemption, and such cancellation will not constitute an Event of Default under the Indenture. The Commission and the Trustee will have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee will mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent. From and after the date fixed for redemption, if notice of such redemption shall have been duly given and funds available for the payment of such redemption price of the Bonds so called for redemption shall have been duly provided, no interest shall accrue on such Series 2010A Bonds from and after the redemption date specified in such notice. DEBT SERVICE SCHEDULES FOR THE BONDS Set forth below is the principal and interest on the Series 2010A Bonds and Series 2006A Bonds and Series 2006B Bonds as of the date of issuance of the Series 2010A Bonds. DEBT SERVICE ON THE BONDS` Series Series Series Series 2006 Bonds 2010A Bonds 2010A Bonds 2010A Bonds Total Year Total Principal Interest Total Debt Service 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Total * Amounts are rounded to the nearest whole dollar. As such, totals might not foot. Source: Rosemead Community Development Commission and E. J. De La Rosa & Co., Inc., as Underwriter of the Series 2010A Bonds. SECURITY FOR THE SERIES 2010A BONDS Pledge and Allocation of Taxes Under provisions of the California Constitution and the Redevelopment Law, taxes levied upon taxable property in the Merged Project Area each year by or for the benefit of the State of California, any city, county, city and county or other public corporation ("taxing agencies") for Fiscal Years beginning after the effective date of the ordinance approving the redevelopment plan for the Merged Project Area (the "Effective Date"), are divided as follows: 1. The portion equal to the amount of those taxes which would have been produced by the current tax rate, applied to the assessed value of the taxable property in the Merged Project Area as last equalized prior to the Effective Date is paid (when collected) into the funds of those respective taxing agencies as taxes by or for such taxing agencies; 2. Except as provided in subparagraph (3) below, that portion of such levied taxes each year in excess of such amount is allocated to and when collected paid into a special fund of the Commission, to the extent required to pay the principal of and interest on loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed or otherwise) incurred by the Commission to finance or refinance, in whole or in part, (1) the Commission's redevelopment projects within the Merged Project Area and (2) under certain circumstances, publicly owned improvements outside of the Merged Project Area; and 3. That portion of the taxes identified in subparagraph (2) above that are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of principal of, and the interest on, any bonded indebtedness for the acquisition or improvement of real property approved by the voters of the taxing agency on or after January 1, 1989, will be allocated to, and when collected will be paid into, the fund of such taxing agency. The Bonds are payable from and secured by Pledged Revenues, as defined in the Indenture. The Indenture will establish a special fund to be known as the "Rosemead Community Development Commission, Rosemead Merged Project Area Pledged Revenue Account of the Special Fund" (the "Revenue Fund") which shall be held by the Commission. The Commission shall promptly deposit all of the Pledged Revenues received in any Bond Year in the Revenue Fund, until such time during such Bond Year as the amounts on deposit in the Revenue Fund equal the aggregate amounts required to be transferred to the Trustee for deposit into the Debt Service Fund in such Bond Year pursuant to the Indenture. All Pledged Revenues received by the Commission during any Bond Year in excess of the amount required to be deposited in the Revenue Fund during such Bond Year pursuant to the preceding sentence may be released from the pledge and lien under the Indenture. So long as any Bonds remain Outstanding under the Indenture, the Commission shall not have any beneficial interest in or right to the moneys on deposit in the Revenue Fund, except as may be provided in the Indenture. All the Pledged Revenues and all money in the Revenue Fund, to be established under the Indenture, and in the funds or accounts so specified and provided for in the Indenture (except the Rebate Fund), will be irrevocably pledged to the punctual payment of the interest on and principal of and redemption premiums, if any, on the Bonds, and the Pledged Revenues and such other money shall not be used for any other purpose while any of the Bonds remain Outstanding; subject to the provisions of the Indenture permitting application thereof for the purposes and on the terms and conditions set forth in the Indenture. This pledge shall constitute a first and exclusive lien on the Pledged Revenues and such other money for the payment of the Bonds in accordance with the terms thereof. All such Pledged Revenues deposited in the Special Fund shall be disbursed, allocated and applied solely to the uses and purposes set forth in the Indenture, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the Commission. As described above, the term "Pledged Revenues" means Combined Component Tax Revenues and Subsidy Payments; provided that to the extent legally available, Project Area No. 1 Component Tax Revenues shall be applied to the payment of the principal of and interest on Bonds issued hereunder prior to the use of any other Pledged Revenues. The term "Combined Component Tax Revenues" means Project Area No. 1 Component Tax Revenues and Project Area No. 2 Component Tax Revenues. 10 The Indenture establishes a special fund to be known as the "Rosemead Community Development Commission, Rosemead Merged Project Area, Tax Allocation Bonds Debt Service Fund" (the "Debt Service Fund") which shall be held by the Trustee. On or before five (5) days preceding each Interest Payment Date, the Commission shall transfer from the Revenue Fund to the Trustee for deposit in the Debt Service Fund an amount equal to the amount required to be transferred by the Trustee from the Debt Service Fund to the Interest Account, Principal Account, Sinking Account and Reserve Account pursuant to the Indenture; provided, that the Commission shall not be obligated to transfer to the Trustee in any Bond Year an amount of Pledged Revenues which, together with other available amounts then in the Debt Service Fund, exceeds the amounts required to be transferred to the Trustee for deposit in the Interest Account, the Principal Account, the Sinking Account and the Reserve Account in such Bond Year, pursuant to the Indenture. Pledged Revenues shall not be transferred to the Trustee for deposit in the Debt Service Fund in an amount in excess of that amount which, together with all money then on deposit with the Trustee in the Debt Service Fund and the accounts therein, shall be sufficient to discharge all Outstanding Bonds as provided in the Indenture. Notwithstanding the foregoing, there shall be irrevocably deposited with the Trustee on or prior to June 22, 2023 an amount equal to the principal and interest due with respect to Allocable Project Area No. 1 Debt Service due on December 1, 2023, which shall be held and invested by the Trustee in a manner such that such principal and interest shall be deemed to have been paid within the meaning of the Indenture. As provided in the Indenture, the Commission may not create or allow to exist any liens on Pledged Revenues senior to or on a parity with the Bonds except Additional Bonds as provided in the Indenture, or as otherwise approved by the Bond Insurer, if any. The Commission will not mortgage or otherwise encumber, pledge or place any charge upon any of the Pledged Revenues, except as provided in the Indenture, and will not issue any obligation or security superior to or on a parity with the Bonds payable in whole or in part from the Pledged Revenues (other than Additional Bonds); provided, however, that nothing in the Indenture is intended or shall be construed in any way to impair the authority of the Commission to issue bonds, including notes or other obligations or indebtedness on a parity with the Senior Bonds ("Additional Senior Bonds"), if following the issuance of such Additional Senior Bonds debt service on all then Outstanding Senior Bonds is reduced in each year and the final maturity date for the Senior Bonds is not extended. See "SECURITY FOR THE SERIES 2010A BONDS - Issuance of Additional Bonds." The County of Los Angeles (the "County") and the Commission entered into a certain agreement for reimbursement of tax increment funds with the County, the Consolidated Fire Protection District, and the County Public Library District pertaining to Component Area No. 1. The elements of the County Agreement include the following: (i) the Commission is to provide for a pass-through of a portion of its tax increment revenues received after July 1, 1988 for the Consolidated Fire Protection District; and (ii) the Commission is to allow an additional pass-through of tax increment revenues for the Los Angeles County Public Library District at such time that the Commission or the City constructs a replacement facility. Such pass-through payments are payable from tax increment revenues from Component Area No. 1 senior to the pledge and lien established pursuant to the Indenture and will not be available to the Commission to pay debt service on the Series 2010A Bonds. See the projections of Tax Revenues in Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A and Table 7 herein. The City and the Commission have no current plans to proceed with the construction of any replacement library facility. When the Commission extended the time frame to incur debt pursuant to California State Senate Bill ("SB") 211, it initiated statutory pass-throughs to all affected tax agencies that do not currently have tax sharing agreements. The general levy share of all agencies that do not currently possess tax-sharing agreements is approximately 83% of every $1.00 of property tax generated. Pursuant to SB 211, these pass-throughs may be subordinated to bond debt if the Commission makes the finding that the issuance of the debt will not impact the Commission's ability to make the statutory payments. Pursuant to Section 33607.5(e) of the Redevelopment Law, a redevelopment agency may subordinate the statutory pass through payments to bond debt service payments, if the agency provides substantial evidence to the affected taxing 11 entities that sufficient funds will be available to pay both the bond debt service and the statutory pass through payments. The Commission has provided such information to the affected taxing entities, and because the taxing entities have not provided a finding, based on substantial evidence, that the Commission will not be able to pay the debt service payments and the statutory pass through payments, the pass through payments to all affected taxing entities are deemed subordinate to bond debt service payments on the Series 2010A Bonds. The Commission has previously taken the steps to subordinate statutory pass through payments to debt service on its Series 2006A Bonds and Series 2006B Bonds. Affected taxing entities that may receive a share of statutory pass through payments include the City of Rosemead, County of Los Angeles, Los Angeles County Public Library District, Los Angeles County Flood Control District, Los Angeles County Sanitation District No. 15, Upper San Gabriel Valley Metropolitan Water District, Los Angeles County Office of Education (County School Services), Garvey School District, Rosemead School District, Alhambra Unified School District, El Monte School District, Los Angeles Community College District, Pasadena Community College District, and the Montebello School District. The Los Angeles County Fire District may receive statutory pass through payments in Component Area No. 2, but the Fire District is not eligible to receive statutory pass through payments from Component Area No. 1, as it currently receives pass through payments with respect to Component Area No. 1 pursuant to a Tax Sharing Agreement between the Commission, the County, the Consolidated Fire Protection District, and the County Public Library District. Although the County Public Library District is a party to the Tax Sharing Agreement, pursuant to the terms of the Tax Sharing Agreement the Library District is not currently receiving payments under the Tax Sharing Agreement, and the County and the Commission have agreed that the Library District is therefore eligible to receive statutory pass through payments from Component Area No. 1. Payments to the Fire District from Component Area No. 1 under the Tax Sharing Agreement are senior to bond debt service payments of the Commission (See Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A). The statutory pass-throughs to affected agencies began in the year 2004-05 at a rate of 25% of the tax increment growth net of the Housing Set-Aside Requirement with a base year of 2003-04. An increase in the amount of pass-through payments will begin in Fiscal Year 2014-15 at a rate of 21% of the tax increment growth net of the Housing Set-Aside Requirement with a base year of 2013-14. The County includes the unitary assessed values in its calculation of SB 211 pass-throughs. However, there is no consistent methodology among various counties within the State as to the calculation of SB 211 pass-throughs. For the purpose of the projections set forth herein, the City has calculated the pass-throughs based on the County's current methodology. The Commission has no power to levy and collect property taxes, and any legislative property tax de- emphasis or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate would, in all likelihood, reduce the amount of Pledged Revenues that would otherwise be available to pay the principal of, interest on and premium, if any, on the Series 2010A Bonds. Likewise, broadened property tax exemptions could have a similar effect. For a further description of factors which may result in decreased Pledged Revenues, see "RISK FACTORS" herein. The Series 2006 Bonds are payable from and secured by Pledged Tax Revenues, as defined in the Indenture, dated as of October 1, 1993 (the "Original Indenture"), by and between the Commission and U.S. Bank National Association, as successor in interest to State Street Bank and Trust Company of California, N.A., as trustee (the "Senior Bond Trustee"), as amended and supplemented to date, including by that Second Supplement to Indenture, dated as of December 1, 2006 (the "Second Supplement to Indenture," together 12 with the Original Indenture, the "Senior Bond Indenture"), by and between the Commission and the Senior Bond Trustee. As used herein, the term "Pledged Tax Revenues" means, for each Fiscal Year, the taxes (including, except to the extent limited by law, all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Commission pursuant to the Redevelopment Law in connection with the Project Area No. 1 Component, excluding (a) amounts, if any, required to be deposited by the Commission in the Housing Fund and used for certain housing purposes, provided, however, that such amounts shall not be excluded if and to the extent that the Commission makes such amounts available as Pledged Tax Revenues, (b) amounts, if any, payable pursuant to the County Agreement, but only to the extent such amounts are not subordinated to the payment of debt service on the Bonds, (c) amounts, if any, payable pursuant to Section 33607.5 of the Redevelopment Law, but only to the extent such amounts are not subordinated to the payment of debt service on the Bonds and (d) amount, if any, received by the Commission pursuant to Section 16111 of the Government Code, as provided in the Redevelopment Plan for the Redevelopment Project Area No. 1. Accordingly, the Senior Bonds have a pledge of, and lien on, Project Area No. 1 Component Tax Revenues senior to the 2010A Bonds and any Additional Bonds. The Senior Bonds do not have a pledge of, or lien on, Project Area No. 2 Component Tax Revenues or any Subsidy Payments. Reserve Account General. To further secure the payment of principal of and interest on the Series 2010A Bonds, the Commission is required to fund the Reserve Account established under the Indenture. The Reserve Account is a common reserve for Bonds at any time then Outstanding under the Indenture, presently including only the Series 2010A Bonds and any Additional Bonds to be issued in accordance with the Indenture. The following describes the Reserve Account provisions under the Indenture. Reserve Account Requirement. As defined in the Indenture, the Reserve Account Requirement for the Bonds means, as of any calculation date, an amount equal to the least of (i) ten percent (10%) of the proceeds (within the meaning of Section 148 of the Code) of each Series of Bonds Outstanding, (ii) 125% of Average Annual Debt Service of such Bonds or (iii) Maximum Annual Debt Service on all Outstanding Bonds. The Trustee shall set aside from the Debt Service Fund and deposit in the Reserve Account an amount of money (or other authorized deposit of security, as contemplated by the following paragraphs) equal to the Reserve Account Requirement. No deposit need be made in the Reserve Account so long as there shall be on deposit therein an amount equal to the Reserve Account Requirement. All money in (or available to) the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account, the Principal Account or the Sinking Account in such order, in the event of any deficiency at any time in any of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Bonds in the event that no other money of the Commission is lawfully available therefor, or for the retirement of all Bonds then Outstanding, except that for so long as the Commission is not in default under the Indenture, any amount in the Reserve Account in excess of the Reserve Account Requirement may, upon Written Request of the Commission, be withdrawn from the Reserve Account by the Trustee and transferred to the Commission. In lieu of making the Reserve Account Requirement deposit in the Reserve Account or in replacement of moneys then on deposit in the Reserve Account (which shall be transferred by the Trustee to the Commission upon delivery of a letter of credit satisfying the requirements stated below), the Commission, with the consent of the Bond Insurer, if any, and with prior written notification to S&P and Moody's, may deliver to the Trustee an irrevocable letter of credit issued by a financial institution having, at the time of such delivery, unsecured debt obligations rated in at least the second highest rating category (without respect to any modifier) of S&P and Moody's, in an amount, together with moneys, Authorized Investments or 13 insurance policies satisfying the requirements set forth in the Indenture on deposit in the Reserve Account, equal to the Reserve Account Requirement and consistent with the terms specified in the Indenture. Such letter of credit shall have a term of no less than three (3) years. The issuer of such letter of credit shall be required to notify the Trustee and the Commission whether or not the letter of credit will be extended no later than 13 months prior to the stated expiration date thereof. At least one year prior to the stated expiration of such letter of credit, the Commission shall either (i) deliver a replacement letter of credit, (ii) deliver an extension of the letter of credit for at least an additional year, or (iii) deliver to the Trustee an insurance policy satisfying the requirements set forth in the Indenture. Upon delivery of such replacement letter of credit, extended letter of credit, or insurance policy, the Trustee shall deliver the then effective letter of credit to or upon the order of the Commission. If the Commission shall fail to deposit a replacement letter of credit, extended letter of credit or insurance policy with the Trustee, the Commission shall immediately commence to make monthly deposits with the Trustee so that an amount equal to the Reserve Account Requirement is on deposit in the Reserve Account no later than the stated expiration date of the letter of credit. If the Commission shall fail to make such deposits, the Trustee shall draw on such letter of credit on or before 10 days prior to its stated expiration date in an amount necessary to replenish the Reserve Account to the Reserve Account Requirement. If a drawing is made on the letter of credit, the Commission shall make such payments as may be required by the terms of the letter of credit or any obligations related thereto (but no less than quarterly pro rata payments) so that the letter of credit shall, absent the delivery to the Trustee of an insurance policy satisfying the requirements set forth in the Indenture or the deposit in the Reserve Account of an amount sufficient to increase the balance in the Reserve Account to the Reserve Account Requirement, be reinstated in the amount of such drawing within one year of the date of such drawing. In lieu of making the Reserve Account Requirement in the Reserve Account or in replacement of moneys then on deposit in the Reserve Account (which shall be transferred by the Trustee to the Commission upon delivery of an insurance policy satisfying the requirements stated below), the Commission, with the consent of the Bond Insurer, if any, and with prior written notification to S&P and Moody's, may also deliver to the Trustee an insurance policy securing an amount, together with moneys, Authorized Investments or letters of credit satisfying the requirements set forth in the Indenture on deposit in the Reserve Account, no less than the Reserve Account Requirement, issued by an insurance company licensed to issue insurance policies guaranteeing the timely payment of debt service on the Bonds and whose unsecured debt obligations (or for which obligations secured by such insurance company's insurance policies), at the time of such delivery, are rated in the two highest rating categories (without respect to any modifier) of A.M. Best & Company, S&P and Moody's. If and to the extent that the Reserve Account has been funded with a combination of cash (or Authorized Investments) and a Qualified Reserve Instrument, then all such cash (or Authorized Investments) shall be completely used before any demand is made on such Qualified Reserve Instrument, and replenishment of the Qualified Reserve Instrument shall be made prior to any replenishment of any cash (or Authorized Investments). If the Reserve Account is funded, in whole or in part, with more than one Qualified Reserve Instrument, then any draws made against such Qualified Reserve Instrument shall be made pro rata. Funding of Series 2006 Bonds Reserve Account Requirement. The Reserve Account Requirement for the Series 2006 Bonds is funded at an amount equal to the Reserve Account Requirement under the Senior Bond Indenture. That amount of $2,466,292.52 has been funded in the aggregate, as provided in the Senior Bond Indenture, with a Reserve Surety Bond previously issued by Ambac Assurance Corporation ("Ambac") and cash in the amount of $1,171,362 currently on deposit therein. Ambac was recently rated "Caa2" by Moody's Investors Service, Inc. with a developing outlook and a "CC" by Standard & Poor's Ratings Services with a developing outlook. On March 25, 2010, Standard & Poor's Ratings Services revised its counterparty credit, financial strength, and financial enhancement ratings on Ambac to "R" from "CC" following a directive by the Commissioner of Insurance of the State of Wisconsin to Ambac to establish a segregated account for certain insured exposure, primarily policies related to credit derivatives, residential 14 mortgage-backed securities, and other structured finance transactions. Standard & Poor's noted that a plan for rehabilitation of the segregated account calls for cessation of claim payments on this exposure. On March 26, 2010, Moody's Investors Service lowered the rating of the senior unsecured debt of Ambac parent corporation, Ambac Financial Group Inc., to "C" from "Ca," and placed the "Caa2" insurance financial strength ratings of Ambac Assurance Corporation on review for possible upgrade. The Reserve Surety Bond is a Qualified Reserve Instrument as defined in the Senior Bond Indenture. The Reserve Account for the Series 2006 Bonds does not secure any payments of debt service on the Series 2010A Bonds. Issuance of Additional Bonds The Commission may at any time after the issuance and delivery of the Series 2010A Bonds issue Additional Bonds payable from Pledged Revenues and secured by a lien and charge upon Pledged Revenues equal to and on a parity with the lien and charge securing the Outstanding Bonds theretofore issued under the Indenture, but only subject to the specific conditions set forth in the Indenture, which are conditions precedent to the issuance of any such Additional Bonds: (1) The Commission will be in compliance with all covenants set forth in the Indenture and any Supplemental Indentures, and a Certificate of the Commission to that effect will have been filed with the Trustee. (2) The issuance of such Additional Bonds have been duly authorized pursuant to the Redevelopment Law and all applicable laws, and the issuance of such Additional Bonds has been provided for by a Supplemental Indenture duly adopted by the Commission which will contain certain matters set forth in the Indenture. (3) The Combined Component Tax Revenues based upon the Assessed Value of taxable property in the Project Area, as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date of the Commission's adoption of the Supplemental Indenture providing for the issuance of such Additional Bonds, shall be in an amount equal to at least 125% of the Maximum Annual Debt Service on all then Outstanding Bonds and such Additional Bonds; and, after June 22, 2013, Project Area No. 2 Component Tax Revenues based upon the Assessed Value of taxable property in the Project Area No. 2 Component, as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date of the Commission's adoption of the Supplemental Indenture providing for the issuance of such Additional Bonds, shall be in an amount equal to at least 125% of Maximum Annual Debt Service on all then Outstanding Project Area No. 2 Bonds and such Additional Bonds, for the current and each future Bond Year. For the purposes of the issuance of Additional Bonds, Outstanding Bonds will not include any Bonds the proceeds of which are deposited in an escrow fund held by an escrow agent, provided that the Supplemental Indenture authorizing issuance of such Additional Bonds will provide that: (a) such proceeds will be deposited or invested with or secured by an institution rated "AA" by S&P or "Aa" by Moody's (without regard to negative modifiers) at a rate of interest which, together with amounts made available by the Commission from bond proceeds or otherwise, is at least sufficient to pay Annual Debt Service on the foregoing Bonds; (B) moneys may be transferred from said escrow fund only if the above stated tests for the issuance of Additional Bonds are satisfied, in each case, for the current and each future Bond Year, for a principal amount of Bonds less a principal amount of Bonds which is equal to moneys on deposit in said escrow fund after each such transfer, as demonstrated to the Trustee in a certificate of an Independent Financial Consultant; and (C) Additional Bonds shall be redeemed from moneys remaining on deposit in said escrow fund at the expiration of a specified escrow period in such manner as may be determined by the Commission. 15 In the event such Additional Bonds are to be issued solely for the purpose of refunding and retiring any Outstanding Bonds, interest and principal payments on the Outstanding Bonds to be so refunded and retired from the proceeds of such Additional Bonds being issued will be excluded from the foregoing computation of Maximum Annual Debt Service. Nothing contained in the Indenture will limit the issuance of any tax allocation bonds of the Commission payable from Pledged Revenues and secured by a lien and charge on Pledged Revenues if, after the issuance and delivery of such tax allocation bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding nor will anything contained in the Indenture prohibit the issuance of any tax allocation bonds or other indebtedness by the Commission secured by a pledge of tax increment revenues (including Pledged Revenues) subordinate to the pledge of Pledged Revenues securing the Bonds. As used above, the term "Maximum Annual Debt Service" means the largest Annual Debt Service during the period from the date of such determination through the final maturity date of any Outstanding Bonds. The term "Annual Debt Service" means, for each Bond Year, the sum of (1) the interest falling due on the Outstanding Bonds in such Bond Year, assuming that all Outstanding Serial Bonds are retired as scheduled and that all Outstanding Term Bonds, if any, are redeemed from the Sinking Account, as may be scheduled (except to the extent that such interest is to be paid from the proceeds of sale of any Bonds), (2) the principal amount of the Outstanding Serial Bonds, if any, maturing by their terms in such Bond Year, and (3) the minimum amount of such Outstanding Term Bonds required to be paid or called and redeemed in such Bond Year. As provided in the Indenture, calculated Annual Debt Service shall be reduced by the amount of any Subsidy Payment made or to be made in connection with any Series of Bonds. The term "Subsidy Payments" means any payments by the federal government on account of the issuance of Build America Bonds pursuant to the federal American Recovery and Reinvestment Act of 2009 or any successor legislation, received by or on behalf of the Commission in connection with a debt service obligation of the Commission related to any Series of Bonds. In addition, under the Indenture, the Commission has covenanted with the Owners of all of the Bonds at any time Outstanding that it will not enter into any Agency Indebtedness (as defined below) or make any expenditure payable from taxes allocated to the Commission under the Redevelopment Law the payments of which, together with payments theretofore made or to be made with respect to other Agency Indebtedness (including, but not limited to the Bonds) previously entered into by the Commission, would exceed the then effective limit on the amount of taxes which can be allocated to the Commission pursuant to the Redevelopment Law and the Redevelopment Plan. As defined in the Indenture, the term "Agency Indebtedness" means any obligation the payment of which is to be made in whole or in part (but if in part, only to the extent of that part) out of taxes allocated to the Commission pursuant to Section 33670 of the Redevelopment Law. For purposes of determining compliance with the covenant contained in the Indenture the following assumptions shall apply: (i) the principal and interest remaining to be paid on Agency Indebtedness shall include only such amounts as are scheduled to be paid by the Commission pursuant to the terms of the loan or other form of agreement under which such Agency Indebtedness was incurred. Agency Indebtedness without a stated maturity shall be deemed to mature on the final maturity date of the Bonds; (ii) amounts scheduled to be paid by the Commission shall include regularly scheduled principal and interest payments, including, amounts payable pursuant to any mandatory redemption provision; and (iii) Agency Indebtedness bearing interest at a variable rate of interest shall be deemed to accrue interest at the lesser of the maximum rate specified or 12% per annum. Series 2010A Bonds Not a Debt of the City or the State The Series 2010A Bonds are limited obligations of the Commission and are payable, as to interest thereon and principal thereof, exclusively from the Pledged Revenues, and the Commission is not obligated to pay them except from the Pledged Revenues. All of the Series 2010A Bonds are equally secured by a pledge of, and charge and lien upon, all of the Pledged Revenues, and the Pledged Revenues constitute a trust fund 16 for the security and payment of the interest on and the principal of the Series 2010A Bonds. The Series 2010A Bonds are not a debt of the City of Rosemead, the State of California or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable therefor, nor in any event will the Series 2010A Bonds be payable out of any funds or properties other than those of the Commission. The Series 2010A Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory limitation or restriction, and neither the members of the Commission nor any persons executing the Series 2010A Bonds are liable personally on the Series 2010A Bonds by reason of their issuance. Limitation on issuance of Senior Bonds Except for the Senior Bonds, the Commission has agreed under the Indenture not to allow any liens on Tax Revenues senior to or on a parity with the Bonds except as provided in the Indenture. In furtherance thereof, the Commission has covenanted and agreed not issue any additional bonds or other obligations payable from Tax Revenues under the Senior Bond Indenture, and the lien of the Senior Bond Indenture shall be closed to the issuance of further debt; provided, however, that nothing in the Indenture is intended or shall be construed in any way to impair the authority of the Commission to issue bonds, including notes or other obligations or indebtedness on a parity with the Senior Bonds ("Additional Senior Bonds"), if following the issuance of such Additional Senior Bonds debt service on all then Outstanding Senior Bonds is reduced in each year and the final maturity date for the Senior Bonds is not extended. RISK FACTORS The following information should be considered by prospective investors in evaluating an investment in the Series 2010A Bonds. The following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Series 2010A Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Real Estate and General Economic Risks The Commission's ability to make payments on the Series 2010A Bonds will depend upon the economic strength of the Merged Project Area. The general economy of the Merged Project Area will be subject to all the risks generally associated with real estate and real estate development. Projected redevelopment of real property within the Merged Project Area by the Commission as well as private development in the Merged Project Area, may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development within the Merged Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control certain kinds of development. If development and redevelopment activities in the Merged Project Area encounter significant obstacles of the kind described herein or other impediments, the economy of the Merged Project Area could be adversely affected, causing reduction of the Pledged Revenues available to repay the Series 2010A Bonds. In addition, if there is a decline in the general economy of the region, the City or the Merged Project Area, the owners of property within the Merged Project Area may be less able or less willing to make timely payments of property taxes, causing a delay or stoppage of Pledged Revenues received by the Commission from the Merged Project Area. Reduction in Assessed Value Component Tax Revenues allocated to the Commission are determined in part by the amount by which the assessed valuation of property in the Merged Project Area exceeds the respective base year 17 assessed valuation for such property, as well as by the current rate at which property in the Merged Project Area is taxed. The Commission itself has no taxing power with respect to property, nor does it have the authority to affect the rate at which property is taxed. Assessed valuation of taxable property within the Merged Project Area may be reduced by economic factors beyond the control of the Commission or by substantial damage, destruction or condemnation of such property. At least three types of events that are beyond the control of the Commission could occur and cause a reduction in Component Tax Revenues, thereby impairing the ability of the Commission to make payments of principal and interest and premium (if any) when due on the Series 2010A Bonds on a timely basis. First, a reduction of the assessed valuation of taxable property in the Merged Project Area caused by economic factors or other factors beyond the Commission's control, such as relocation out of the Merged Project Area by one or more major property owners; successful appeals by property owners for a reduction in a property's assessed valuation; a reduction of the general inflationary rate (see "Reduction in Inflationary Rate" below); a reduction in transfers of property or construction activity; or the destruction of property caused by natural or other disasters (see "Risk of Earthquake" below); or other events that permit reassessment of property at lower values or could result in a reduction of tax increment revenues. These risks may be greater where, as here, the Merged Project Area has a high concentration of land ownership among major taxpayers. See Concentration of Land Ownership" below Second, substantial delinquencies in the payment of property taxes by the owners of taxable property within the Merged Project Area could impair the timely receipt by the Commission of Component Tax Revenues. See Exhibit F to the Fiscal Consultant's Report attached hereto as Appendix A and Foreclosures in the Merged Project Area" below. Third, the State electorate or legislature could adopt further limitations with the effect of reducing tax increment revenues. A limitation already exists under Article XIIIA of the California Constitution, which was adopted pursuant to the initiative process. The State electorate could adopt additional similar limitations with the effect of reducing Component Tax Revenues. For a further description of Article XIIIA, see "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Property Tax Rate and Appropriation Limitations" herein. To estimate the total revenues available to pay debt service on the Series 2010A Bonds, the Commission has made certain assumptions with regard to the availability of tax increment revenues. The Commission believes these assumptions to be reasonable, but to the extent tax increment revenues are less than anticipated, the total revenues available to pay debt service on the Series 2010A Bonds may be less than those projected herein. Unless mentioned herein, no independent third party has reviewed the estimates or assumptions made by the Commission. See "TAX INCREMENT REVENUES - Debt Service and Estimated Coverage" herein. Assessment Appeals Property taxable values may be reduced as a result of a successful appeal of the taxable value determined by the County Assessor. An appeal may result in a reduction to the County Assessor's original taxable value and a tax refund to the applicant property owner. At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A successful appeal of the base assessment value of a parcel has significant future revenue impacts, because a reduced base year assessment will reduce the compounded future value of the property prospectively. Except for the 2% inflation factor, 18 the base year value of the property cannot be increased until a change in ownership occurs or additional improvements are added. Proposition 8 Adjustments. Under Proposition 8, qualifying properties may be given a temporary reduction in their taxable value when property values decline. The Los Angeles County Assessor has been proactive in reviewing properties that may qualify for a reduction in assessed valuation, and allowed reductions for Fiscal Year 2009-10 for 333,870 properties county-wide out of 473,000 single-family residences and condominiums reviewed. The Commission does not anticipate that the County will make further Proposition 8 adjustments, as the reductions that have already been made for Fiscal Year 2009-10 were based on a review of sale transactions that went back as far as Fiscal Year 2003-04. Assessment Appeals. In Los Angeles 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 Los Angeles County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15th of such tax year. The Appeals Board, within two years of each applicant's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment. Current appeals pending in the Merged Project Area represent real property with a total assessed valuation of $40,013,355. Based on the actual valuation reductions allowed by the Appeals Board for property in the Merged Project Area over the last six years, the amount of the allowed reductions represented approximately 1.13% of the total assessed valuation of the properties that were the subject of the appeals. If the historical reduction percentage of 1.13% is applied to the total assessed valuation of the currently outstanding appeals, it is estimated that the resolution of the current appeals pending could result in a valuation reduction in the Project Area No. 1 Component of approximately $451,357, which could then result in a reduction to the gross tax increment revenue of approximately $4,514. This estimated amount has been deducted from the projections of Tax Revenues in Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A for Fiscal Year 2009-10. The Commission cannot predict whether any future appeals will be successful, or whether the number of appeals may increase in the Merged Project Area. Future reductions in taxable values in the Merged Project Area resulting from successful appeals by property owners will reduce the amount of Component Tax Revenues available to pay the principal of and interest on the Series 2010A Bonds. See "THE MERGED PROJECT AREA - Assessed Values" herein. Risks Related to Current Market Conditions Since 2002, the Southern California housing market has experienced significant price appreciation with accelerating demand. The price acceleration has been due, at least in part, to the use of creative financing options (e.g., adjustable rate mortgages, interest only payments) for individual home buyers. The use of creative financing options since 2002 was supported at least in part by historically low interest rates, which saw significant increases beginning in 2006. As a result, the Southern California housing market has weakened and a number of public home builders with significant operations in the Southern California housing market have reported in SEC filings slowing demand, significant increases in sales cancellation rates and increasing inventory build-ups (including increasing investor/speculator resale inventory). The commercial and industrial real estate markets have experienced some of the same pressures and impacts. The Commission cannot predict the outcome of this cycle or of any future market adjustments on property values in the Merged Project Area. Foreclosures in the Merged Project Area A summary of foreclosure activity in the Project Area No. 1 Component and the Project Area No. 2 Component is shown in Exhibit F to the Fiscal Consultant's Report attached hereto as Appendix A, based on information provided by DataQuick. Of the 1,362 parcels located within the Merged Project Area, in calendar 19 year 2009 there were 3 parcels that received a Notice of Default, and 1 parcel that was foreclosed on, for a total of 4 parcels with some form of foreclosure activity, which represents .3% of all parcels within the Merged Project Area. Reductions in assessed valuation of properties in the Merged Project Area, based on foreclosure activity, are assumed to be included in the adjustments for net property resale transactions. (See Exhibit I to the Fiscal Consultant's Report attached hereto as Appendix A). Reduction in Inflationary Rate As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. The California State Department of Finance has indicated that the California Consumer Price Index decreased from 226.572 in October 2008 to 226.035 in October 2009. Rounded to the nearest one-thousandth of 1 percent, this is a decrease of 0.237 percent. A factor of 1.00 represents no change to the existing base. Subtracting 0.00237 from 1.00 results in a factor of 0.99763, which reflects the 0.237 percentage decrease, indicating an inflation factor of 0.99763 for Fiscal Year 2010-11. Projected Component Tax Revenues to be received by the Commission are based, among other things, upon 2% inflationary increases. See the projections of Tax Revenues in Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A and Table 7 herein. Should the assessed valuation of taxable property in the Merged Project Area not increase at the projected annual rate of 2%, the Commission's receipt of future Component Tax Revenues may be adversely affected. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Property Tax Rate and Appropriation Limitations" herein. Real Estate and General Economic Risks The Commission's ability to make payments on the Bonds will depend upon the economic strength of the Merged Project Area. The general economy of the Merged Project Area will be subject to all the risks generally associated with real estate and real estate development. Projected redevelopment of real property within the Merged Project Area by the Commission as well as private development in the Merged Project Area, may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development within the Merged Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control certain kinds of development. If development and redevelopment activities in the Merged Project Area encounter significant obstacles of the kind described herein or other impediments, the economy of the Merged Project Area could be adversely affected, causing reduction of the Component Tax Revenues available to repay the Bonds. In addition, if there is a decline in the general economy of the region, the City or the Merged Project Area, the owners of property within the Merged Project Area may be less able or less willing to make timely payments of property taxes, causing a delay or stoppage of Component Tax Revenues received by the Commission from the Merged Project Area. State Budget Deficit and Its Impact on Component Tax Revenues In Fiscal Year 1993-94, the State Legislature authorized the reallocation of property tax revenues from redevelopment agencies, and multiple times thereafter, in an effort to assist the State in balancing its General Fund budget. Each time the State reallocates property tax revenues from redevelopment agencies, it reduces the amount of revenues that can use in the payment of debt service, such as the Commission's payment of debt service on the Bonds. Proposition IA (see "Proposition IA" below), which was approved by the California electorate in November 2004 placed restrictions in the State Constitution on the ability of the State Legislature to reallocate property tax revenues from local agencies, does not restrict or prevent the State Legislature from reallocating property tax revenues from redevelopment agencies, including the Commission. 20 In connection with its approval of its budget for the 1993-94 fiscal year, the State Legislature enacted Senate Bill 1135 which, among other things, reallocated approximately $65 million from redevelopment agencies to school districts by shifting approximately 5.675% of each agency's tax increment, net of amounts due to other taxing agencies, to school districts for the then current and next following fiscal years. The amount required to be transferred by a redevelopment agency to the county auditor for deposit in the Educational Revenue Augmentation Fund ERAF") under such legislation was apportioned among all of such county's redevelopment areas on a collective basis, and was not allocated separately to individual project areas. The amount of tax revenues which the Commission was required to pay under the legislation during the two-year period was approximately $175,000 for each of the 1993-94 and 1994-95 fiscal years. In connection with its approval of a budget for the 2002-03 fiscal year, the State Legislature enacted California State Assembly Bill ("AB") 1768, effective September 30, 2002, which included a one-time ERAF shift of $75 million from redevelopment agencies to school districts during the 2002-03 fiscal year in order to meet State budget deficits. Each agency's proportionate share of such amount was required to be transferred to the county auditor for deposit in the ERAF prior to May 10, 2003. The Commission's ERAF obligation for Fiscal Year 2002-03 was $122,487, which was paid to the County as required prior to such date. In connection with its approval of a budget for the 2003-04 fiscal year, the State Legislature enacted Senate Bill 1045, effective September 1, 2003, which again introduced a one-time ERAF shift and reallocated $135 million from redevelopment agencies to school districts during the 2003-04 fiscal year to meet ongoing State budget deficits. Each agency's proportionate share of such amount was required to be transferred to the county auditor for deposit in the ERAF prior to May 10, 2004. The Commission's ERAF obligation for the 2003-04 fiscal year was $207,391. Subsequent to Senate Bill 1045, the State Legislature adopted SB 1096 which established an ERAF shift of $250,000,000 for the 2004-05 and 2005-06 fiscal years to meet the ongoing State budget deficits. The Commission's ERAF obligation for the 2004-05 fiscal year was $342,811 and for the 2005-06 fiscal year was $356,094. The transfer of funds from redevelopment agencies to ERAF was established based on two criteria; 1) gross tax increment, and 2) available net revenues available after tax sharing payments. In 2006-07 and 2007- 08 the state budget did not require a transfer of tax increment to ERAF. As a result of the above transfers, agencies were able to extend their redevelopment plans and date to receive tax increment if they met certain criteria. In more recent years, the State is continuing to experience revenue shortfalls to meet its budget obligations. To address this shortfall of revenue, on July 28, 2009, the Governor signed ABX4-26 into law. ABX4-26 requires a $1.7 billion one year transfer, in the aggregate, from redevelopment agencies to their respective County Supplemental Educational Revenue Augmentation Fund ("SERAF") in 2009-10, plus another $350 million aggregate transfer in 2010-2011. A SERAF is similar to an ERAF, except that there is an additional requirement for the SERAF that moneys in the SERAFs must be used by school districts and county offices of education to serve pupils living in redevelopment areas or in housing supported by redevelopment agency funds. The Commission's 2009-10 SERAF payment was timely paid before its May 10, 2010 due date in the amount of $1,437,857. The Commission's 2010-11 SERAF payment is estimated to be $ 295,746, and is due by May 10, 2011. The Commission's 2009-10 SERAF payment was made from a combination of tax increment revenues and amounts on deposit in its Low-Moderate Income Housing Set-Aside Fund. As and if required, the Commission expects to make its 2010-11 SERAF payment from the same sources of funds. The 2009 SERAF Legislation imposes various restrictions on redevelopment agencies that fail to timely make the required SERAF payments, including (i) a prohibition on adding or expanding project areas, (ii) a prohibition on the incurrence of additional debt, (iii) limitations on the encumbrance and expenditure of 21 funds, including funds for operation and administration expenses, and (iv) commencing with the July 1 following the due date of a SERAF annual payment that is not timely made, a requirement that the applicable redevelopment agency allocate an additional five percent (5%) of all taxes that are allocated to the redevelopment agency under the Redevelopment Law for low and moderate income housing for the remainder of the time that the applicable redevelopment agency receives allocations of tax revenues under the Redevelopment Law. The five percent (5%) additional housing set-aside penalty provision referred to in the 2009 SERAF Legislation (the "Penalty Set-Aside Requirement") would be in addition to the twenty percent (20%) of such tax revenues already required to be used for low and moderate income housing purposes. A redevelopment agency that borrows from amounts required to be allocated to its housing set-aside funds or any moneys in such fund, or both, to make required SERAF payments, but does not timely repay the funds, may also be subject to the Penalty Set-Aside Requirement. The California Redevelopment Agency filed a lawsuit in Sacramento Superior Court to stop ABX4- 26. The lawsuit challenged the constitutionality of ABX4-26 and sought to prevent the State from taking redevelopment funds for non-redevelopment purposes. The lawsuit sought, among other relief a temporary stay on making SERAF payments. The Third District Court of Appeal denied the California Redevelopment Agency's request for a temporary stay and on May 4, 2010 rejected the claims of the California Redevelopment Agency and found that the $2.05 billion State take of redevelopment funds does not violate the Constitution. This action is the second lawsuit filed by California Redevelopment Agency. In April 2009, the Sacramento Superior Court ruled in favor of California Redevelopment Agency and invalidated 2008 budget language that would have shifted $350 million in redevelopment funds to the State. On September 28, the State dropped its appeal in the first case, making the April decision final and binding. Since the ERAF and SERAF shifts are subordinate to new and existing bond obligations, the ERAF and SERAF payments are not included in the projections of tax increment revenues herein. The Commission cannot predict whether State Legislature will enact any other legislation requiring additional or increased future shifts in tax increment revenues to the State and/or to schools, whether through an arrangement similar to ERAF and SERAF or by other arrangements, and, if so, the effect on future Component Tax Revenues. Given the level of the State of California's deficit problems, tax increment available for payment of Bonds could be substantially reduced in the future. Information about the State budget and State spending is available at various State-maintained websites. Text of the budget may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading, "California Budget." An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California official statements for its various debt obligations, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. Each of such websites is provided for general informational purposes only and the material on such sites is in no way incorporated into this Official Statement. Proposition 1A Proposition IA, a State ballot proposition, was approved on the November 2, 2004 ballot. Proposition IA prohibits the State from reducing local governments' property tax proceeds, and protects revenues collected by local governments (cities, counties, and special districts) from being transferred to the State government for statewide use. The provisions may be suspended if the Governor declares a fiscal necessity and two-thirds of the Legislature approves the suspension. Suspended funds must be repaid within three years. Proposition IA was first effective in 2006. 22 Limited Obligations The Series 2010A Bonds are limited obligations of the Commission and are payable, as to interest thereon and principal thereof, exclusively from the Pledged Revenues, and the Commission is not obligated to pay them except from the Pledged Revenues. All of the Series 2010A Bonds are equally secured by a pledge of, and charge and lien upon, all of the Pledged Revenues, and the Pledged Revenues constitute a trust fund for the security and payment of the interest on and the principal of the Series 2010A Bonds. The Series 2010A Bonds are not a debt of the City of Rosemead, the State of California or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable therefor, nor in any event will the Series 2010A Bonds be payable out of any funds or properties other than those of the Commission. The Series 2010A Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory limitation or restriction, and neither the members of the Commission nor any persons executing the Series 2010A Bonds are liable personally on the Series 2010A Bonds by reason of their issuance. Hazardous Substances An environmental condition that may result in the reduction in the assessed value of property would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the Merged Project Area. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the Merged Project Area be affected by a hazardous substance, could be to reduce the marketability and value of the property by the costs of remedying the condition. Certain Bankruptcy Risks The enforceability of the rights and remedies of the owners of the Series 2010A Bonds and the obligations of the Commission may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the Series 2010A Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights. Secondary Market There can be no guarantee that there will be a secondary market for the Series 2010A Bonds, or, if a secondary market exists, that such Series 2010A Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon the then prevailing circumstances. Such prices could be substantially different from the original purchase price. 23 Loss of Tax Exemption As discussed under the caption "TAX MATTERS" herein, interest on the Series 2010A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date such Series 2010A Bonds were issued as a result of future acts or omissions of the Commission in violation of its covenants contained in the Indenture. Should such an event of taxability occur, the Series 2010A Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity. Risk of Earthquake The City, like most regions in California, is an area of significant seismic activity and, therefor, is subject to potentially destructive earthquakes. The Los Angeles basin has experienced significant earthquakes in the past. Most recently in the vicinity of the Merged Project Area, on October 1, 1987, a 5.9 magnitude earthquake occurred on a previously unknown, concealed thrust fault approximately 11 miles east of downtown Los Angeles, California, approximately 6 miles southeast of Pasadena and approximately 1 mile southeast of the City. The earthquake resulted in eight fatalities and approximately $358 million in property damage. Severe damage was confined mainly to communities east of Los Angeles and near the epicenter in the City of Whittier. Significant structural damage to property within the Merged Project Area was reported and repairs were completed within one year of the earthquake. No severe structural damage to high-rise structures in downtown Los Angeles was reported. If an earthquake were to substantially damage or destroy taxable property within the Merged Project Area, the assessed valuation of such property would be reduced. Such a reduction of assessed valuations could result in a reduction of the Pledged Revenues that secure the Bonds, which in turn could impair the ability of the Commission to make payments of principal of and/or interest on the Bonds when due. Teeter Plan Certain counties in the State of California operate under a statutory program entitled Alternative Method of Distribution of Tax Levies and Collections and of Tax Sales Proceeds (the "Teeter Plan"). Under the Teeter Plan, local taxing entities receive 100% of their tax levies, net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the county. The County of Los Angeles has not adopted the Teeter Plan, and consequently the Teeter Plan is not available to local taxing entities within the County, such as the Commission. The Commission's receipt of property taxes is therefore subject to delinquencies in the Merged Project Area. Concentration of Land Ownership Based upon Fiscal Year 2009-10 assessed value data, approximately 26% of the total net secured assessed property value in the Merged Project Area is owned by the ten largest taxpayers. In addition, a substantial portion of Component Tax Revenues are derived from unitary property taxes. This is primarily because the headquarters of Southern California Edison are located within the Merged Project Area. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Unitary Property" herein. Reductions in Component Tax Revenues received by the Commission may result from declining tax rates, property tax administrative costs and refunds resulting from successful appeals of assessed values. The inability or unwillingness of such taxpayers to pay property taxes on their property in the Merged Project Area might have an adverse effect on the Commission's ability to repay the Series 2010A Bonds. In addition, as a result of the high concentration of land ownership in the Merged Project Area, decreases in the assessed value of one or more parcels of land may have a significant impact on the Component Tax Revenues. See "THE MERGED PROJECT AREA - Largest Secured Taxpayers" herein. 24 TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT Introduction The Redevelopment Law and the California Constitution provide a method for financing and refinancing redevelopment projects based upon an allocation of taxes collected within a project area. First, the assessed valuation of the taxable property in a project area last equalized prior to adoption of the redevelopment plan is established and becomes the base roll. Thereafter, except for any period during which the assessed valuation drops below the base year level, the taxing agencies on behalf of which taxes are levied on property within the project area will receive the taxes produced by the levy of the then current tax rate upon the base roll. Except as discussed in the following paragraph, taxes collected upon any increase in the assessed valuation of the taxable property in a project area over the levy upon the base roll may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing the redevelopment project. Redevelopment agencies themselves have no authority to levy taxes on property and must look specifically to the allocation of taxes produced as above indicated. The State Legislature placed on the ballot for the November 1988, general election Proposition No. 87 (Assembly Constitutional Amendment No. 56) pertaining to allocation of tax increment revenues. This measure, which was approved by the electorate, authorized the State Legislature to cause tax increment revenues attributable to certain increases in tax rates occurring after January 1, 1989, to be allocated to the entities on whose behalf such increased tax rates are levied rather than to the Commission, as would have been the case under prior law. The measure applies to tax rates levied to pay principal of and interest on general obligation bonds approved by the voters on or after January 1, 1989. AB 89 (Statutes of 1989, Chapter 250), which implements this Constitutional Amendment, became effective on January 1, 1990. The Commission's projection of tax revenues to be allocated to the Commission does not assume any increase in the tax rate applicable to properties within the Merged Project Area. Property Tax Rate and Appropriation Limitations Article X111A of State Constitution On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA to the California Constitution ("Article XIIIA"). Article XIIIA limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and (as a result of an amendment to Article X111A approved by California voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978, by two-thirds of the voters voting on such indebtedness. Article X111A 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." This full cash value may be increased at a rate not to exceed two percent per year to account for inflation. Article X111A has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in various other minor or technical ways. The Commission has no power to levy and collect taxes. Any further reduction in the tax rate or the implementation of any constitutional or legislative property tax de-emphasis will reduce tax increment 25 revenues, and, accordingly, would have an adverse impact on the ability of the Commission to pay debt service on the Series 2010A Bonds. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1978. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years. Article XIIIB of State Constitution An initiative to amend the California constitution entitled "Limitation of Government Appropriations," was approved on September 6, 1979, thereby adding Article XIIIB to the California Constitution ("Article XIIIB"). Under Article XIIIB, as amended, state and local governmental entities have an annual "appropriations limit" and are not permitted to spend certain moneys which are called "appropriations subject to limitation" (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the "appropriations limit." The State Legislature, by Statutes of 1980, Chapter 1342 enacted a provision of the Redevelopment Law (Health and Safety Code Section 33678) providing that the allocation and payment of taxes to an agency for the purpose of paying principal of or interest on loans, advances or indebtedness incurred for redevelopment activity as defined in the statute will not be deemed the receipt by the Commission of proceeds of taxes levied by or on behalf of an agency within the meaning or for the purpose of Article XIIIB of the State Constitution, nor will 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 purposes of Article XIIIB of the State Constitution or any statutory provision enacted in implementation of Article XIIIB. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988-89 fiscal year, will be allocated as follows: (1) each jurisdiction, including the Merged Project Area, will receive up to 102% of its prior year State-assessed revenue; and (2) if county-wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. To administer the allocation of unitary tax revenues to redevelopment agencies, the County no longer includes the taxable value of utilities as part of the reported taxable values of the project area, therefore, the base year of project areas have been reduced by the amount of utility value that existed originally in the base year. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the method of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. 26 Unitary tax revenues make up a substantial portion of the tax increment revenues received by the Commission. Unitary revenue of $1,237,273 from the Project Area No. 1 Component is included in Component Tax Revenues based on the amount of unitary revenues for Fiscal Year 2009-10, and is assumed to remain constant at that level for projection purposes through the last year that tax increment can be allocated to the Project Area No. 1 Component. This amount is reasonably consistent with the unitary revenue allocations made to the Commission in recent years. The relatively high amount of unitary revenues is attributable to Southern California Edison properties contained in the Project Area No. 1 Component. In March 2010, Southern California Edison purchased 270,000 square feet of additional office space for their operations in the City, an investment of $33,750,000. The Commission and City believe this significant investment represents a desire for Southern California Edison to remain in the City for the foreseeable future. However, it should be noted that unitary revenues allocated to the Commission come from several sources and are allocated based on the statutory method described above and do not reflect the current unitary assessed value within the Project Area No. 1 Component particularly or the Merged Project Area. For purposes of projection, it is assumed herein that unitary tax revenue will continue to be allocated in similar amounts over the life of the Merged Project Area, and that unitary tax will remain constant through the life of the project. Changes in law with respect to the allocation of unitary values could impact Pledged Revenues. The Commission's unitary revenues have fallen by approximately 19.2% since 1992-93. According to the California State Board of Equalization, there have been two primary causes of the decrease unitary assessed valuation in the County of Los Angeles. The first was the privatization of power generation facilities in the late 1990s. When a power generation facility was sold to a private entity it became locally assessed and was attributed to the Tax Rate Area (TRA) in which it is located. Assessment of these facilities moved back to the State in 2003, but the value is associated with specific TRAs according to California Revenue and Taxation Code Section 100.9. The second primary cause of a decrease in unitary valuations within the County was due to a decrease in the assessed valuation of telecommunication companies during the period 2002 through 2005. Property Tax Administrative Costs In 1990, SB 2557, and in 1992, SB 1559, authorized county auditors to determine property tax administrative costs proportionately attributable to local jurisdictions and to charge agencies for such costs. The Los Angeles Auditor-Controller will deduct administration charges from the tax increment distributed to the Commission for the Merged Project Area. The estimated administration charges (1.5% of gross tax increment) have been deducted from the Projected Tax Revenues herein (see Exhibit A). For Fiscal Year 2009-10, the amount of County collection charges attributed to the Merged Project Area is $103,992. Contained in the estimate of this charge is a fee levied by the County since before the passage of the legislative administrative charge. The County continues to apply this offset to revenue as a designated part of the charge mandated by the legislation. The payments made as property tax administrative charges are considered tax increment for purposes of computation of the housing set-aside or the determination of compliance with tax increment limits in the numerical information set forth herein. Property Tax Collection Procedures 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 public utilities 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." A tax levied on unsecured property does not become a lien against the 27 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 a priority over all other liens arising pursuant to California law on the secured property, regardless of the time of creation of the other liens. Property taxes on the secured roll are due in two installments, on July 1 and February 1 of each Fiscal Year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the Fiscal Year. Such property may thereafter be redeemed by payment of the delinquent taxes and delinquent penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Tax Collector. Current law provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on the following August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1-1/2% per month begins to accrue on the first day of the third month following the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recording in the County Recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Current tax payment practices by the County provide for payment to the Commission of approximately 45% of the secured taxes by mid-January of each year, an additional 30% of the secured taxes by mid-April of each year, and the balance of the secured tax collections (excluding delinquency collections which are paid to the Commission during July and August each year) by mid-August. Approximately 80% of the unsecured taxes are paid to the Commission by the end of November of each year, and substantially all of the unsecured taxes are paid to the Commission in August of each year. Plan Limitations Not including the one year extension permitted by SB 1045 to mitigate the impacts of ERAF payments, Redevelopment Law limits the period in which redevelopment activities can be undertaken for plans adopted prior to January 1, 1994, to 40 years from the date of adoption or January 1, 2009, whichever is later, and limits the period within which a redevelopment project area may receive tax increment to 50 years following the adoption. If redevelopment plans with shorter time frames were adopted, legislative bodies were allowed to extend their limits to conform to these requirements through the adoption of an ordinance prior to December 31, 1999. For projects adopted subsequent to 1994, redevelopment activities can be undertaken for 30 years and tax increment received for 45 years. A redevelopment plan adopted prior to January 1, 1994 is required to include a limitation on tax increment dollars that may be allocated to the redevelopment agency; a time limit on incurring indebtedness to be repaid with tax increment; and a limit on the amount of bonded indebtedness to be repaid with tax increment that can be outstanding at one time. These limits can be extended only by an amendment of the redevelopment plan. The legislative body, by adoption of an ordinance, can eliminate the time limit on the establishment of loans, advances, and indebtedness required prior to January 1, 2002. Pursuant to California State Senate Bill 1045, which became effective September 1, 2003, redevelopment agencies may amend the redevelopment plan to extend by one year the time limit on the effectiveness of the plan and the time limit to receive property taxes and repay indebtedness. The City Council has adopted a series of ordinances conforming 28 the time limits of the Redevelopment Plan to the maximum allowed under law. Additionally, the Commission eliminated the timeframe to incur debt under state legislation SB 211. The Redevelopment Plan for the Project Area No. 1 Component has been amended four times since its adoption. The Redevelopment Plan was first amended on December 9, 1986, by City Council Ordinance 592, to increase the number of dollars allocated to the Commission and re-establish eminent domain. The Redevelopment Plan was further amended on December 20, 1994 by City Council Ordinance 752 to bring the Redevelopment Plan into conformity with AB 1290. The Redevelopment Plan for the Project Area No. 1 Component was amended a third time by City Council Ordinance 822 on June 22, 2002, to extend the duration of the Redevelopment Plan's effectiveness. In connection with the adoption of Senate Bill 1045, redevelopment agencies were permitted to extend the effective date of their redevelopment plans and the date to receive tax increment revenues by one year. The Redevelopment Plan was amended on July 27, 2004 by City Council Ordinance 832 to extend the life of the project by one year pursuant to Senate Bill 1045. The Redevelopment Plan for the Project Area No. 2 Component was adopted by Ordinance No. 809, adopted by the City Council of the City on June 27, 2000. The Commission may not receive and may not repay indebtedness with the proceeds from property taxes received pursuant to Section 33670 of the Redevelopment Law and the Plan beyond the dates indicated in Table 1 below, except to repay debt to be paid from the Housing Fund established pursuant to Section 33334.3 of the Redevelopment Law and the Plan, or debt established in order to fulfill the Commission's obligations under Section 33413 of the Redevelopment Law and the Plan. Table 1 Rosemead Community Development Commission Project Area No. 1 Component Redevelopment Plan Limits Last Date to Limit on total Tax Last Date to Incur Repay Debt with Tax Increment Increment Bond Plan Effectiveness New Debt Tax Increment Limit Debt 6/27/2013 No Limit 6/27/2023 $249,245,938 No Limit The tax increment limit is net of any tax increment which is paid to an affected taxing agency pursuant to the Redevelopment Law. As of June 30, 2009, cumulative tax increment received since inception of the Project Area No. 1 Component is $94,955,207 Source: Rosemead Community Development Commission. Rosemead Community Development Commission Project Area No. 2 Component Redevelopment Plan Limits Last Date to Limit on total Tax Last Date to Incur Repay Debt with Tax Increment Increment Bond Plan Effectiveness New Debt Tax Increment Limit Debt 6/27/2030 6/27/2020 6/27/2045 No Limit $25,000,000 Source: Rosemead Community Development Commission. According to County records, the Commission has received approximately $99,206,265 in total cumulative tax increment from the Merged Project Area as of January 1, 2010. Based on the projected tax 29 increment revenues to be received by the Commission, the limit on tax increment funds that the Commission may receive for the Merged Project Area will not be exceeded within the term of the Bonds. Low and Moderate Income Housing Fund Chapter 1337 Statutes of 1976, added Section 33334.2 and 33334.3 to the Redevelopment Law requiring redevelopment agencies to set aside 20 percent of all tax increment derived from redevelopment project areas adopted after December 31, 1976, into a Low and Moderate Income Housing Fund. This low and moderate income housing requirement can be reduced or eliminated if a redevelopment agency finds that: (1) no need exists in the community to improve, increase or preserve the supply of low and moderate income housing, including housing for very low income households; (2) that some stated percentage less than 20 percent of the tax increment is sufficient to meet the housing needs of the community, including its share of the regional housing needs of persons and families of low or moderate income and very low income households; or (3) that other substantial efforts, including the obligation of funds from state, local and federal sources for low and moderate income housing of equivalent impact are being provided for in the community. Chapter 1135, Statutes of 1985 amended Section 33334.3 and added Sections 33334.6 and 33334.7 to extend the requirement for redevelopment agencies to set aside into a Low and Moderate Income Housing Fund, 20 percent of tax increment to redevelopment project areas adopted prior to January 1, 1977, beginning with Fiscal Year 1985-86 revenues. Pursuant to Chapter 1135, an agency may make the same findings described above to reduce or eliminate the low and moderate income housing requirement. However, Chapter 997, Statutes of 1989, added Section 33334.14 to the Redevelopment Law which provides that a redevelopment agency with merged project areas may not make the findings described above as to avoid or reduce its obligations to deposit taxes from merged project areas in the Low and Moderate Income Housing Fund. No such findings as described in the two paragraphs above have been made by the Commission. However, on October 9, 1991 the Commission prepaid its housing obligation in the amount of $6,813,849.62. As a result, the Commission's housing obligation has been reduced by $469,142 per year through the 2021-22 fiscal year. This annual reduction was based on a present value factor determined by the yield on the Commission's outstanding bonds. In addition, the Commission has made findings that, for the years ended June 30, 1986 through 1991, it was allowed to defer funding of the set-aside. The set-aside amounts incurred during the fiscal years ended June 30, 1994, 1995 and 1996 were also deferred until the fiscal year ending June 30, 2023, as provided by the Commission's adoption of the housing deficit repayment plan. As of June 30, 2009, the accumulated set- aside amount not yet funded was approximately $4,043,117. As required by law, the Commission has devised a plan to fund the accumulating amount. The Commission believes that the repayment of such amount will not effect the availability of Pledged Revenues to pay debt service on the Series 2010A Bonds when due. To help fund the completion of the Senior Citizen Housing project construction, the Capital Projects Fund transferred an additional $849,863 to the Low-Moderate Income Housing Set-Aside Fund during the fiscal year ended June 30, 2002, over and above the 20% requirement of $299,993, and an additional $1,279,548 to the Low-Moderate income Housing Set-Aside Fund during the fiscal year ended June 30, 2003, over and above the 20% requirement of $290,868. These additional amounts, which total $2,129,411, are considered an advance on future set-aside requirements and will be deducted from future transfers for the set- aside over future years. During the fiscal years ended June 30, 2005 and 2004, the 20% requirements of $448,578 and $394,533 were funded using the cumulative advance. As of June 30, 2005, the remaining advance was $1,286,301. 30 Assembly Bill 1290 Assembly Bill 1290 (being Chapter 942, Statutes of 1993) ("AB 1290") became law on January 1, 1994. AB 1290 contains several significant changes in the Redevelopment Law, including time limitations for incurring and repaying loans, advances and indebtedness repayable from tax increment revenues. The Commission is of the opinion that the provisions of AB 1290, including these new time limitations as they apply to the Merged Project Area, will not have an adverse impact on the payment of debt service on the Series 2010A Bonds on a timely basis, and the Commission does not expect that the provisions of AB 1290 will have an adverse impact on the undertaking by the Commission of future redevelopment activities within the Merged Project Area. Pass-Through Arrangements The County and the Commission entered into a certain agreement for reimbursement of tax increment funds with the County, the Consolidated Fire Protection District, and the County Public Library District (the "County Agreement"). The elements of the County Agreement include the following: (i) the Commission is to provide for a pass-through of a portion of its tax increment revenues with respect to Component Area No. 1 received after July 1, 1988 for the Consolidated Fire Protection District; and (ii) the Commission is to allow an additional pass-through of tax increment revenues with respect to Component Area No. 1 for the Los Angeles County Public Library District at such time that the Commission or the City constructs a replacement facility. As stated herein, the City and the Commission have no current plans to proceed with the construction of any replacement library facility. The reimbursement of the Consolidated Fire Protection District is approximately 17% of Gross Tax Revenues (as defined in the County Agreement) and the reimbursement to the Los Angeles County Public Library District is 4% of Gross Tax Revenues. The 4% of Gross Tax Revenues obligation is contingent upon the Commission's construction of such a replacement facility. However, neither the Commission nor the City has any obligation to construct a replacement facility. Such pass-through payments are payable from tax increment revenues from Component Area No. 1 senior to the pledge and lien established pursuant to the Indenture and will not be available to the Commission to pay debt service on the Series 2010A Bonds. When the Commission extended the time frame to incur debt pursuant to SB 211, it initiated statutory pass-throughs to all affected tax agencies that do not currently have tax sharing agreements. The general levy share of all agencies that do not currently possess tax-sharing agreements is 83% of every $1.00 of property tax generated. Pursuant to SB 211, these pass-throughs may be subordinated to bond debt if the Commission makes the finding that the issuance of the debt will not impact the Commission's ability to make the statutory payments. The Commission has made the appropriate findings, and therefore it is assumed herein that these payments are subordinated to payments on the Series 2010A Bonds and, pursuant to previous action of the Commission, subordinate to payments on the Series 2006 Bonds. Proposition 218 On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the local governments to levy and collect both existing and future taxes, assessments, fees and charges, and extended the initiative power giving the voters the power to reduce or repeal local taxes, assessments, fees and charges. Because the Series 2010A Bonds are not payable from or secured by any such sources of revenue, the Commission believes that Proposition 218 does not affect the issuance or sale of, or the security for, the Series 2010A Bonds. 31 Future Initiatives Articles X111A, X111B, X111C and X1111) were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time other initiative measures could be adopted, further affecting Commission revenues or the Commission's ability to expend revenues. THE COMMISSION Organization The Commission, formerly known as the Rosemead Redevelopment Agency, was activated in 1972 by City Ordinance. Since 1975, the City Council Members have acted as the Members of the Commission. The Commission is a separate public body which plans and implements projects in accordance with the requirements of the Redevelopment Law. By Ordinance No. 871 adopted by the City Council on February 10, 2009, the City Council adopted a merger amendment, merging the Redevelopment Plans for the Project Area No. 1 Component and the Project Area No. 2 Component, creating the Merged Project Area. All powers of the Commission are legally vested in its five members, who are elected to the City Council for four year terms. The Commission exercises governmental functions in carrying out projects and has sufficiently broad authority to acquire, develop, administer and sell or lease property. The Mayor of the City, Gary A. Taylor, also serves as Chairperson of the Commission. The Commission's Vice-Chairperson, Steven Ly, is Mayor Pro-Tem of the City. Other members of the City Council and Commission Board are shown below. Jeff Allred, the City Manager and Executive Director of the Commission was appointed City Manager on June 15, 2009. Matthew E. Hawkesworth was hired in 2007 and serves as Assistant City Manager. Commission Member Term Expires Gary A. Taylor March, 2011 Steven Ly March, 2013 Sandra Armenta March, 2013 Margaret Clark March, 2013 Polly Low March, 2011 Powers All powers of the Commission are vested in its five members. The Commission exercises governmental functions in carrying out projects, and has sufficiently broad authority to acquire, develop, administer and sell or lease property, including the right of eminent domain and the right to issue bonds, notes and other evidences of indebtedness and to expand their proceeds. The Commission can clear buildings and other improvements and develop as a building site any real property owned or acquired, and in connection with such development, cause streets, highways and sidewalks to be constructed or reconstructed and public utilities to be installed. Redevelopment in the State may be carried out pursuant to the Redevelopment Law. Section 33020 of the Redevelopment Law defines redevelopment as the planning, development, replanning, redesign, clearance, reconstruction or rehabilitation, or any combination of these, of all or part of a survey area and the provision of such residential, commercial, industrial, public or other structures or spaces as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities incidental or appurtenant to them. 32 The Commission may, out of the funds available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities, structures or other improvements to be publicly owned, to the extent that such improvements are of benefit to the relevant project area and no other reasonable means of financing is available. The Commission must sell or lease remaining property within a project for redevelopment by others in strict conformity with the redevelopment plan, and may specify a period within which such redevelopment must begin and be completed. THE MERGED PROJECT AREA The Merged Project Area evolved from an intent to achieve efficiencies and ease of administration in the operation of the Commission's two redevelopment areas. In 2009, a study determined the basis for merger of the Commission's two redevelopment areas in accordance with the California Community Redevelopment Law. The Redevelopment Plan for the Rosemead Merged Project Area (the "Merged Project Area") was adopted by Ordinance No. 871 of the City Council adopted on March 10, 2009. Redevelopment Project Area No. 1 evolved from a City Council study commenced in 1967. The study determined areas in the City which were blighted within the meaning of the California Community Redevelopment Law, and were therefore qualified for redevelopment. The Redevelopment Plan for the Redevelopment Project Area No. 1 was adopted by Ordinance No. 340 of the City Council on June 27, 1972. Redevelopment Project Area No. 2 evolved from a City Council study commenced in 1999. The study determined areas in the City which were blighted within the meaning of the California Community Redevelopment Law, and were therefore qualified for redevelopment. The Redevelopment Plan for the Redevelopment Project Area No. 2 was adopted by Ordinance No. 809, adopted by the City Council of the City on June 27, 2000. Merged Project Area Description By Ordinance No. 871 adopted by the City Council on February 10, 2009, the City Council adopted a merger amendment, merging the Redevelopment Plans for the Project Area No. 1 Component and the Project Area No. 2 Component, creating the Merged Project Area. The Merged Project Area encompasses an area of 716 acres. Project Area Description The Project Area No. 1 Component encompasses an area of 511 acres. The Project Area No. 1 Component is roughly triangular with Garvey Avenue, San Gabriel Boulevard and Walnut Grove Avenue being the major thoroughfares traversing the area. The Project Area No. 1 Component is within a few miles of the City's Civic Center and is located between the San Bernardino and Pomona Freeways to the north and south, respectively. The area contains a complete cross section of the City's existing land uses. At the time of the adoption of the Redevelopment Plan, major sections were composed of deteriorating commercial strips along Garvey Avenue and San Gabriel Boulevard, industrial uses in the east Garvey area, large vacant areas surrounding the Southern California Edison headquarters, several schoolyards, segments of the Alhambra Wash, Southern California Edison rights-of-way, and residential areas with some deterioration present. The territory within Project Area No. 2 Component includes about 205 acres and encompasses Valley Boulevard from the eastern and western boundaries of the City and Rosemead Boulevard from the southern and northern boundaries of the City. 33 Table 2 below sets forth the land uses by acreage and assessed valuation in the Merged Project Area. It should be noted with respect to the information in Table 2 below, that the figures below exclude the value of exempt parcels such as those owned by the City, Commission, State or other governmental agencies that do not contribute to Commission revenues. Table 2 Rosemead Community Development Commission Merged Project Area Assessed Valuation and Parcels by Land Use 2009-10 % of No. of % of Assessed Valuation Subtotal Parcels Total Non - Residential: Commercial/Office $420,870,145 82.86% 326 60.46% Vacant Commercial 10,899,644 2.15 53 1.57 Government 1513981 0.30 18 0.22 Industrial 68,144,535 13.42 78 9.79 Vacant Industrial 3,615,446 0.71 19 0.52 Institutional 1,973,040 0.39 11 0.28 Miscellaneous 935,021 0.18 40 0.13 Subtotal Non-Residential $507,951,811 100.00% 545 72.98% Residential: Single Family Residence $96,668,200 51.39% 433 13.89% Condominium/Townhouse 30,078,459 15.99 158 4.32 Mobile Home Park 2,855,813 1.52 6 0.41 2-4 Residential Units 51,874,830 27.58 185 7.45 5+ Residential Units/Apartments 5,024,322 2.67 16 0.72 Vacant Residential 1,604,964 0.85 19 0.23 Subtotal Residential $188,106,589 100.00% 817 27.02% Total $696,058,400 100.00% 1,362 100.00% (1) Local Secured Assessed Valuation; excluding tax-exempt property. Source: MetroScan and Urban Futures, Inc. Assessed Values Taxable values are prepared and reported by the County Auditor-Controller each fiscal year and represent the aggregation of all locally assessed properties within the Merged Project Area. The assessments are assigned Tax Rate Areas (TRA) that are coterminous to the boundaries of the project area in the first year that an agency is eligible to receive tax increment revenue. The Merged Project Area consists of 17 individual TRAs. Historic taxable values since 2000-01 were utilized to determine the historical growth rate of property values within the Merged Project Area. Property values within the Merged Project Area have steadily grown at a compounded rate of 10.5% per year between the years 2001-02 and 2005-06. Total assessed property values did not decline for any fiscal period between 2000-01 and 2005-06. Total assessed property values did decline commensurate with recent market impacts between Fiscal Year 2007-08 and the present. As noted, the Los Angeles County Assessor has been proactive in reviewing properties that may qualify for a reduction in assessed valuation, and allowed reductions for Fiscal Year 2009-10 for 333,870 properties County-wide out of 473,000 single- family residences and condominiums reviewed. It is not anticipated that the County will make further Proposition 8 adjustments, as the reductions that have already been made for Fiscal Year 2009-10 were based on a review of sale transactions that went back as far as Fiscal Year 2003-04. The 34 historic taxable values for the Merged Project Area are shown in Table 4 below. As discussed herein, assessed valuation growth for the Merged Project Area for Fiscal Year 2010-11 is based on zero inflationary growth, with $2,961,267 added for resale transactions, and $4,723,537 added for building permit activity. Resale Activity. A summary of property resale transactions in the Project Area No. 1 Component and the Project Area No. 2 Component for 2009 and 2010 (year to date) is attached as Exhibit I to the Fiscal Consultant's Report attached hereto as Appendix A. Based on the difference between the Fiscal Year 2009-10 assessed valuations of the transferred properties and the sales prices, an estimated net increase of $2,961,267 has been added to the Project Area No. 1 Component assessed valuation, and an estimated net increase of $2,661,662 has been added to the Project Area No. 2 Component assessed valuation for Fiscal Year 2010-11. See the projections of Tax Revenues in Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A and Table 7 herein. Building Permit Activity. A summary of building permit activity in the Merged Project Area for 2009 and 2010 (year to date) is attached as Exhibit H to the Fiscal Consultant's Report attached hereto as Appendix A. A valuation amount of $4,857,216 has been added to the projection of assessed valuation for Fiscal Year 2010-11 for the Merged Project Area, and $326,934 has been added to the projection of assessed valuation and tax increment for Fiscal Year 2011-12. See the projections of Tax Revenues in Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A and Table 7 herein. Foreclosures in the Project Area. A summary of foreclosure activity in the Project Area No. 1 Component and the Project Area No. 2 Component is shown in Exhibit F to the Fiscal Consultant's Report attached hereto as Appendix A, based on information provided by DataQuick. Of the 1,362 parcels located within the Merged Project Area, in calendar year 2009 there were 3 parcels that received a Notice of Default, and 1 parcel that was foreclosed on for a total of 4 parcels with some form of foreclosure activity, which represents .3% of all parcels within the Merged Project Area. Reductions in assessed valuation of properties in the Merged Project Area, based on foreclosure activity, is assumed to be included in the adjustments for net property resale transactions (See Exhibit I to the Fiscal Consultant's Report attached hereto as Appendix A). Proposition 8 Adjustments. Under Proposition 8, qualifying properties may be given a temporary reduction in their taxable value when property values decline. The Los Angeles County Assessor has been proactive in reviewing properties that may qualify for a reduction in assessed valuation, and allowed reductions for Fiscal Year 2009-10 for 333,870 properties county-wide out of 473,000 single- family residences and condominiums reviewed. The Commission does not anticipate that the County will make further Proposition 8 adjustments, as the reductions that have already been made for Fiscal Year 2009-10 were based on a review of sale transactions that went back as far as Fiscal Year 2003-04. Assessment Appeals. In Los Angeles 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 Los Angeles County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15th of such tax year. The Appeals Board, within two years of each applicant's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment. Current appeals pending in the Merged Project Area represent real property with a total assessed valuation of $40,013,355. Based on the actual valuation reductions allowed by the Appeals Board for property in the Merged Project Area over the last six years, the amount of the allowed reductions by the Appeals Board represented approximately 1.13% of the total assessed valuation of the properties that were the subject of the appeals. If the historical reduction percentage of 1.13% is applied to the total assessed valuation of the currently outstanding appeals, it is estimated that the resolution of the current appeals pending could result in a valuation reduction in the Project Area No. 1 Component of approximately $451,357, which could then result in a reduction to the gross tax increment revenue of approximately $4,514. This estimated amount has been deducted from the projections of Tax 35 Revenues in Exhibit A to the Fiscal Consultant's Report attached hereto as Appendix A for Fiscal Year 2009 10. The Commission cannot predict whether any future appeals will be successful, or whether the number of appeals may increase in the Merged Project Area. Future reductions in taxable values in the Merged Project Area resulting from successful appeals by property owners will reduce the amount of Component Tax Revenues available to pay the principal of and interest on the Series 2010A Bonds. A number of the appeals in the Merged Project Area that were allowed resulted in a reduction in value were based on Section 51 of the Revenue and Taxation Code. This section requires that for each lien date the value of real property shall be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Significant reductions took place in some counties during the mid-1990's due to declining real estate values. Reductions made under this code section may be initiated by the Assessor or requested by the property owner. After a roll reduction is granted under this section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly, which may result in either further reductions in or increases in assessed value. Such increases shall be in accordance with the actual full cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. Project Status The following summary of pending projects, improvements and project status is based upon current information and planning by the Commission. 1. Fresh and Easy market currently under construction at the South/East corner of Valley Blvd and Rosemead Blvd. Property Tax valuation for the building is $1,023,369 and is expected to be completed and open within the next six months. 2. Barr Lumber recently closed its doors however, the property was sold for $8.8 million to a developer that has approached the City regarding the desire to develop a four star hotel and banquet facility. 3. UFC Gym is currently under construction at Rosemead Blvd. and the 10 Freeway. The valuation for building improvements is $850,000. 4. Panda Corporation developed outer retail pad on the eastern end of the Wal-Mart center. This development included a Wells Fargo Bank, Panda Express, Subway, Game Stop and Red Ribbon Bakery. The valuation for this project was $971,500. 5. Rosemead High School is currently undertaking a large scale renovation project expanding their campus and renovating many of their specialized classrooms such as the science labs and culinary school. 6. City recently renovated all the medians on Garvey Ave. replanting and rehabilitating the roses, turf areas and trees. 7. Southern California Edison just acquired an additional 260,000 square feet of office space expanding their campus in Rosemead and is adjacent to the south end of the project area. 36 8. The Upper San Gabriel Water District just installed new water mains along Garvey Ave. and Walnut Grove for recycled water which will be available to businesses, the schools and the City for "green" watering purposes. 9. City has entered into an agreement with Caltrans to rehabilitate all the on and off ramps coming into Rosemead from the 10 Freeway. This renovation will included medians with decorative rock and landscaping, and the painting of all the bridges/overpasses. 10. The Mayor recently created a Downtown Ad-Hoc committee of two Council Members and one Planning Commissioner to work with staff in order to create a downtown development plan for Valley Blvd. 11. The Council recently approved a new grant/loan program for facade and sign improvements of businesses. 12. Target is currently under renovation to become a Super Target with a full grocery, produce and meat section. Controls, Land Use and Building Restrictions All real property in the Merged Project Area is subject to the controls and restrictions of the Redevelopment Plan. The Redevelopment Plan requires that new construction shall comply with all applicable State statutes and local law in effect, including City zoning ordinances and City codes for building, electrical, heating, ventilating, and plumbing. The Redevelopment Plan allows for commercial, industrial, residential, and public uses within the Merged Project Area, but specified the particular area in which each of these uses is permitted. The Commission may permit an existing but non-conforming use to remain so long as the existing building is in good condition and is generally compatible with a non-conforming use, the owner is willing to enter into a participation agreement with the Commission and the owner agrees to the imposition of such reasonable restrictions as are necessary to protect the development and use of the Merged Project Area. Within the limits, restrictions and controls established in the Redevelopment Plan, the Commission is authorized to establish land coverage, setback requirements, design criteria, and other development and design controls necessary for proper development of both private and public segments within the Merged Project Area. Largest Secured Taxpayers Table 3 below sets forth the ten largest secured taxpayers in the Merged Project Area during Fiscal Year 2009-10. The cumulative secured net assessed value of the ten largest secured taxpayers within the Merged Project Area totals $181,303,443 which represents approximately 26% of the total secured net assessed value of the Merged Project Area. Within the merged area, the cumulative secured net assessed value of the ten largest secured taxpayers within the Project Area No. 1 Component totals $117,327,890 which represents approximately 26% of the total secured net assessed value of the Merged Project Area and the cumulative secured net assessed value of the ten largest secured taxpayers within the Project Area No. 2 Component totals $108,175,450 which represents approximately 45% of the total secured net assessed value of the Merged Project Area. See Exhibit C and C-1 to the Fiscal Consultant's Report attached hereto as Appendix A. The following is restricted to only locally assessed tax payers, and does not include state assessed properties. Southern California Edison, which owns a significant amount of property within the Merged Project Area, is a public utility and therefore its properties are state assessed and is, accordingly, not 37 included in the following table of top ten property owners. See "Unitary Property" above for a description of unitary revenues. There are currently no pending appeals on properties owned by the following top twenty taxpayers. Table 3 Rosemead Community Development Commission Merged Project Area Largest Secured Tax Payers Fiscal Year 2009-10 Percent of Project Area Secured Net Project Secured Net Assessed Owner Name Land Use Area Assessed Value Value(l) 1. Rosemead Place LLC Commercial - Retail 2 $ 46,537,001 6.69% 2. Wal-Mart Real Estate Business Commercial - Retail 1 32,733,064 4.70 3. Rosemead Hwang, LLC Commercial - Retail 1 32,202,355 4.63 4. 420 Boyd Street LLC Commercial - Retail 2 19,044,895 2.74 5. Potters Avenue Commercial - Office 1 13,417,592 1.93 6. Taiking, LLC Commercial - Retail 1 9,591,197 1.38 7. Panda Restaurant Group, Inc. Commercial - Office 1 9,066,254 1.30 8. Amsted Residuals LLC Commercial - Bank 2 7,641,594 1.10 9. Yeung LP Commercial - Retail/Office 2 5,608,562 0.81 10. Hotels Southern California LLC Commercial - Hotel 2 5,460,930 0.78 $181,303,443 26.05% (1) 2009-10 Local Secured Assessed Valuation: $696,058,400 Source: Urban Futures, Inc. Among these ten largest secured tax payers for Fiscal Year 2009-10, Rosemead Place LLC ownership consist of the Target Superstore, Rosemead Place shopping center and two-story office complex, which includes 596,000 square feet of retail, restaurant and office space within the 25.7 acre property, located in the Project Area No.2 Component. The Wal-Mart Real Estate Business ownership consist of Wal-Mart Supercenter, which includes 227,700 square feet of retail within a 20.8 acre property and the Rosemead Hwang LLC ownership consists of the Diamond Square shopping center, which includes 325,800 square feet of retail, restaurant, and grocery store within a 7.3 acre property, each located in Project Area No. 1 Component. TAX INCREMENT REVENUES The Merged Project Area's base year assessed valuation is approximately $170.4 million. The total assessed valuation for Fiscal Year 2009-10 is approximately $737.5 million with approximately $696.0 million attributable to secured assessed value and approximately $41.5 million attributable to the unsecured assessed value. The total assessed valuation for Fiscal Year 2009-10 is approximately $737.5 million which produces a total incremental value of approximately $567.1 million. Project Area No. 1 Component's total assessed valuation for Fiscal Year 2009-10 is approximately $481.0 million which produces a total incremental value of approximately $455.9 million. Project Area No. 2 Component's total assessed valuation for Fiscal Year 2009-10 is approximately $256.5 which produces a total incremental value of approximately $111.2 million. 38 Component Tax Revenues consist primarily of tax increment revenues generated from the application of appropriate tax rates to the incremental taxable value of the Merged Project Area. An additional significant source of Component Tax Revenue includes unitary property taxes. Unitary tax revenues make up a substantial portion of the tax increment revenues received by the Commission. This is primarily because the headquarters of Southern California Edison are located within the Project Area. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Unitary Property" herein. Reductions in Component Tax Revenues received by the Commission may result from declining tax rates, property tax administrative costs and refunds resulting from successful appeals of assessed values. Local Secured Land Improvements Personal Property Exemptions Total Secured Unsecured Improvements Personal Property Exemptions Total Unsecured Total Value Table 4 Rosemead Community Development Commission Merged Project Area Historical Assessed Values 2005-06 2006-07 2007-08 2008-09 2009-10 $319,154,803 230,042,811 3,153,071 (6,210,756) $546,139,929 15,034,506 21,858,232 (13,000) 36,879,738 $583,019,667 $346,203,388 241,198,502 3,697,588 (4,495,448) $586,604,030 11,140,978 20,829,158 (27,650) 31,942,486 $618,546,516 $375,127,430 269,365,298 3,435,111 (3,370,995) $644,556,844 14,090,766 25,768,773 (26,885) 39,832,654 $684,389,498 $421,354,777 277,625,057 3,845,691 (3,438,405) $699,387,120 15,181,492 29,246,475 (20,000) 44,407,967 $743,795,087 $413,032,667 283,058,624 3,433,192 (3,466,083) $696,058,400 14,991,108 26,541,393 (20,000) 41,512,501 $737,570,901 (1) Secured values include state assessed non-unitary utility property. Source: Urban Futures, Inc. and Los Angeles County Auditor-Controller. 39 Local Secured Land Improvements Personal Property Exemptions Total Secured Unsecured Improvements Personal Property Exemptions Total Unsecured Total Value Table 5 Roseme ad Community Development Commission Project Area No. 1 Component Historical Assessed Values 2005-06 2006-07 2007-08 2008-09 2009-10 $222,327,573 $237,572,809 $259,944,339 $282,068,530 $270,541,624 148,772,761 154,547,360 174,432,375 182,941,854 188,311,309 1,917,867 2,166,085 1,883,439 2,087,680 1,855,746 (5,362,048) (5,361,128) (2,488,004) (2,537,757) (2,547,424) $367,656,153 $388,925,126 $433,772,149 $646,560,307 $458,161,255 $8,081,798 $3,874,339 $6,415,099 $6,219,960 $5,878,453 13,641,958 12,212,940 17,118,957 19,746,521 16,992,169 0 0 0 0 0 $21,723,756 $389,379,909 alo,ua i,/. iy $405,012,405 $23,534,056 $457,306,205 $25,966,481 $490,526,788 $22,870,622 $481,031,877 (1) Secured values include state assessed non-unitary utility property. Source: Urban Futures, Inc. and Los Angeles County Auditor-Controller. Table 6 Rosemead Community Development Commission Project Area No. 2 Component Historical Assessed Values 2005-06 2006-07 2007-08 2008-09 2009-10 Local Secured Land $96,827,230 $108,630,579 $115,183,091 $139,286,247 $142,491,043 Improvements 81,270,050 86,651,142 94,932,923 94,683,203 94,747,315 Personal Property 1,235,204 1,531,503 1,551,672 1,758,011 1,577,446 Exemptions (848,708) 865,680 (882,991) (900,648) (918,659) Total Secured $178,483,776 $197,678,904 $210,784,695 $234,826,813 $237,897,145 Unsecured Improvements $6,952,708 $7,266,639 $7,675,667 $8,961,532 $9,112,655 Personal Property 8,216,274 8,616,218 8,649,816 9,499,954 9,549,224 Exemptions (13,000) (27,650) (26,885) (20,000) (20,000) Total Unsecured $15,155,982 $15,855,207 $16,298,598 $18,441,486 $18,641,879 Total Value $193,639,758 $213,534,111 $227,083,293 $253,268,299 $256,539,024 (1) Secured values include state assessed non- unitary utility property. Source: Urban Futures, Inc. and Los Angeles County Auditor-Controller. Projected Tax Revenues Table 7 below shows the projected Component Tax Revenues for the Merged Project Area for the 40 Fiscal Years 2009-10 through 2013-14. While the projections are based on assumptions which are believed by the Commission to be reasonable, there can be no assurance that such projections will be realized. See "RISK FACTORS" herein. The projections of Component Tax Revenues are based on the following assumptions: (1) Taxable values as reported by the County for the 2009-10 fiscal year. Projections inflate secured and unsecured valuations 2% per year; $5,622,929 has been added in Fiscal Year 2010-11 for resale activity, and $4,857,216 has been added in Fiscal Year 2010-11 for building permits. No inflationary trend is applied to personal property value and the personal property assessed valuation is assumed in each Fiscal Year presented below to remain at the 2009-10 fiscal year level. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Property Tax Rate and Appropriation Limitations" herein. (2) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed project tax rate. The assumed future tax rates remain at $1.00 per $100 of taxable value as reported by the County Auditor Controller. According to the redevelopment plan, the last day to receive tax increment from the Project Area No. 1 Component is June 27, 2023. (3) Unitary tax amount is as reported by the County and held constant at the 2009-10 level. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Unitary Property." (4) Housing Set aside requirement is calculated at 20% of Adjusted Gross Revenue. In 1991, the Commission pre-paid $6.8 million from proceeds from its 1987 tax allocation notes. This pre-payment was restructured in 1993 along with the 1993 series tax allocation bonds. These actions have resulted in a decrease of $469,142 on annual housing set-aside requirement until Fiscal Year 2021-22. This decrease has been reflected in the projections. (5) Property tax rates are assumed to be 1.00%. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Property Tax Rate and Appropriation Limitations" herein. (6) Taxable values are as reported by the County for the 2009-10 fiscal year. (7) With respect to pass-throughs, the Los Angeles County Fire Department receives approximately 17% of gross tax increment from the Project Area No. 1 Component pursuant to an agreement with the Commission. Statutory pass-throughs to agencies that do not have a current tax sharing agreement began 2004-05 at a rate of 20% of incremental growth from base year 2003-04. An increase in the amount of pass-through payments will begin in Fiscal Year 2014-15 at a rate of 21 % of the tax increment growth net of the Housing Set-Aside Requirement with a base year of 2013-14. These taxing agencies receive a combined share of 82.9% of general levy property tax. This assumes the City has elected to receive a pass-through under SB 211. Pass-through payments for 33401 Agreements (Statutory pass-through payments) are subordinate to debt service on the Series 2010A Bonds and, pursuant to previous action of the Commission, subordinate to payments on the Series 2006 Bonds Growth in real property land and improvement values have been limited to an assumed rate of growth of real property taxable values of two percent annually as allowed under Article XIIIA of the state Constitution. The State Board of Equalization has directed county assessors to use an inflation adjustment factor of 0.99763 for the Fiscal Year 2010 11 assessment rolls. Should the future growth of taxable value in the project areas be less than two percent, the resultant Gross Tax Increment Revenues would be reduced proportionately. Future values will also be impacted by changes of ownership and new construction not 41 reflected in our projections. In addition, the values of property previously reduced in value due to assessment appeals based on reduced market values could increase more than two percent when real estate values increase more than two percent. The Commission, the City and the Underwriter are unable to make any representation that taxable values will actually grow at the rate projected. 42 10 - ~--i m 7 r 1 M o0 --i CD N M N r 0T O, M 7 ~ ..y r N 0 N ~ N ~O M O n n ~ ~ ~ ~ ~ O O, M N O, N ~n V1 O O ob 7 O O N M 00 D, N 0, 10 10 r --i 00 00 00 r EA V7 O M 0T 00 7 00 O--i N N r CT r N ~n 7 N O M 7 On ,-y r 00 Wi M M r O N r W7 M V7 N ~O N N M 00 M N V1 O ~ ~ N 00 On N i r- o0 N O co ol 00 10 00 00 cc 10 --i --i M O CO CO Oo r r 00 r 0T M 00 .--I N co N r oo r Wi M 00 oo N m N o O O r ~O 7 O~ r N O~ 00 N 't r N ~O V1 D 00 EA --i O, O V1 M 00 CO O CD O O N r of ~n O N ~n .y 01o0 0o O r N O~ OO M O 00 y CD O, 00 ~ ~ O 7 V7 N r - CD M .--I vi el - 't , O r O~ 7 ~n N 00 O ~ O V~ r el ol 10 W7 W7 ~O V7 r cc 10 EA ~y V1 O V7 ~n M 00 O O ~n en 't O Vl .--I rl 00 r W7 M 10 N 00 ry M V7 r O N M M CO CO M M V1 M 7 00 - CT V7 O r r N M V7 N ~O ~O r M O ol O, • C c 0 co co r N N~ O ~ O 7 ~O ~ N r V7 C~ Vi O M ~y y r oo ~o V co 10 7 o m 00 ' 00 N 00 10 W1 r ' W1 O~ M r O ~O C ' 't M O 10 O~ O N C l l F.y M Mir O N Oo Orr 10 M l O N M O~ V1 Wi ol c V1 S.I MM O, O, 00 M o N N' O O N ~ O cop* N CO M M ' r V1 ~ ~ Sw S■ / A V O CO 00 M --i M 7 r 00 O, L~ FBI ~.y O~ M M 0 M N V~ ~ M N V~ i ~ V~ l~ O M N 0 l l O~ O ~i C~ N O N 00 N M r r ~o ~ s~ O U a --i ~O r N M M \O M Vl el ol ~OO~O r ~nr Cl N N M r- C~ O N O, N N O N M ,W r 00 00 06 r-: V~ l~ cp~ d.~ ~--i ,y N CO .y V7 M 00 ~O O N 00 r O 0O O lr C n N ~--i ol O O ~n el en r V7 M N N O ol co ,.y o N n O N o r r n N O r r ~ ~ o ~ 10 M O n O 00 N O V7 ~O CT O r 00 O M M 00 vi M O r O ~O Oo 't n M O V~ CO N O O, O O~ ~n el ON~cc r r v~ EA O "'i ~O r M 0 N N N O N O O O O O r el N O, M ~n ,-y ~ Vl CT .y ~n N 00 ~ ~n On ~ 7 M CO N O \O r N M N 10 M M O O, --i N O ~n V7 .--i N Cr el 10 ol en ol r c „ d CC) c C3 C3 Ca d M o F m ce z7 ~ d ~ 0.01+ W . ~ ~ F l ~ U F F had' a x ~ ~ P~ w d' ~ ~ cd cd N A ~ ' N 1^ cG ~ ~ y C v~ O cG h N i h ~ S O 0 yG y N W ~ N O O 0 N N O 7J O cG W O O . O O va U o sue-' O ~ 0 O oc, V 0 0.i EA ~ N O ~ ~ N O W °s: c n o Fx" s0. 1~ 'd N o , E O y0 cG y ~ V yG vl ¢ by bA ~u C C Syy+ ~i uu ..Vi t tj) 71 71 1 > O O O a U y w z -g N O Sy V A 0 O 0 7 N DC N ¢r 69 ~ > b O A ,r.., N 7J 7J S.' O cG ' a0~ v, CC) V y O X s. ~b Boa ~ > -o ~ U o 71 1 17J V ,xj N O NO U, a>J . ~ N Si O ~ , ~ M 71 cc O .O CO v, W M ~ W ~ cG yC • O ~ 3y ~ N cG ~ 0 W V] p R, ~ ~ O 0.i ~ N N CO O N k Q O N ON . iG fs W O ~ O ~ iC O S c 0 0 O • ~ ~ O O ~ aJ bA O T. S7 N > U O > 3y --i W O R+. 457J Q N N m cd O'' pa O U s. 71 • ° Cc) ° u ' o on u > Ij ~ U ~ S7 m S7 O M O O a1 S7 Fy o °J o V 43 Debt Service and Estimated Coverage Table 8 sets forth the debt service and estimated coverage on the Series 2010A Bonds and the Series 2006A Bonds and Series 2006B Bonds. The following assumptions were made in creating the table: The projections of Component Tax Revenues as summarized in Table 7 and as set forth herein are based upon actual assessed values for Fiscal Year 2009-10. As above, projections inflate secured and unsecured valuations, with assumed annual valuation growth of 2% commencing in Fiscal Year 2011-12. $5,622,929 has been added in Fiscal Year 2010-11 for resale activity, and $4,857,216 has been added in Fiscal Year 2010-11 for building permits. No inflationary trend is applied to personal property value and the personal property assessed valuation is assumed in each Fiscal Year presented below to remain at the 2009-10 fiscal year level. See "TAX ALLOCATION FINANCING AND LIMITATIONS ON RECEIPT OF TAX INCREMENT - Property Tax Rate and Appropriation Limitations" herein. 2. Debt service is based on the maturity schedule and interest rates, subject to prior redemption or acceleration, for the Series 2010A Bonds as set forth on the inside cover page hereof, and the debt service attributable to the Series 2006A Bonds and the 2006B Bonds. As provided in the Redevelopment Plans for the Project Area No. 1 Component, the last day to receive tax increment with respect thereto is June 27, 2023; however, such date does not apply to the repayment of the Series 2006B Bonds. 4. The Commission will not incur any additional debt for the Merged Project Area during the years shown. 44 w vl y O O Q ~N~Or`oo c c cv- v- v- ~oO 'r O\ N M M 'r In IO l- 00 O\ O N \O M N N N N N N N N N M M M ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ U O ~ O\ O 't N N In 't m r` DD > C) O IC O In In 00 M ' N 1 00 00 M M M N N 0` O\ n O DD V O M O kn "D r` -t c, r` --i ,--i --i oc O w 00 ~t of o0 of o0 ol ol 00 a1 a1 a1 00 r` • y ,--i ,--i - ,--i ,--i - ,--i ,--i - ,--i ,--i - ~ A 69 YE O y w y N I 1 ~c ~t o0 r` V 1 IC o0 O ll- ~t IC V 1 00 V O l~ V m _ C M N V'1 O\ C` Do N M O N O --i ' t m o0 00 V 1 N N o0 00 ~.O O\ O\ ,--i IO r-- O r` O\ N O\ O O\ 4 V I o0 IC ll- O IC O C` ~ I y G7 7 O ❑Q❑•i NNCB ~ N N N M M 1 \ N \ M M M O\ O M V 1 t c ~t In IC l- 00 O\ O - N M In IC l- l- 00 O\ 'n IO o0 O\ - Q A W N N N N N N M M M M M M M M M M V'1 U ~ ' y y 1 \O M ,--i N O M \O C` ~ M ~ M C` O\ DD DD N O\ M V DD C DD N "--D l~ N l~ V N O O O M M O N V Sy y O O O\ 'L Cl DD O O O O\ Sc V'1 M ~O M ,--i O O ~/'1 O l~ kn O\ ~t O l~ v'1 v'1 10 A O r` O\ M DD N V'1 O V'1 O\ O\ O\ O\ V'1 ~O N 00 ~t O 00 O. NN 00 00 O\ O\ O O N N N M M kn kn ~-O l~ r` 00 00 O\ O W 69 N A W 6~ ry ~ •--I U O w M "D O\ V'1 "D -t -t m N ~/'1 N N N O\ N r` N -t O\ o0 V'1 N r` O\ ~t N O\ V'1 O\ O N ~t N N M O O\ O\ O O O\ O\ ~ ^ w ~ O ~O l~ ~ ,--i O ~ V'1 l~ V'1 V'1 M N ~O O\ r` r` V'1 l~ ~O N O\ ~ y " S"y ~'S y O N M N O r` ,--i (4 r` r` M C:5 6 r` N N V'1 l~ --i 00 k o0 r` I MN r` 00 ~ r`~ r` O r` I ~ y U Q.i n ~ \ n N O n N t t O t V'1 ~.O ~.O l- 00 00 O\ O C) N N M N M ~t In ~c ~c ll- 00 O\ O NN N N N N N N N M M C~ W O .,V. ~ N l~ N N O l~ N N O v'~ ~O v'~ v'~ O v~ N _ --i --i kn ~t r` O O ~ ~.D DD ~t O M C` M N O\ O C` M N N DD N M V'1 00 M l, O\ C` C` V'1 --i l, M V'1 00 V'1 --i O O DD V'1 ~ ,--i M N~c o0 M O O M ,--i m O\ M M N ol m M ,--i \O 00 r` r` In ~ ~O ~O ~O ~O V'1 ~O ~O ~O ~O ~O ~O V'1 ~O M M N M M ~ M M M M M y ~ . N N N N N N N N N N N N N N N N N N N N N N N Q ~ = w IC 00 O 00 IC r` 00 ~t r In ~ In r` IC IC 'n m N M O\ M 00 O M w O 00 00 ~ M~ O~ O\ r` O N In N N M~ 00 N O O l~ N ' a Z M N 1 O l~ l- O\ ' M N N 0` n O\ O\ 'I M l~ 00 O v'1 r`r`O\,--i In O r`kn1 tkn r`O~c NOO,--i hoc 4NNM M00-t Or`MOc MOr` -t N NOoOc-NOO\00r`~ D y W y, - O O ,--i N N M ~ ~ V'1 ~O ~O l~ 00 ~ V'1 V'1 ~O l~ 00 O\ O\ O ~ N GA ~S'"i .y O_ N_ M_ ~ V'1 ~O l~ 00 O\ O N M ~ V'1 ~O l~ 00 O\ O N M --i N N N N N N N N N N M M M M O O O O O O O O O O O O O O O O O O O O O O O O N N N N N N N N N N N N N N N N N N N N N N N N 0 O U "d O ~ U N H ~ li:i N O O ~ a U O Q w 0 z b O N ~ a U cj~ U 4 U ~ U N F7 ~ U ,b N y O ~ O O ~ N O O ~ Q O ~ U ~ U ~ O U b ~ b -E N b O v' O G? ~ U N ~ N a a O 45 CERTAIN INFORMATION CONCERNING THE CITY Certain general information concerning the City is included herein as Appendix B hereto. Such information is provided for informational purposes only. The General Fund of the City is not liable for the payment of the Series 2010A Bonds or the interest thereon, nor is the taxing power of the City pledged for the payment of the Series 2010A Bonds or the interest thereon. FINANCIAL STATEMENTS Selected portions of the Audited Financial Statements of the Commission for the Fiscal Year ended June 30, 2009, which have been audited by Mayer Hoffman McCann P.C., Certified Public Accountants, Pasadena, California, are included in Appendix C hereto. The Commission anticipates that its Audited Financial Statements for the Fiscal Year ended June 30, 2010 will be filed pursuant to the Continuing Disclosure Agreement with the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (EMMA) system, or such other electronic system designated by the MSRB, on or before March 31, 2011. The Commission has not requested, nor has Mayer Hoffman McCann P.C. given, consent to the inclusion in Appendix C of its report on such financial statements, nor have such accountants reviewed or performed any audit procedures in connection with the preparation of this Official Statement. At the time of the authorization and issuance of the Series 2010A Bonds, the Commission will certify that there has been no material adverse change in the Commission's financial position since June 30, 2009. THE AUTHORITY The Rosemead Financing Authority was created by a Joint Exercise of Powers Agreement, dated as of February 1, 2006, between the City and the Commission. The 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 pursuant to Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act") and has the power to exercise any powers common to the City and the Commission and to exercise additional powers granted to it under the Act. Under JPA Law, the Authority has the power to purchase bonds issued by a local agency at public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale. The 2010A Bonds are being issued for sale to the Authority and will be resold by the Authority to the Underwriter. CERTAIN LEGAL MATTERS Legal matters incident to the delivery of the Series 2010A Bonds are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel to the Commission. A complete copy of the proposed form of opinion of Bond Counsel is contained in Appendix E. As Bond Counsel, Orrick, Herrington & Sutcliffe LLP undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the Commission in connection with the Series 2010A Bonds by Burke, Williams & Sorensen, LLP, Los Angeles, California, as counsel to the Commission, and by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the Commission ("Bond Counsel"), based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2010A Bonds is excluded from gross income for federal income tax purposes under Section 46 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2010A Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix E hereto. To the extent the issue price of any maturity of the Series 2010A Bonds is less than the amount to be paid at maturity of such Series 2010A Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2010A Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2010A Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2010A Bonds is the first price at which a substantial amount of such maturity of the Series 2010A Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2010A Bonds accrues daily over the term to maturity of such Series 2010A Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2010A Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2010A Bonds. Beneficial Owners of the Series 2010A Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2010A Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2010A Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2010A Bonds is sold to the public. Series 2010A Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner's basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2010A Bonds. The Commission has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2010A Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2010A Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2010A Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention after the date of issuance of the Series 2010A Bonds may adversely affect the value of, or the tax status of interest on, the Series 2010A Bonds. Certain requirements and procedures contained or referred to in the Indenture, the Sublease, the Tax Certificate, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Series 2010A Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Series 47 2010A Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP. Although Bond Counsel is of the opinion that interest on the Series 2010A Bonds is excluded from gross income for federal income tax purposes and that interest on the Series 2010A Bonds is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Series 2010A Bonds may otherwise affect a Beneficial Owner's federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Future legislation, if enacted into law, or clarification of the Code may cause interest on the Series 2010A Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Series 2010A Bonds. Prospective purchasers of the Series 2010A Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Series 2010A Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the City or the Commission, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The City and the Commission have covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Series 2010A Bonds ends with the issuance of the Series 2010A Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City, the Commission or the Beneficial Owners regarding the tax-exempt status of the Series 2010A Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the City, the Commission and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the City or the Commission legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2010A Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2010A Bonds, and may cause the City, the Commission or the Beneficial Owners to incur significant expense. LITIGATION At the time of delivery of and payment for the Series 2010A Bonds, the Commission will certify that, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the Commission, threatened against the Commission in any way affecting the existence of the Commission or the titles of its officers to their respective offices or seeking to restrain or to enjoin the issuance, sale or delivery of the Series 2010A Bonds, the application of the proceeds thereof in accordance with the Indenture, or the collection or application of Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Series 2010A Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Series 2010A Bonds, the Resolution, the Indenture or any action of the Commission contemplated by any of said 48 documents, or in any way contesting the completeness or accuracy of this Official Statement or the powers of the Commission or its authority, or which would adversely affect the exclusion of interest paid on the Series 2010A Bonds from gross income for Federal income tax purposes or the exemption of interest paid on the Series 2010A Bonds from California personal income taxation, nor, to the knowledge of the Commission, is there any basis therefor. RATING Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. ("S&P") has assigned its municipal bond rating of "A-" to the Series 2010A Bonds. Such rating reflects only the views of the rating agencies and an explanation of the significance of such rating and any rating of the Commission's outstanding obligations may be obtained from such rating agency as follows: Standard & Poor's Ratings Group, 55 Water Street, New York, New York 10041-0003. There is no assurance that such rating will continue for any given period or that it will not be revised downward or withdrawn entirely by the rating agency, if in its sole judgment, circumstances so warrant. The Commission and the Trustee undertake no responsibility either to notify the owners of the Series 2010A Bonds of any revision or withdrawal of the rating or to oppose any such revision or withdrawal. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2010A Bonds. UNDERWRITING The Series 2010A Bonds are to be purchased from the Commission by E. J. De La Rosa & Co., Inc., as Underwriter, pursuant to a Purchase Contract by and between the Commission and the Underwriter. The Underwriter will purchase the Series 2010A Bonds at a price of $ , which reflects the par amount of the Series 2010A Bonds, (less)/plus original issue (discount)/premium of $ and less an underwriter's discount of $ . The Underwriter is committed to purchase all the Series 2010A Bonds if any are purchased. The Underwriter may offer and sell the Series 2010A Bonds to certain dealers (including depositing the Series 2010A Bonds into investment trusts) and others at prices lower than the offering prices stated on the inside cover of this Official Statement. After the initial public offering, the public offering prices of the Series 2010A Bonds may be changed from time to time by the Underwriter. MISCELLANEOUS All of the preceding summaries of the Series 2010A Bonds, other applicable legislation, agreements and other documents are made subject to the provisions of the Series 2010A Bonds and 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 Commission for further information in connection therewith. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. 49 The execution and delivery of this Official Statement by the Executive Director of the Commission has been duly authorized by the Commission. Concurrently with the delivery of the Series 2010A Bonds, the Commission will furnish to the Underwriter a certificate of the Commission to the effect that this Official Statement, as of the date of this Official Statement and as of the date of delivery of the Series 2010A Bonds, does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading. ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION By: Chairperson ATTEST: Secretary 50 APPENDIX A FISCAL CONSULTANT'S REPORT [THIS PAGE INTENTIONALLY LEFT BLANK] Finance . Redevelopment . Implementation . Planning . Bond Administration June 1, 2010 Jeff Allred Executive Director Community Development Commission of the City of Rosemead 8838 East Valley Boulevard Rosemead, California 91770 RE: Community Development Commission of the City of Rosemead Merged Rosemead Redevelopment Project Area No. 1 and Project Area No. 2 Tax Increment Verification and Revenue Projections Dear Mr. Allred: Urban Futures, Inc. (UFI) is pleased to present this report of projected tax increment revenues to the Community Development Commission of the City of Rosemead (the "Commission") for the Merged Rosemead Redevelopment Project Area No. 1 ("Component Area No. 1") and Redevelopment Project No. 2 ("Component Area No. 2", and collectively the "Merged Project Area"). The following information is included as exhibits to this report: Exhibit A: Merged Project Area Tax Increment Projections Exhibit A-1: Component Area No. 1 Tax Increment Projections Exhibit A-2: Component Area No. 2 Tax Increment Projections Exhibit B: Historical Assessed Valuations Exhibit C: Ten Largest Taxpayers - (by Component Area) Twenty Largest Taxpayers- Merged Project Area Exhibit D: Land Uses - Merged Project Area Exhibit D-1: Land Uses -(by Component Area) Exhibit E: Assessment Appeals Exhibit F: Foreclosure Analysis Exhibit G: Summary of Building Permit Activity Exhibit H: Summary of Property Resale Transactions Exhibit I: Merged Project Area Map 1 Projected taxable valuations and tax revenues contained in this report are based on assumptions derived from the following information: 1. Historical growth trends; 2. Trended growth in valuation as permitted by Article XIIIAof the California Constitution (Proposition 13); 3. Financial reports and information supplied or prepared by the City; 4. Information provided by the County of Los Angeles, from the offices of the Auditor-Controller and Assessor; and 5. Data provided by DataQuick with regards to foreclosure information, and Transamerica/Metroscan for property resale and assessed valuation information. The purpose of the projections is to demonstrate the availability of tax increment expected to be generated from the Merged ProjectArea to secure debt service requirements of the Commission for the (proposed) 2010 Tax Allocation Bonds. Revenue projections have been conservatively estimated in order to reduce the risk of overstating future tax increment revenues. Merged Project Area The Rosemead City Council (the "City Council") adopted the Redevelopment Plan for Redevelopment ProjectArea No. 1 on June 27, 1972, by Ordinance No. 340. That Redevelopment Plan has been amended three times: on December 9, 1986, by Ordinance No. 592, to establish the tax increment collection limit and to establish an eminent domain sunset date; on December 20, 1994, by Ordinance No. 752, to comply with provisions of Assembly Bill 1290; and on January 22, 2002, by Ordinance No. 822, to eliminate the date restriction on establishing loans, advances and indebtedness. ComponentArea No. 1 and ComponentArea No. 2 were merged by Ordinance No. 871, adopted on March 10, 2009.The territory within ComponentArea No. 1 includes approximately 510 acres. The City Council adopted the Redevelopment Plan for Redevelopment ProjectArea No. 2 on June 27, 2000, by Ordinance No. 809. The territory within Project Area No. 2 includes about 205 acres. Tables 1, 2 and 3 below illustrate general information regarding the Merged Project Area. TABLE 1: MERGED PROJECT AREA GENERAL INFORMATION AREA DATE OF ADOPTION ORDINANCE NO. ACTION Component Area No. 1 June 27, 1972 340 Adopt and approve the Original Redevelopment Plan Component Area No. 1 December 9, 1986 592 Establish the tax increment collection and eminent domain limitations 2 Component Area No. 1 December 20, 1994 752 Comply with AB 1290 provisions Component Area No. 2 June 27, 2000 809 Adopted Redevelopment Plan for Component Area No. 2 Component Area No. 1 January 22, 2002 822 Eliminate the date restrictions on indebtedness Merged Project Area March 10, 2009 871 Merged Component Areas 1 & 2 Source: The Commission and Urban Futures, Inc. TABLE 2: REDEVELOPMENT PLAN LIMITATION DATES AND AMOUNTS Time Limits Dollar Limits SUB AREA Debt Incurrence Plan Effectiveness Debt Repayment Cumulative Tax Increment Outstanding Bond Debt Component Area No. 1 (eliminated) June 27, 2013 June 27, 2023 $249,245,938(1) N/A Component Area No. 2 June 27, 2020 June 27, 2030 June 27, 2045 N/A $25,000,000 (1) As of June 30, 2009, cumulative tax increment received since inception of Component Area No. 1 is $94,955,207. Source: The Commission, Urban Futures, Inc., and Los Angeles County TABLE 3: COMPONENT AREAACREAGE Component Area No. 1 510 Component Area No. 2 205 Total 715 acres Source: The Commission Project Tax Rate Areas The tax rate area numbers used by the Los Angeles County Auditor-Controller's Office to identify tax revenue apportionment for the Merged Project Area are summarized in the following table. TABLE 4: PROJECT TAX RATE AREA ID NUMBERS Component Area No. 1 03645, 03646, 03920, 03921, 03924, 03984, 03985, 03986, 03989, 06429, 08214, 08221 Component Area No. 2 12828, 12829, 12830, 12831, 12832 Source: Los Angeles County Auditor-Controller 3 Low- and Moderate-Income Housing Set-Aside Pursuant to Section 33334.2 of California Redevelopment Law, the Commission must set aside 20 percent of annual tax increment allocated to the Commission, for use in projects benefiting low- and moderate- income housing (the "LMI Housing Set-Aside"). In 1991, the Commission pre-paid $6,813,850 from proceeds from its 1987 tax allocation notes. This pre-payment was restructured in 1993 along with the 1993 series tax allocation bonds. These actions have resulted in a decrease of $469,142 on annual housing set-aside requirement until fiscal year2021-22. The LMI Housing Set- Aside amounts (net of such reductions) have been deducted from the Pledged Tax Revenues that are shown in Exhibits A, A-1 and A-2. Pass Through Payments Component Area No. 1 Tax Sharing Agreements: The Agency has entered into tax sharing agreements with taxing entities in the Component Area No. 1. The following tables summarize the provisions of the tax increment agreements with the affected taxing entities. TABLE 5: SUMMARY OF TAX SHARING AGREEMENTS: Component Area No. 1 Taxing Entity Net Pass Through Percentage County of Los Angeles (Consolidated Fire Protection District) 17.10% of Gross Tax Revenues 4% of Gross Tax Revenues- contingent upon the Commission's construction of a County of Los Angeles (Public Library District)' replacement facility; however neither the Commission nor City has any obligation to construct a replacement facility. The Commission does not pay a pass through payment to the Public Library District because no facility has been constructed. Source: The Commission Statutory Pass Through Payments: Component Area No. 1 Pursuant to Health & Safety Code Section 33607.7, the Commission is obligated to share tax increment revenues calculated pursuant to Health & Safety Code Section 33607.5 (the "AB 1290 Pass Through Formula") generated in the Component Area No. 1 with affected taxing entities that do not have prior written agreements, commencing in FY 2004-05. This additional pass through obligation was incurred by the Commission upon adoption of Ordinance No. 822, which eliminated the last date to incur indebtedness contained in the Original Plan. Component Area No. 2 The AB 1290 Pass Through Formula will apply to all taxing entities in Component Area No. 2 (and some of the Component Area No. 1 taxing entities, as noted above), and will be applied as follows: 4 Pass Through Percentage(s) TierA (Years 1-45) 25% Tier B (Years 11-45) 21% + TierA Tier C (Years 31-45) 14% + Tiers A & B (1) Applied to the taxing entity's share of tax increment, reduced by a pro-rata share of Agency's low and moderate housing set-aside. Pursuant to Section 33607.5(e) of the Redevelopment Law, the Commission may subordinate the statutory pass through payments to bond debt service payments, if the commission provides substantial evidence to the affected taxing entities that sufficient funds will be available to pay both the bond debt service and the statutory pass through payments. The Commission has provided such information to the affected taxing entities, and because the taxing entities have not provided a finding, based on substantial evidence, that the Commission will not be able to pay the debt service payments and the statutory pass through payments, the pass through payments to all affected taxing entities are deemed subordinate to bond debt service payments on the Bonds. The Commission has previously taken the steps to subordinate statutory pass through payments to debt service on its 2006A and 2006 B Bonds. Affected taxing entities that may receive a share of statutory pass through payments include the City of Rosemead, County of Los Angeles, County Library, County Flood, Sanitation District No. 15, Upper San Gabriel Valley Metropolitan Water District, County School Services, Garvey School District, Rosemead School District, Alhambra Unified School District, El Monte School District, Los Angeles Community College District, Pasadena Community College District, and the Montebello School District. The Los Angeles County Fire District may receive statutory pass through payments in Component Area No. 2, but the Fire District is not eligible to receive statutory pass through payments from Component Area No. 1, as it currently receives pass through payments pursuant to a Tax Sharing Agreement between the Commission, the County, the Consolidated Fire Protection District, and the County Public Library District. Although the County Public Library District is a party to the Tax Sharing Agreement, pursuant to the terms of the Agreement the Library District is not currently receiving payments under the Agreement, and the County and the Commission have agreed that the Library District is therefore eligible to receive statutory pass through payments from Component Area No. 1. Payments to the Fire District under the Agreement are senior to bond debt service payments of the Commission (see: Exhibit A). Property Tax Administration Fees The Los Angeles Auditor-Controller will deduct administration charges from the tax increment distributed to the Agency for the Merged Project Area. The estimated administration charges (1.5% of gross tax increment) have been deducted from the Projected Tax Revenues (see Exhibit A). Building Permit Summary Asummary of building permit activity in the Merged Project Area for 2009 and 2010 (year to date) is attached as Exhibit H. A valuation amount of $4,857,216 has been added to the projection of assessed valuation for FY 2010-11 for the Merged Project Area, and $326,934 has been added to the projection of assessed valuation and tax increment for FY 2011-12. 5 State Budget: ERAF & SERAF Shifts Over the past several years, the state has experienced revenue shortfalls in its budget. To fully fund the state's commitment to Proposition 98 (K-12 School Funding), legislation was approved that mandated redevelopment agencies statewide to transfer $75 million of tax increment revenue to Educational Revenue Augmentation Fund ("ERAF") in 2002-03, $135 million in 2003-04, and $250 million in 2004-05 and 2005-06. The transfer of funds from redevelopment agencies to ERAF was established based on two criteria; 1) gross tax increment, and 2) available net revenues available after tax sharing payments. In 2006-07 and 2007-08 the state budget did not require a transfer of tax increment to ERAF. As a result of the above transfers, agencies were able to extend their redevelopment plans and date to receive tax increment if they met certain criteria. Once again, the state is experiencing revenue shortfalls to meet its budget obligations. To address this shortfall of revenue, on July 28, 2009, the Governor signed AB 26 into law. AB 26 requires a $1.7 billion one year transfer, in the aggregate, from redevelopment agencies to their respective County Supplemental Educational Revenue Augmentation Fund ("SERAF") in 2009-10, plus another $350 million aggregate transfer in 2010-2011. A SERAF is similar to an ERAF, except that there is an additional requirement for the SERAF that moneys in the SERAFs must be used by school districts and county offices of education to serve pupils living in redevelopment areas or in housing supported by redevelopment agency funds. On May 10, 2010, the Commission paid its 2009-10 SERAF payment in the amount of $1,437,857 from cash reserves. Resale Activity A summary of property resale transactions in the Project Areas for 2009 and 2010 (year to date) is attached as Exhibit I. Based on the difference between the FY 2009-10 assessed valuations of the transferred properties and the sales prices, an estimated net increase of $2,961,267 has been added to ComponentArea No. 1 assessed valuation, and an estimated net increase of $2,661,662 has been added to Component Area No. 2 assessed valuation for FY 2010-11. Unitary Revenue AB 454 provides that revenues derived from most utility property assessed by the State Board of Equalization, beginning with the 1988-89 fiscal year, will be allocated as follows: (1) each jurisdiction, including Project Area, will receive up to 102% of its prior year State- assessed revenue; and (2) if county-wide revenues generated from Unitary Property are less than the previous year's revenues or greater that 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. To administer the allocating of unitary tax revenues to redevelopment agencies, the County no longer includes the taxable value of utilities as part of the reported taxable values of the project area, therefore, the base year of project areas have been reduced by the amount of utility value that existed originally in the base year. Unitary revenue of $1,237,273 from Component Area No. 1 is included in Pledged Tax Revenues based on the amount of unitary revenues for FY 2009-10, and is assumed to remain constant at 6 that level for projection purposes through the last year that tax increment can be allocated to Component Area No. 1. The relatively high amount of unitary revenues is attributable to the Southern California Edison headquarters, located in Component Area No. 1. Over the past five years, unitary revenues have gradually increased; in 2004-05 unitary revenues were $1,173,352 and have risen to $1,237,273. In March 2010, Southern California Edison purchased 270,000 square feet of additional office space for their operations in the City of Rosemead, an investment of $33,750,000. The Commission and City believe this significant investment represents a desire for Southern California Edison to remain in the City for the foreseeable future. Foreclosures in the Project Area A summary of foreclosure activity in the Component Area No. 1 and the Component Area No. is shown in Exhibit F, based on information provided by DataQuick. Of the 1,362 parcels located within the Merged ProjectArea, in calendaryear 2009 there were 3 parcels that received a Notice of Default, and 1 parcel that was foreclosed on for a total of 4 parcels with some form of foreclosure activity, which represents .3% of all parcels within the Merged Project Area. Reductions in assessed valuation of properties in the Merged Project Area, based on foreclosure activity, is assumed to be included in the adjustments for net property resale transactions (See: Exhibit 1). Proposition 8 Adjustments Under Proposition 8, qualifying properties may be given a temporary reduction in their taxable value when property values decline. The Los Angeles County Assessor has been proactive in reviewing properties that may qualify for a reduction in assessed valuation, and allowed reductions for fiscal year 2009-10 for 333,870 properties county-wide out of 473,000 single- family residences and condominiums reviewed. It is not anticipated that the County will make further Proposition 8 adjustments, as the reductions that have already been made for FY 2009-10 were based on a review of sale transactions that went back as far as FY 2003-04. Assessment Appeals In Los Angeles 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 Los Angeles County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15th of such tax year. The Appeals Board, within two years of each applicant's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment. Current appeals pending in the Merged Project Area represent real property with a total assessed valuation of $40,013,355. Based on the actual valuation reductions allowed by the Appeals Board for property in the Merged Project Area over the last six years, the amount of the allowed reductions represented approximately 1.13% of the total assessed valuation of the properties that were the subject of the appeals. If the historical reduction percentage of 1.13% is applied to the total assessed valuation of the currently outstanding appeals, it is estimated that the resolution of the current appeals pending could result in a valuation reduction in the Component Area No. 1 of approximately $451,357, which could then result in a reduction to the gross tax increment revenue of approximately $4,514. This estimated amount has been deducted from the projections of Tax Revenues in Exhibit A for FY 2009-10. 7 While UFI has taken steps to assure the accuracy of the data used in the formulation of these projections, we cannot insure that projected valuations will, in fact, be realized because actual values will most likely be affected by future events and conditions that cannot be predicted with certainty. We believe that this report provides the Community Development Commission of the City of Rosemead with a reasonable basis for demonstrating the available tax increment revenues of the Merged Project Area. We are available to answer any questions that you may have regarding this information. Sincerely, 8 APPENDIX B SUPPLEMENTAL INFORMATION CONCERNING THE CITY OF ROSEMEAD This Appendix contains principally economic and demographic information relating to the City of Rosemead and the County of Los Angeles. Neither the faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof is pledged to the payment of the Series 2010A Bonds. The Series 2010A Bonds are special tax obligations of the Commission payable solely from a portion of the Special Taxes and other amounts pledged under the Indenture, as more fully described in the Official Statement to which this Appendix is appended The information set forth herein that has been obtained from sources, other than the City is believed to be reliable, but such information is not guaranteed as to accuracy or completeness. Statements contained herein which involve estimates, forecasts, or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. INTRODUCTION Location The City of Rosemead (the "City"), encompassing approximately 5 '/2 square miles, is located in the central northwestern section of Los Angeles County approximately 12 miles east of the central business district of Los Angeles. The City shares common boundaries with the municipalities of San Gabriel, Temple City, El Monte, Montebello, Monterey Park and Alhambra. Municipal Government Incorporated in August 4, 1959, the City operates as a general law city. It has a council-manager form of government, with five council members elected at large for four-year overlapping terms. The Council selects a mayor and mayor pro-tem each year from its membership. The Council is responsible for enacting local legislation, establishing general policy for the City and adopting the annual budget. The Council's duties also include the appointment of a City Manager, City Attorney, City Clerk and City Treasurer and the selection of citizens to serve of the City's various advisory commissions. The City contracts with the Los Angeles County Sheriff's Department for sheriff services. Fire protection is provided through the Los Angeles County Fire Protection District. Two fire stations are located in the City. ECONOMIC AND DEMOGRAPHIC INFORMATION Data contained under this caption is intended to portray economic, demographic, and business trends within the City and the County of Los Angeles (the "County"). While not constituting direct revenue sources as such, these trends help explain changes in revenue sources such as property taxes, sales taxes, and transient occupancy taxes, which could be affected by changes in economic conditions. All the information presented in the following tables and other specific data references is the latest information available from the respective data sources. B-1 Population Between 2002 and 2009, the population of the City increased by more than 4%. The table below displays population changes and other demographic data for the City and the County for the past five years. POPULATION DATA FOR THE CITY OF ROSEMEAD AND THE COUNTY OF LOS ANGELES City of Rosemead Year Population % Change 2002 55,244 1.3% 2003 56,132 1.6 2004 56,556 0.7 2005 56,815 0.4 2006 56,970 0.3 2007 56,948 0.0 2008 57,095 0.3 2009 57,594 0.9 Source: State Department of Finance County of Los Angeles Population % Change 9,815,369 1.6% 9,959,447 1.4 10,074,844 1.1 10,158,409 0.8 10,209,201 0.5 10,243,764 3.4 10,301,658 5.6 10,393,185 8.8 B-2 Personal Income The table below summarizes the total effective buying income and median household effective buying income for the City, the County, the State of California and the United States for the period 2004 through 2008. City of Rosemead, County of Los Angeles, State of California, and United States Total Effective Buying Income Calendar Years 2004 through 2008 Total Effective Buying Median Household Effective Year and Area lncome(in thousands) Buying Income 2004 City of Rosemead $ 579,423 $ 33,845 County of Los Angeles 177,575,730 39,414 State of California 705,108,410 43,915 United States 5,692,909,567 39,324 2005 City of Rosemead $ 554,088 $ 32,946 County of Los Angeles 180,142,798 40,020 State of California 720,798,122 44,681 United States 5,894,664,154 40,529 2006 City of Rosemead $ -(t) $ -0u County of Los Angeles 190,915,435 41,683 State of California 764,120,982 46,275 United States 6,107,093,057 41,255 2007 City of Rosemead $ 663,110 $ 37,840 County of Los Angeles 202,646,560 43,710 State of California 814,894,437 48,203 United States 6,300,794,040 41,792 2008 City of Rosemead $ 671,928 $ 38,602 Los Angeles MSA 206,127,855 44,653 State of California 832,531,445 48,952 United States 6,443,994,426 42,303 (t) Data not available. Source: "Survey of Buying Power," Sales and Marketing Management for years 2004, 2007 and 2008; Trade Dimensions International, Inc. - Demographics USA for years 2005 and 2006. B-3 Labor Force The following chart provides information concerning the annual average total labor force, employment, and unemployment for the City, the County, the State of California and the United States for the years 2005 through 2009. City of Rosemead, Los Angeles County, State of California and United States Labor Force, Employment, and Unemployment Annual Averages from 2005 through 2009 Unemployment Year and Area Labor Force Employment Unemployment Rate(i) 2005 City of Rosemead -(2) -(2) -(2) -(2) Los Angeles County 4,771,400 4,516,000 255,400 5.4% State of California 17,629,200 16,671,900 957,200 5.4 United States 149,320,000 141,730,000 7,591,000 5.1 2006 City of Rosemead -(2) -(2) -(2) -(2) Los Angeles County 4,797,400 4,568,200 229,300 4.8% State of California 17,821,100 16,948,400 872,700 5.4 United States 151,428,000 144,427,000 7,001,000 4.6 2007 City of Rosemead -(2) -(2) -(2) -(2) Los Angeles County 4,863,800 4,617,100 246,700 5.1% State of California 18,078,000 17,108,700 969,300 5.4 United States 153,124,000 146,047,000 7,078,000 4.6 2008 City of Rosemead 25,100 23,500 1,600 6.5% Los Angeles County 4,924,500 4,557,300 367,200 7.5 State of California 18,251,600 16,938,300 1,313,200 7.2 United States 154,287,000 145,362,000 8,924,000 5.8 2009 City of Rosemead 24,900 22,300 2,500 10.2% Los Angeles County 4,896,100 4,328,600 567,500 11.6 State of California 18,250,200 16,163,900 2,086,200 11.4 United States 154,142,000 139,877,000 14,265,000 9.3 (1) Unemployment rate is based on unrounded data. (2) Data not available. Source: California State Employment Development Department, Labor Market Information Division; U.S. Department of Labor, Bureau of Labor Statistics. B-4 Business and Industry A sample of the major employers in the City are shown below, together with the approximate number of persons employed by each. CITY OF ROSEMEAD Major Employers Employer Type of Business Number of Employees Edison International Utility - Regional headquarters 4,000 Garvey School District Education 953 Wal-Mart Retail and Grocery 420 Panda Restaurant Group Restaurant management 400 Rosemead School District Education 337 Target Retail and Grocery 200 Hermetic Seal Corp. Hermetic seal manufacturing 130 Don Bosco Technical Institute Education 90 Double Tree Hotel 90 Marge Carson, Inc. Furniture manufacturing 80 Irish Construction Utility underground construction 75 Source: Rosemead Chamber of Commerce. Commercial Activity Taxable transactions in the City totaled $364,602,000 in 2008, more than a 21% increase over 2004. The following table details taxable permits and transactions in the City of Rosemead for the years 2004 through 2008. CITY OF ROSEMEAD Taxable Transactions Calendar Years 2004 through 2008 (Taxable Transactions in $000's) 2004 2005 2006 2007 2008 Retail Stores Permits 572 (1) 558 557 590 Taxable Transactions $253,469 $266,458 $253,135 $313,134 $328,432 Total Outlets Permits 1,235 (1) 1,113 1,019 1,021 Taxable Transactions $288,488 $302,982 $294,641 $351,206 $364,602 Source: California State Board of Equalization Construction Activity In the past five years for which complete information is available, the City issued building permits totaling approximately $145,951,361. Approximately 43% of this total consisted of permits for non-residential construction. Permits for new housing included 278 units, of which 46 were for multi- B-5 family occupancy. The following table details building permit activity in the City for the years 2005 through 2009: CITY OF ROSEMEAD Building Permit Valuations Calendar Years 2005 through 2009 2005 2006 2007 2008 2009 Valuation ($0001s) Residential $18,162,780 24,590,153 $23,195,904 $10,207,454 $12,530,293 Non-Residential 8,813,761 20,506,250 9,817,849 10,557,492 7,569,425 Total $26,976,541 $45,096,403 $33,013,753 $20,764,946 $20,099,718 New Housing Units Single Units 50 72 58 22 30 Multiple Units 0 15 16 8 7 Total 50 87 74 330 37 Source: Construction Industry Research Board. Utilities Electricity is provided by Southern California Edison Company and gas is supplied by the Southern California Gas Company. Telephone services are provided by AT&T (successor to SBC and Pacific Bell). Water is supplied by six water companies: Adams Ranch Mutual Water, California- American Water, Golden State Water, San Gabriel Valley Water and San Gabriel County Water District. The majority of these organizations obtain water from the Metropolitan Water District of Southern California, while the San Gabriel County Water District and locally drilled wells provide the balance. Sewage treatment services are provided by the County of Los Angeles Sanitation District. Transportation The City's location near several interstate freeways affords residents immediate access to the extensive Southern California freeway network. This network links Rosemead to a number of diverse commercial and recreation activities located throughout Orange, Los Angeles and San Bernardino Counties. Two main east-west thoroughfares pass through the City. The San Bernardino Freeway (Interstate 10) traverse the central portion of the City and the Pomona Freeway (State Route 60) crosses the southern extremity of the City. Rosemead Boulevard (State Route 19) intersects these major routes and continues north to Pasadena, and south to Orange County. Major airports in the Los Angeles Basin are easily accessible by means of the highly developed freeway network in the West San Gabriel Valley. Air cargo and passenger facilities include those at the Los Angeles International Airport, Burbank-Glendale-Pasadena Airport, Long Beach International Airport and Ontario International Airport. All are less than 35 miles from the City. El Monte Airport, located two miles to the east, has facilities to service private aircraft. B-6 Education Most of the City is located in the Garvey School District and the Rosemead School District. Rosemead has 11 elementary schools, 3 junior high schools and 1 high school. Continuing education is available through the Los Angeles City Community College District. Los Angeles County is the location of many colleges and universities, both public and private, including such well known institutions as the University of California at Los Angeles, the University of Southern California, Occidental College, Claremont College and the California Institute of Technology. State University campuses are located in Los Angeles, Long Beach, Northridge, Pomona and Dominguez Hills. The City is also home to the Don Bosco Technical Institute (a private high school) and University of the West (formerly known as Hsi Lai University, a private, nonprofit, university). Community Facilities Health care services are provided by medical centers in Alhambra, San Gabriel and other neighboring communities. Located within the City are 2 fully-equipped mental health centers and a convalescent center. Religious and cultural facilities include 22 churches of various denominations and one library. Financial institutions include 10 banks and two savings and loan institutions. Recreational facilities for area residents include the City's own community parks and outdoor recreation offered in the surrounding areas. City facilities include 4 major public parks, 10 playgrounds, two municipal swimming pools, tennis courts, several baseball diamonds and 2 community centers. Southeast of the City is the Whittier Narrows Regional Park which includes the Whittier Narrows Golf Course. The San Gabriel Mountains and the Angeles National Forest, both located north of the City, provide additional outdoor recreation opportunities. Rosemead's proximity to the San Bernardino and Pomona Freeways bring the cultural and recreational advantages of Los Angeles and Orange Counties within convenient driving distance. B-7 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE COMMISSION FOR THE FISCAL YEAR ENDED JUNE 30, 2009 [THIS PAGE INTENTIONALLY LEFT BLANK] ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION FINANCIAL STATEMENTS Fiscal Year Ended June 30, 2009 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION FINANCIAL STATEMENTS Fiscal Year Ended June 30, 2009 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS Government-wide Financial Statements Page Statement of Net Assets 3 Statement of Activities 4 Fund Financial Statements Balance Sheet - Governmental Funds 5 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 6 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 7 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 8 Notes to the Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Notes to Required Supplementary Information 25 Low-Moderate Income Housing Set-Aside Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 26 Rosemead Housing Development Corporation Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 27 Supplementary Information: Computation of Low/Moderate Housing Fund - Excess Surplus 28 Report on Compliance and Other Matters and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 29 Schedule of Findings and Recommendations 31 ppp I r I. n rl ~ ~ ~ Y 13 ~ -1 ~ e T rr An Independent CPA Firma 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 N wNw. mh rn-pc.com Board of Directors Rosemead Community Development Commission Rosemead, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the governmental activities and each major fund of the Rosemead Community Development Commission (the Commissibn), a component unit of the City of Rosemead, California, as of and for the year ended June 30, 2009, which collectively comprise of the Commission's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Commission's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Commission as of June 30, 2009, and the respective changes in financial position thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The Commission has not presented management's discussion and analysis which according to accounting principles generally accepted in the United States of America is necessary to supplement, although not required to be part of, the basic financial statements. The information identified in the accompanying table of contents as required supplementary information is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion an it. Board of Directors Rosemead Community Development Commission Page Two Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Rosemead Community Development Commission's basic financial statements. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2009 on our consideration of the Commission's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. /&~M /z/aaV-1 Pl L" Irvine, California December 18, 2009 2 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Statement of Net Assets June 30, 2009 Assets Cash and investments (note 2) Receivables: Accounts Accrued interest Due from City of Rosemead Land held for resale Deferred charges Capital assets, net (note 5) Land Other capital assets, net Total assets Liabilities and Net Assets Liabilities: Accounts payable Deposits payable Due to City of Rosemead Accrued interest payable Noncurrent liabilities (note 6): Due within one year Due in more than one year Total liabilities Net assets: Invested in capital assets, net of related debt Restricted for: Low-moderate income housing Unrestricted Total net assets See accompanying notes to the basic financial statements. $ 12,277,260 118,239 52,025 351 4,407,616 453,207 2,425,898 13,928,331 33,662,927 459,574 34,527 485,082 618,346 964,802 37,225,542 39,787,873 9,046,660 5,966,004 (21,137,610) $ (6,124,946 3 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Statement of Activities Fiscal Year ended June 30, 2009 Program Revenues Operating Capital Charges for Contributions Contributions Governmental Expenses Services and Grants and Grants Activities Governmental activities: Community development $ 4,533,007 409,139 - (4,123,868) Interest. expense 1,523,391 - - - (1,523,391) Total governmental activities $ 6,056,398 409,139 - (5,647,259) General revenues: Taxes: Property taxes Investment income Other general revenues Total general revenues Change in net assets Net assets at beginning of year Net assets at end of year See accompanying notes to the basic financial statements. 5,668,563 291,192 6,617 5,966,372 319,113 (6,444,059) $ (6,124,946) 4 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Balance Sheet - Governmental Funds June 30, 2009 Low-Moderate Rosemead Income Housing Housing Development Debt Capital Set-Aside Corporation Service Prects Total Assets: Cash and investments $ 1,499,153 512,628 7,559,374 2,714,105 12,277,260 Receivables: Accounts - 13,682 104,557 - 118,239 Accrued interest 1,773 - 26,951 23,301 52,025 Due from City of Rosemead - - - 351 351 Land held for resale - 4,407,616, 4,407,616 Advances to other funds (note 4) 4,477,945 4,477,945 Total assets $ 5,978,871 526.310 7,682,882 7,145,373 21,333,436 Liabilities and Fund Balance Liabilities: Accounts payable $ 2,615 - 401,029 55,930 459,574 Deposits payable - 34,527 - - 34,527 Due to City of Rosemead 10,252 351,600 - 123,230 485,082 Advances from other funds (note 4) - - 4,477,945 - 4,477,945 Total liabilities 12,867 386,127 4,878,974 179,160 5,457,128 Fund balance: Reserved for: Encumbrances - - - 115,000 115,000 Land held for resale - - - 4,407,616 4,407,616 Advances to other funds 4,477,945 - - - 4,477,945 Unreserved, reported in: Special revenue funds 1,488,059 140,183 - - 1,628,242 Debt service funds - - 2,803,908 - 2,803,908 Capital projects funds - - - 2,443.597 2.443,597 Total fund balance 5,966,004 140,183 2,803,908 6,966,213 15,876,308 Total liabilities and fund balance $ 5,978,871 526,310 7,682,882 7,945,373 21,333,436 See accompanying notes to the basic financial statements. 6 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2009 Fund balances of governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets, net of depreciation, have not been included as financial resources in governmental fund activity. Capital assets Accumulated depreciation Long-term debt has not been included in the governmental fund activity. Advances from City Bonds payable Unamortized bond premiums Cost associated with the issuance of debt are capitalized and amortized in the statement of net assets and expensed in the governmental funds. Deferred charges Accrued interest payable for the current portion of interest due on bonds payable has not been reported in the governmental funds. Net assets of governmental activities See accompanying notes to the basic financial statements. $ 15,876,308 22,246,786 (5,892,557) (2,497,920) (35,435,000) (257,424) 453,207 (618,346) $........_(6_,1.24, 946) 6 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Fiscal Year ended June 30, 2009 Revenues: Taxes Rental income Investment income Other Total revenues Expenditures: Current: General government Public safety Public works Community development Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Transfers in (note 4) Transfers out (note 4) Transfers to City of Rosemead Total other financing sources (uses) Change in fund balances Fund balances at beginning of year Fund balances at end of year Low-Moderate Rosemead Income Housing Housing Development Debt Capital Set-Aside Corporation Service Projects Total $ - - 5,649,896 8,667 5,668,563 - 409,139 - - 409,139 22,643 140 261,591 6,898 291,192 - 6,011 606 - 6,617 22,643 415,290 5,912,093 25,485 6,375,511 - 720,018 104,396 1,183,769 2,008,183 - 1,016,479 - 1,016,479 - - - 303,371 303,371 256,220 - - 256,220 915,000 - 915,000 - - 1,531,986 - 1,531,986 256,220 720,018 3,567,861 1,487,140 6,031,239 (233,577) (304,728) 2,344,232 (1,461,655) 344,272 928,000 250,000 - 2,330,533 3,508,533 (250,000) - (3,258,533) - (3,508,533) - (388,020) ___._(388,020) 678,000 250,000 (3,258,533) 1,942,513 (388,020) 444,423 (54,728) (914,301) 480,858 (43,748) 5,521,581 194,911 3,718,209 6,485,355 15,920,056 $ 5,966,004 140,183 2,803,908 6,966,213 15,876,308 See accompanying notes to the basic financial statements. 7 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Fiscal Year ended June 30, 2009 Net changes in fund balances of governmental funds $ (43,748) Amounts reported for governmental activities in the statement of activities is different because: Governmental funds report capital outlay as expenditures. However, in the statement of activities, the cost of those assets is "allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. Depreciation expense (560,734) Bond issuance costs, premiums, discounts, and similar items are recorded as expenditures in governmental funds when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net offset of the differences. 29,760 Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 915,000 The statement of net assets includes accrued interest on long term debt. (21,165) Change in net assets of governmental activities $ 319,113 See accompanying notes to the basic financial statements. ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements Fiscal Year ended June 30, 2009 (1 } Summa of Significant Accounting Policies (a) Reporting Entity The Rosemead Redevelopment Agency was established in June 1972 pursuant to State of California Health and Safety Code Section 33000 entitled Community Redevelopment Lave. The Agency's name was changed to the Rosemead Community Development Commission (the Commission). in January 2002. Its purpose is to finance street, park and utility improvements. It also acquires and constructs major capital facilities all within the Rosemead Project Area No. 1. The Commission is a blended component unit of the City of Rosemead, California, (the City) and is included in the basic financial statements of the City. The financial statements contain information for the Commission only. The City's financial statements can be obtained from the Finance Department of the City. Governmental Accounting Standards Board (GASB) Statement No. 14. The Financial Reporting Entity, defines the reporting entity as the primary government and those component units for which the primary government is, or has the potential to be, financially accountable. Financial accountability is defined as appointment of a voting majority of the component unit's Board and either (a) the primary government has the ability to impose its will or (b) the possibility that the component unit will provide a financial benefit to, or impose a financial burden on, the primary government. Based upon the above criteria; the Rosemead Housing Development Corporation (the Corporation), is a blended component unit of the Commission as the Commission's governing board serves as the governing board of the Corporation. Since the City Council of the City also serves as the Board of Directors of the Commission, the City, in effect, has the ability to influence and control operations. Therefore, the City has oversight responsibility for the Commission. Accordingly, the Commission is a blended component unit of the City. (b) Basis of Accounting and Measurement Focus The basic financial statements of the Commission are composed of the following: ® Government-wide financial statements Fund financial statements Notes to the basic financial statements ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (9) Summa of Significant Accounting Policies Continued (b) Basis of Accounting and Measurement Focus, Continued Government-wide Financial Statements Government-wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities of the primary government (including its blended component units), as well as its discreetly presented component units. The Community Development Commission of the City of Rosemead has no business-type activities or discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the Commission. Government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the government-wide financial statements. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Program revenues include charges for services and payments made by parties outside of the reporting government's citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as expenditure. Proceeds of long-term debt are recorded as a liability in the government-wide financial statements, rather than as other financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. 10 ROSEMEAID COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, {Continued) (b) Basis of Accounting and Measurement Focus Continued Fund Financial Statements The underlying accounting system of the Commission is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund financial statements for the primary government's governmental, proprietary, and fiduciary funds are presented after the government-wide financial statements. These statements display information about major funds individually and nonmajor funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds and similar component units. Fiduciary funds primarily represent assets held by the Commission in a custodial capacity for other individuals or organizations. The Commission has no enterprise funds or fiduciary funds. Governmental Funds In the fund financial statements, governmental funds and agency funds are presented using the modified-accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The Commission uses a sixty day availability period. Revenue recognition is subject to the measurable and available criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government-mandated and voluntary non- exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. t1 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (1) Summa of Significant Accounting Policies Continued (b) Basis of Accounting and Measurement Focus, (Continued) Governmental Funds, (Continued In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of "available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Non-current portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however: that they should not be considered "available spendable resources," since they do not represent not current assets. Recognition of governmental fund type revenues represented by noncurrent receivables are deferred until they become current receivables. Noncurrent portions of other long-term receivables are offset by fund balance reserve accounts. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as an other financing source rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. 12 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (1) Summa of Si nificant Accounting Policies Continued (c) Property Taxes Real property taxes are levied for the period from July 1 to June 30 against property owners of record on March 1 _ The taxes are due in two installments, on December 10 and April 10, and become delinquent after December 10 and April 10, respectively. Under the provisions of NCGA Interpretation 3, property tax revenue is recognized in the fiscal year for which. the taxes have been levied, provided it is collected within sixty days of the end of the fiscal year in the fund financial statements. (d) Maior Funds The Commission reports the following major governmental funds: Low-Moderate Income Housing Set-Aside Fund - Accounts for the 20% of gross property tax increment revenue received by the Commission to fund future projects involving the replacement or rehabilitation of low- and moderate-income housing within City limits. Rosemead Housing Development Corporation the Corporation) - Accounts for the construction and financing of low- and moderate-income housing. Debt Service Fund - Accounts for the accumulation of resources for the payment of principal, interest and related costs associated with all long-term debt of the Commission. Capital Proiects Fund - Accounts for the financial resources to be used for the improvement and rehabilitation of the community redevelopment project areas and acquisition or construction of major capital facilities within the Commission. (e) Cash and Investments Cash includes amounts in demand and time deposits. Investments are reported in the accompanying balance sheet at fair value, except for certain money market contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value and any gains or losses realized upon the liquidation, maturity or sale of investments. 13 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) {1) Summary of Significant Accounting _Policies, (Continued) (f) Capital Assets Capital assets, which include land; buildings, equipment and infrastructure assets (e-g-, roads, bridges, traffic signals and similar items), are reported in the government-wide financial statements. Capital assets are defined by the Commission as assets with an initial individual cost of more t#ian $500 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of an asset or materially extend an asset's useful life are not capitalized. Construction in progress costs are transferred to their respective fixed asset category upon completion. Depreciation is charged to operations using the straight-line method based on the estimated useful life of an asset. The estimated useful lives of depreciable assets are as follows: Buildings 50 years Improvements other than buildings 15 years Furniture and office equipment 7 years Streets 30 years Sidewalks 40 years Vehicles 5 years (g) Long-term Obligations Long-term debt and other long-terra obligations are reported as liabilities in the applicable governmental activities statement of net assets. Bond premiums, discounts and issuance costs are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums, discounts and issuance costs during the current period, the face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources, while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 14 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) Summary of Significant Accounting Policies, (Continued) (h) Fund Equity In the fund financial statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balances represent tentative management plans and are subject to change. (i) Low-Moderate Income Housing Set-Aside On October 9, 1991 the Commission prepaid its housing obligation in the amount of $6,813,850 from proceeds from its 1987 tax allocation notes. This pre- payment was restructured in 1993 along with the 1993 series tax allocation bonds. As a result, the Commission's housing obligation has been reduced by $469,142 per year until the 2021-22 fiscal year. (j) Use of Estimates . The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (2) Cash and Investments Cash and investments as of June 30, 2009 are classified in the accompanying financial statements as follows: Statement of net assets; Cash and investments 12 2,277 260 Total cash and investments $12,277,260 Cash and investments as of June 30, 2009 consist of the following: Deposits with financial institutions $ 771,091 Investments 11506,1_69 Total cash and investments $12,277.260 15 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (2) Cash and Investments, _(Continued Investments Authorized b the California Government Code and the City's Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code and the City's investment policy. The table also identifies certain provisions of the California Government Code (or the City's investment policy, if more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. Authorized by Maximum Maximum Investment Types Investment Maximum Percentage Investment Authorized by State Law Poky Maturity of Portfolio* In One Issuer* Local Agency Bonds No 5 years None None U.S. Treasury Obligations Yes 5 years None None U.S. Agency Securities Yes 5 years None None Banker's Acceptances Yes 180 days 40% 30% Commercial Paper Yes 270 days 25% 10% Negotiable Certificates of Deposit Yes 1 year 30% None Repurchase Agreements No 1 year None None Reverse Repurchase Agreements No 92 days 20% of base value None Medium-Terre Notes Yes 5 years 10% None Mutual Funds Yes NIA 20% 10% Money Market Mutual Funds Yes NIA 20% 10% Mortgage Pass-Through Securities No 5 years 20% None County Pooled Investment Funds No NIA None None Local Agency Investment Fund Yes NIA None None JPA Pools (other investment pools) No NIA None None * Based on state law requirements or investment policy requirements, whichever is more restrictive. 16 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (2) Cash and Investments, (Continued) Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk. credit risk, and concentration of credit risk. Maximum Maximum Authorized Maximum Percentage Investment Investment Type Matures Allowed In One Issuer Local Agency Bonds None None None U.S. Treasury Obligations None None None U.S. Agency Securities None None None Banker's Acceptances 1 year None None Commercial Paper 1 year None 10% Repurchase Agreements 30 days None None Money Market Mutual Funds NIA 20% 10% Local Agency Investment Fund NIA None None Investment Agreements NIA None None Certificates of Deposits 1 year None None Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Agency manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 17 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (2) Cash and Investments, (Continued) Disclosures Relating to Interest Rate Risk Continued Information about the sensitivity of the fair values of the Agency's investments (including investments held by bond.trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Agency's investments by maturity: Remaining Maturing in Months 12 Months 13 to 24 25 to 60 More Than Investment Type Or Less Months Months 60 Months State investment pool $10,363,111 10,363,111 - - - Held by bond trustee: Money market fund 4 4 - - - investment agreement 1143 054 - - - 1,143,054 Total $11,506,169 10.363.115 1.143.054 Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Minimum Exempt _Rating as of Year End Legal From Not Investment Type Rating Disclosure AAA Rated State investment pool $10,363,111 NIA - 10,363,111 Held by bond trustee: Money market fund 4 AAA - 4 - Investment agreement 1,143,054 NIA - 1,143,054 Total $11,506,169 - 4 11,506,165 18 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (2) Cash and Investments, (Continued} Concentration of Credit Risk The investment policy contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total Agency investments are as follows: Issuer Investment Type Re orted Amount AIG Match Funding Corp Investment agreement $ 1,143,054 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2009, $115,620 of the Corporation's deposits with financial institutions in excess of federal depository insurance limits were held in uncollateralized accounts For investments identified herein as held by bond trustee, the bond trustee selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The Agency is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the Agency's investment in this pool is reported in the accompanying financial statements at amounts based upon the Agency's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. 19 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (3) Operating Lease The Corporation entered into a 55-year lease agreement with the City for the use of the Angelus Senior Housing facility for $60,000 annually, expiring June 2047. Total lease commitments remaining are $2,280,000 for the Angelus Senior Housing facility at June 30, 2009. The Corporation also entered into a 55-year lease agreement with the City for use of the Garvey Senior Housing facility for $72,000 annually, expiring November 2057. Total lease commitments remaining are $3,486,000 for the Garvey Senior Housing facility at June 30, 2009. The Corporation paid $60,000 and $72,000 in lease payments to the City during the year ended June 30, 2009 for the Angelus and Garvey Senior Housing facilities, respectively. (4) Interfund Activity Noncurrent Interfund Receivable and Payable Balances Under State law, the Commission is required to set aside a portion of its property tax increment revenue for low-and moderate-income housing. The Commission has made findings that, for the years ended June 30, 1986 through 1991, it was allowed to defer funding of the set-aside. The set-aside amounts incurred during the fiscal years ended June 30, 1994, 1995 and 1996 were also deferred until the fiscal year ending June 30, 2023, as provided by the Commission's adoption of the housing deficit repayment plan. As of June 30, 2009, the accumulated set-aside amount not yet funded was approximately $4,477,945. As required by law, the Commission devised a plan to fund the accumulating amount. Interfund transfers were as follows for the year ended June 30, 2009: Transfer In Low-Moderate Income Housing Set-Aside Redevelopment Agency Capital Projects Fund Rosemead Housing Development Corporation Transfer Out Amount Redevelopment Agency Debt Service Fund $ 928,000 (A) Redevelopment Agency Debt Service Fund 2,3301533 (B) Low-Moderate Income Housing Set-Aside 250,000 Total J 3,508,533 The following describes the significant transfers in and transfers out included in the financial statements: (A) To record the low and moderate income housing set-aside for the year ended June 30, 2009- (13) To transfer remaining tax increment net of pass through payments, 20% set aside and debt service payments to the Capital Projects Fund. 20 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (5) Capital Assets Capital asset activity for the year ended June 30, 2009 is as follows: Balance at Balance at June 30, 2008 Increases Decreases June 30, 2009 Governmental activities: Capital assets not being depreciated: Land $ 2,425,898 - - 2,425,898 Total capital assets, not being depreciated 2,425,898 - - 2,425,898 Capital assets being depreciated: Buildings and improvements 18,273,719 - - 18,273,719 Vehicles 93,280 - - 93,280 Furniture and office equipment 1,453,889 - - 1,453,889 Total capital assets being depreciated 19 8200,888 - - 19,820,888 Less accumulated depreciation for: Buildings and improvements (3,947,296) (468,480) - (4,415,776) Vehicles (70,421) (18,655) _ (89,076) Furniture and office equipment (1,314,106) 73 599) - (1,387,705) Total accumulated depreciation (5,331,823) (560,734) - X5.892,557) Total capital assets being depreciated, net 14,489,065 56( 0,734) - 13,928,331 Governmental activities capital assets, net $16214,963 560 73) - 163229 Depreciation expense was charged entirely to the community development function of the Commission for the year ended June 30, 2009, 21 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (8) Long-Terre Debt Long-term debt consists of the following at June 30, 2009: Balance at Balance at Due within Due Beyond June 30. 2008 Additions Reductions June 30, 2009 One Year One Year Governmental activities Advances from City $ 2,497,920 - - 2,497,920 - 2,497,920 Tax allocation bonds, Series 2006A 12,415,000 - 845,000 11,570,000 870,000 10,700,000 Tax allocation bonds, Series 20068 23,935,000 - 70,000 23,865,000 75,000 23,790,000 Unamortized bond premiums 277,226 - 1802 2_57424 19,802 237,622 $255-1402 - 934.802 38190, 344 964 802 37 _.225.542 Advances from City In November 2007 the City of Rosemead's General Fund advanced to the Rosemead Community Development Commission $2,497,920 at an interest rate of 5.25% to be paid back over 20 years. Accrued interest is payable in annual installments of $131,141 beginning on September 28, 2008, and continuing until September 28, 2027, at which time the remaining principal and interest shall be due in full. The amount outstanding at June 30, 2009 is $2,497,920. Tax Allocation Bonds Series 2006A On March 9, 2006, the Commission issued tax allocation bonds in the amount of $14,005,000 (Series 2006A) to: (1) refund a portion of the Commission's outstanding Series 1993A bonds and (2) to finance redevelopment activity in Redevelopment Project Area No. 1. The bonds bear interest ranging from 3.25% to 5.00% and mature in annual installments of $780,000 to $1,250,000 on various dates through October 1, 2022. The Commission purchased a surety bond in lieu of cash reserve in the amount of $1,323,238. Portions of the bonds are subject to early redemption, at the option of the Commission, beginning October 1, 2017. Bond premiums are amortized over the life of the bonds. The unamortized balance as of June 30, 2009 was $257,424. A surety bond has been acquired to satisfy the reserve requirements. As of June 30, 2009 the outstanding balance was $11,570,000. Tax Allocation Bonds Series 2006B In December 2006, the Commission issued $24,230,000 in Project Area No. 1 Tax Allocation Bonds. The bonds mature in amounts ranging from $70,000 to $1,430,000 with interest rates ranging from 3.25% to 4.25% through October 1, 2025. The net proceeds were used to refund the remaining $23,095,000 amount outstanding on the 1993 Tax Allocation Bonds. The securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 1993 Bonds. As a result, the entire 1993 Bonds are considered to be defeased and the liability for those bonds has been removed from the government-wide financial statements. 22 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to the Basic Financial Statements (Continued) (6) Long-Term Debt {Continued) A surety bond has been acquired to satisfy the reserve requirements. As of June 30, 2009, $23,865,000 of the bonds are outstanding. At June 30, 2009, debt service requirements to maturity for governmental activities long- term debt are as follows: 2006A Tax Allocation Bonds 20068 Tax Allocation Bonds Year Ending June 30 Principal Interest Principal Interest 2010 $ 870,000 478,131 75,000 1,037,674 2011 900,000 449,856 75,000 1,035,049 2012 930,000 419,481 80,000 1,032,336 2013 965,000 386,931 80,000 1,029,536 2014 1,000,000 353,156 85,000 1,026,649 2015-2019 5,720,000 1,032,780 460,000 5,088,680 2020-2024 1,185,000 124,223 6,110,000 4,437,556 2025-2029 - - 7,510,000 2,992,678 2030-2034 - - 9,390,000 1,084,064 $11,570000 3,244,558 23,865,000 18,764,222 (7) Risk Management The Commission is exposed to various risks of loss related to torts; thefts of, damage to and destruction of assets; errors and omissions; and natural disasters. The Commission, through the City, carries commercial liability insurance coverage. The Commission carries no insurance coverage for natural disasters. Since the Commission does not have any employees (it uses employees from the City), it is not liable for injury to employees, workers' compensation, or employee health and accident insurance. The City has had no reductions in insurance coverage, nor did the City have any settlements that were in excess of insurance coverage in any of the three preceding years. 23 Required Supplementary Information 24 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Notes to Required Supplementary Information Fiscal Year Ended June 30, 2009 (1) (2) Budgetary Information Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the governmental fund. All annual appropriations lapse at fiscal year end. On or before the last day in March of each year, the Commission submits a request for appropriations to the City Manager so that a budget may be prepared. Before the first Thursday of June 30, the proposed budget is presented to the Commission's governing board for review. The governing board holds public hearings and a final budget must be prepared and adopted no later than June 30. The appropriated budget is prepared by fund, function and department. The Commission's department heads, with approval of the Finance Director and City Manager, may make transfers of appropriations within a department and between departments within a fund. Transfers of appropriations between funds must be approved by the governing board. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level. The governing board made several supplemental budgetary appropriations throughout the year. The supplemental budgetary appropriations made in the governmental funds are detailed in the required supplementary information. Encumbrance accounting is employed in the governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at each year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be re-appropriated and honored during the subsequent year. Excess Expenditures Over Appropriations Expenditures exceeded appropriations in the following funds: Fund Budget Actual Variance Rosemead Housing Development Corporation $ 694,400 720,018 (25,618) 25 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Low-Moderate Income Housing Set-Aside Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Fiscal Year ended June 30, 2009 Variance Original Final Positive Budget Budget Actual (Negative) Revenues: Investment income $ - - 22,643 22,643 Total revenues - 22,643 22,643 Expenditures: Current: Community development 336,520 336,520 256,220 80,300 Total expenditures 336,520 336,520 256,220 80,300 Excess (deficiency) of revenues over (under) expenditures (336,520) 336,520 (233,577) 102,943 Other financing sources (uses): Transfers in 1,299,000 1,299,000 928,000 (371,000) Transfers out (17,800) - 17,800 (250,000) (232,200) Total other financing sources (uses) 1,281,200 1,281,200 678,000 6( 03,200) Change in fund balances 944,680 944,680 444,423 (500,257) Fund balance at beginning of year 5,521,581 5,521,581 5,521,581 - Fund balance at end of year $ 6,466,261 6,466,261 5,966,004 50D,257 26 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Rosemead Housing Development Corporation Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Fiscal Year ended June 30, 2009 Variance Original Final Positive Budget Budget Actual Ne ative Revenues: Intergovernmental $ 421,700 421,700 415,160 (6,560) Interest income - - 140 140 Total revenues 421,700 421,700 415,290 (6,410) Expenditures: Current: General government 694,400 694,400 720,018 (25,618) Total expenditures 694,400 694,400 720,018 (25,618) Excess (deficiency) of revenues over (under) expenditures 2~ 72,700) (272,700) (304,728) (32,028) Other financing sources (uses): Transfers in 260,000 250,000 250,000 - Total other financing sources (uses) 250,000 250,000 250,000 - Change in fund balances (22,700) (22,700) (54,728) (32,028) Fund balance at beginning of year 194,911 194,911 194,911 - Fund balance at end of year $ 172,211 172;211 140,183 (32,028) 27 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Computation of Low/Moderate Housing Fund - Excess Surplus June 30, 2009 Fund Balance - June 30, 2009 $ 5,966,004 Less Unavailable Amounts: Advances to Other Funds (4,477,945) Available Low/Moderate Income Housing Funds 1,488,059 Limitation (Greater of $'1,000,000 or Four Years Set-Aside). Set-aside for last four years 2008 - 2009 928,000 2007 - 2008 1,691,206 2006 - 2007 1,589, 305 2005 - 2006 1,338,783 Total set-aside for last four years 5,547,294 Base limitation 1,000,000 Greater Amount 5,547,294 Computed Excess Surplus - June 30, 2009 $ - 28 Maye 1 i C d< An Independent CFA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx w Nw.rnhm-oc.com Board of Directors Community Development Commission of the City of Rosemead Rosemead, California REPORT ON COMPLIANCE AND OTHER MATTERS AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the financial statements of the Community Development Commission of the City of Rosemead (Commission), as of and for the year ended June 30, 2009, which collectively comprise the Commission's basic financial statements and have issued our report thereon dated December 18, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Commission's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions included those provisions of laws and regulations identified in the Guidelines for Comptroller Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants, However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Internal Control Over„Finandal Reporting In planning and performing our audit, we considered the Commission's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control over financial reporting. 29 Board of Directors Community Development Commission of the City of Rosemead Rosemead, California Page Two A control deficiency exists when the design or operation of a control does not allow management or employees, in, the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Commission's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Commission's financial statements that is more than inconsequential will not be prevented or detected by the Commission's internal control. We consider the item that has been described in the accompanying schedule of findings and recommendations to be a significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Commission's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily disclose all deficiencies in internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. We noted certain matters we reported to the management of the City of Rosemead in a separate letter dated December 18, 2009. This report is intended solely for the information and use of the Board of Directors, management, and the State Controller and is not intended to be and should not be used by anyone other than these specified parties. C'r f~ Irvine, California December 18, 2009 30 ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION Schedule of Findings and Recommendations June 30, 2009 (09-1) Establishment of System Access Rights In accordance with the implementation of the new audit risk assessment standards, we modified our approach to testing accounting system access controls. During our procedures, we noted that all finance personnel have the ability to perform the following functions: Establish vendors and process invoices for payment ® Make changes to the payroll master file (adding and deleting employees, making pay rate changes, etc.) ® Process payroll d Electronically transfer funds from the City's checking account Recommendation We recommend that the City restrict system access rights for each individual in the Finance Department with respect to that individual's capability to electronically transfer funds from the City's checking account in order to adequately safeguard City assets. Mann ement's Corrective Actions Planned Access rights are currently being defined based on job-duties. Particular attention is being paid to assigning access rights based on internal controls as well as job duties. For example, check printing access will be assigned to one person and data input access to a different person. 31 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D DEFINITIONS AND SUMMARY OF INDENTURE The following summary discussion of selected provisions of the Indenture is made subject to all of the provisions of the Indenture. This summary discussion does not purport to be a complete statement of said provisions and prospective purchasers of the Series 2010 Bonds are referred to the complete text of the Indenture, a copy of which is available upon request sent to the Trustee. DEFINITIONS Accreted Value The term "Accreted Value" means, with respect to any Capital Appreciation Bond, an amount equal to the principal amount of such Bond, plus interest accrued thereon from its Dated Date compounded on each June 1 and December 1, (through and including the maturity date of such Bond) at the "original issue yield" for such Bond; provided, that the Accreted Value on any date other than June 1 and December 1 shall be calculated by straight line interpolation of the Accreted Values as of the immediately preceding and succeeding June 1 and December 1. The term "original issue yield" means, with respect to any particular Bond, the yield to maturity of such Bond from the initial date of delivery thereof calculated on the basis of semiannual compounding on each June 1 and December 1. Allocable Project Area No. 1 Bond Debt Service The term "Allocable Project Area No. 1 Debt Service" means an amount of Project Area No. 1 Component Tax Revenues equal to Annual Debt Service on a principal amount of Bonds issued prior to June 22, 2013 and maturing on or before December 1, 2023, as calculated and set forth in a Consultant's Report. Annual Debt Service; Maximum Annual Debt Service; Average Annual Debt Service The term "Annual Debt Service" means, for each Bond Year, the sum of (1) the interest falling due on the Outstanding Bonds in such year, assuming that the Outstanding Serial Bonds are retired as scheduled and that the Outstanding Term Bonds, if any, are redeemed from the sinking account as may be scheduled, (2) the principal amount of the Outstanding Serial Bonds, if any, falling due by their terms in such year, and (3) the minimum amount of such Outstanding Term Bonds required to be paid or called and redeemed in such year; provided that Annual Debt Service shall be reduced by the amount of any Subsidy Payment made or to be made in connection with any Series of Bonds. The term "Maximum Annual Debt Service" means the largest Annual Debt Service during the period from the date of such determination through the final maturity date of any Outstanding Bonds. The term "Average Annual Debt Service" means the aggregate Annual Debt Service divided by the number of twelve-month periods ending on December 1 (including any fractional periods) remaining until the last maturity date of any Outstanding Bond. To the extent appropriate, these terms may be used with respect to obligations other than the Bonds, including the Senior Bonds. Assessed Value The term "Assessed Value" shall mean the value of property as determined by the County and as set forth in a Consultant's Report. Authorized Denominations The term "Authorized Denominations" means, with respect to Current Interest Bonds, $5,000 and any integral multiple of $5,000 and, with respect to Capital Appreciation Bonds, $5,000 maturity amount, being denominations of initial principal amount for Capital Appreciation Bonds of the corresponding maturity, or any integral multiple thereof. Authorized Investments The term "Authorized Investments" means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein, for all purposes, including defeasance investments in refunding escrow accounts: (1) Cash (insured at all times by the Federal Deposit Insurance Corporation) and (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 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). To the extent permitted by law, the Local Agency Investment Fund administered by the State of California Treasurer's office and the following obligations are 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 the Bond Insurer D-2 (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks (which may include the Trustee and its affiliates) 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 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, "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 including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee provide investment advisory or other management services. (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 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 (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 "A2/A" or higher by both Moody's and S&P. (8) Investment agreements, funding agreements, repurchase agreements or guaranteed investment contracts approved by the Commission with a financial institution rated in one of the two highest rating categories by both Moody's and S&P without regard to plus, minus or numerical notation, or approved in writing by the Bond Insurer (supported by appropriate opinions of counsel). (9) Any state-administered pool investment fund in which the Commission is statutorily permitted or required to invest; provided, that such investment is held in the name and to the credit of the Trustee. (10) Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the Government Code of the State of California which invests exclusively in investments permitted by Section 53635 of Title 5, Division 2, Chapter 4 of the Government Code of the State of California, as it may be amended; provided that such shares are held in the name and to the credit of the Trustee. (11) Other forms of investments which, if amounts are invested therein, will not as a result of such investment, reduce the rating on the Bonds, or are otherwise approved in writing by the Bond Insurer. Book-Entry Bonds The term "Book-Entry Bonds" means Bonds of any Series registered in the name of the Nominee of a Depository as the Owner thereof pursuant to the terms and provisions of the Indenture. D-3 Bonds, Series 2010A Bonds, Additional Bonds, Serial Bonds, Term Bonds The term "Bonds" means the Series 2010A Bonds and all Additional Bonds. The term "Series 2010A Bonds" means the Rosemead Community Development Commission, Rosemead Merged Project Area Tax Allocation Bonds, Series 2010A. The term "Additional Bonds" means all tax allocation bonds of the Commission authorized and executed pursuant to the Indenture and issued and delivered in accordance with the Indenture as summarized herein under the heading "ISSUANCE OF ADDITIONAL BONDS." The term "Serial Bonds" means Bonds for which no mandatory sinking account payments are provided. The term "Term Bonds" means Bonds which are payable on or before their specified maturity dates from mandatory sinking account payments established for that purpose and calculated to retire such Bonds on or before their specified maturity dates. Bond Insurance Policy The term "Bond Insurance Policy" means each municipal bond insurance policy, if any, issued by the applicable Bond Insurer and guaranteeing, in whole or in part, the payment of principal or Accreted Value of and interest on a Series of Bonds. Bond Insurer The term "Bond Insurer" means any issuer or issuers of a policy or policies of municipal bond insurance obtained by the Commission to insure the payment of principal or Accreted Value of and interest on a Series of Bonds issued under the Indenture, when due otherwise than by acceleration, and which, in fact, are at any time insuring such Series of Bonds. For the purposes of this definition, all consents, approvals or actions required by the Bond Insurer shall be unanimous action of all Bond Insurers if there is more than a single Bond Insurer. There is no Bond Insurer with respect to the Series 2010A Bonds. If there is no Bond Insurer for any Series of Bonds issued under the Indenture, any requirement for Bond Insurer consent for any purpose under the Indenture shall not be applicable. Bond Obligation The term "Bond Obligation" means, as of any given date of calculation, (1) with respect to any Outstanding Current Interest Bond, the principal amount of such Bond, and (2) with respect to any Outstanding Capital Appreciation Bond, the Accreted Value thereof as of the June 1 or December 1 next preceding such date of calculation (unless such date of calculation is a June 1 or December 1, in which case as of such date). Bond Year The term "Bond Year" means (i) with respect to the initial Bond Year, the period extending from the date the Series 2010A Bonds are originally delivered to December 1, 2010, and (ii) thereafter, each twelve month period extending from the day immediately following December 1 in any calendar year to the December 1 in the next following calendar year, all dates inclusive. Notwithstanding the foregoing, the term Bond Year as used in the Indenture as summarized herein under the heading "COVENANTS OF THE COMMISSION - Tax Covenants; Rebate Fund" is defined in the manner set forth in the Tax Certificate. Build America Bonds The term "Build America Bonds" means Bonds that are described in Section 54AA of the Code. D-4 Capital Appreciation Bond The term "Capital Appreciation Bonds" means Bonds the interest on which is payable at maturity and compounded semiannually on each Interest Payment Date through and including the maturity dates thereof. Certificate of the Commission The term "Certificate of the Commission" means an instrument in writing signed by the Chairperson of the Commission, or by any other officer of the Commission duly authorized by the Commission for that purpose. City The term "City" means the City of Rosemead, California. Code The term "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. Combined Component Tax Revenues The term "Combined Component Tax Revenues" means Project Area No. 1 Component Tax Revenues and Project Area No. 2 Component Tax Revenues. Commission The term "Commission" means the Rosemead Community Development Commission, a public body, corporate and politic, duly organized and existing under and pursuant to the Law. Commission Indebtedness The term "Commission Indebtedness" means any obligation the payment of which is to be made in whole or in part (but if in part, only to the extent of that part) out of taxes allocated to the Commission pursuant to Section 33670 of the Law. For purposes of determining compliance with the covenant contained in the Indenture as summarized herein under the heading "ISSUANCE OF ADDITIONAL BONDS - Limit on Indebtedness, the following assumptions shall apply: (i) the principal and interest remaining to be paid on Commission Indebtedness shall include only such amounts as are scheduled to be paid by the Commission pursuant to the terms of the loan or other form of agreement under which such Commission Indebtedness was incurred. Commission Indebtedness without a stated maturity shall be deemed to mature on the later of the final maturity date of the Bonds or the Senior Bonds. (ii) Amounts scheduled to be paid by the Commission shall include regularly scheduled principal and interest payments, including, amounts payable pursuant to any mandatory redemption provision. (iii) Commission Indebtedness bearing interest at a variable rate of interest shall be deemed to accrue interest at the lesser of the maximum rate specified pursuant to the terms of the loan or other form of agreement under which such Commission Indebtedness was incurred or 12% per annum. Consultant's Report The term "Consultant's Report" means a report signed by an Independent Financial Consultant or an Independent Redevelopment Consultant, as may be appropriate to the subject of the report, and including: D-5 (1) 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; (2) a brief statement as to the nature and scope of the examination or investigation upon which the report is based; (3) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said Independent Financial Consultant or Independent Redevelopment Consultant to express an informed opinion with respect to the subject matter referred to in the report. County Agreement The term "County Agreement" means the Agreement for Reimbursement of Tax Increment Funds (Rosemead Redevelopment Agency Project Area No. 1), made and entered into on July 1, 1988, by and among the Commission, the County, the County Public Library and the Consolidated Fire Protection District. Current Interest Bond The term "Current Interest Bonds" means Bonds the interest on which is payable on June 1 and December 1 of each year through and including the maturity dates thereof. Dated Date The term "Dated Date" means with respect to any Series of Bonds, the date of the initial issuance and delivery of such Series of Bonds. Depository The term "Depository" means the securities depository acting as Depository pursuant to the Indenture. DTC The term "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. Federal Securities The term "Federal Securities" means, to the extent permitted by law, the following, as and to the extent that such securities are eligible for the legal investment of Commission funds: 1. Cash deposits (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in the next paragraph). 2. Direct obligations of (including obligations issued or held in book entry form on the books of the Department of Treasury) the United States of America. In the event these securities are used for defeasance, they shall be non-callable and non-prepayable. 3. Obligations of the following federal agencies so long as such obligations are backed by the full faith and credit of the United States of America (in the event these securities are used for defeasance, they shall be non-callable and non-prepayable): a. U.S. Export-Import Bank (Eximbank) b. Rural Economic Community Development Administration C. Federal Financing Bank d. U.S. Maritime Administration D-6 e. U.S. Department of Housing and Urban Development (PHAs) f. General Services Administration g. Small Business Administration h. Government National Mortgage Association (GNMA) i. Federal Housing Administration j. Farm Credit System Financial Assistance Corporation The Trustee may rely upon any investment direction of the Commission as a certification that such investments are legal investments for Commission funds. Fiscal Year The term "Fiscal Year" means the period commencing on July 1 of each year and terminating on the next succeeding June 30, or any other annual accounting period hereafter selected and designated by the Commission as its Fiscal Year in accordance with the Law and identified in writing to the Trustee. Housing Fund The term "Housing Fund" means the Low and Moderate Income Housing Fund established pursuant to Section 33334.3 of the Law and held by the Commission. Indenture The term "Indenture" means the Indenture and all Supplemental Indentures. Independent Certified Public Accountant The term "Independent Certified Public Accountant" means any certified public accountant or firm of such accountants duly licensed and entitled to practice and practicing as such under the laws of the State of California, appointed and paid by the Commission, and who, or each of whom: (1) is in fact independent and not under the domination of the Commission; (2) does not have any substantial interest, direct or indirect, with the Commission; and (3) is not connected with the Commission as a member, officer or employee of the Commission, but who may be regularly retained to make annual or other audits of the books of or reports to the Commission. Independent Financial Consultant The term "Independent Financial Consultant" means a financial consultant or firm of such consultants generally recognized to be well qualified in the financial consulting field, appointed and paid by the Commission and who, or each of whom: (1) is in fact independent and not under the domination of the Commission; (2) does not have any substantial interest, direct or indirect, with the Commission; and (3) is not connected with the Commission as a member, officer or employee of the Commission, but who may be regularly retained to make annual or other reports to the Commission. D-7 Independent Redevelopment Consultant The term "Independent Redevelopment Consultant" means a consultant or firm of such consultants generally recognized to be well qualified in the field of consulting relating to tax allocation bond financing by California redevelopment agencies, appointed and paid by the Commission, and who, or each of whom: (1) is in fact independent and not under the domination of the Commission; (2) does not have any substantial interest, direct or indirect, with the Commission; and (3) is not connected with the Commission as a member, officer or employee of the Commission, but who may be regularly retained to make annual or other reports to the Commission. Information Services The term "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Bond Service," 55 Broad Street, 28th Floor, New York, New York 10004; Moody's "Municipal and Government," 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Reports; and Standard and Poor's "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; or to such other addresses and/or such other services providing information with respect to called bonds as the Commission may designate to the Trustee in writing. Interest Payment Date The term "Interest Payment Date" means each June 1 or December 1 on which interest on any Series of Bonds is scheduled to be paid, commencing December 1, 2010 with respect to the Series 2010A Bonds. Investment Agreement The term "Investment Agreement" means an investment agreement or guaranteed investment contract by and between the Trustee and a national or state chartered bank or savings and loan institution (including the Trustee) or other financial institution the long-term debt obligations of which are rated "A" or higher by Standard & Poor's Corporation or "A" or higher by Moody's Investors Service, respecting the investment of moneys in certain funds or accounts established pursuant to the Indenture. Law The term "Law" means the Community Redevelopment Law of the State of California (being Part 1 of Division 24 of the Health and Safety Code of the State of California, as amended), and all laws amendatory thereof or supplemental thereto. Letter of Representations The term "Letter of Representations" means the letter of the Commission and the Trustee delivered to and accepted by the Depository on or prior to the issuance of a Series of Book-Entry Bonds setting forth the basis on which the Depository serves as depository for such Book-Entry Bonds, as originally executed or as it may be supplemented or revised or replaced by a letter to a substitute depository. Nominee The term "Nominee" shall mean the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture. D-8 Outstanding The term "Outstanding" when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture as summarized herein under the heading "AMENDMENT OF THE INDENTURE - Disqualified Bonds") all Bonds except (1) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds paid or deemed to have been paid within the meaning of the Indenture as summarized herein under the heading "DEFEASANCE - Discharge of Indebtedness"; and (3) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Commission pursuant to the Indenture. Owner The term "Owner" means the registered owner of any Outstanding Bond. Participants The term "Participants" shall mean those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Book-Entry Bonds as securities depository. Plan Limit The term "Plan Limit" means the limitation contained in the Redevelopment Plan on the number of dollars of taxes which may be divided and allocated to the Commission pursuant to the Redevelopment Plan. Pledged Revenues The term "Pledged Revenues" means Combined Component Tax Revenues and Subsidy Payments; provided that to the extent legally available, Project Area No. 1 Component Tax Revenues shall be applied to the payment of the principal of and interest on Bonds issued under the Indenture prior to the use of any other Pledged Revenues. Principal Corporate Trust Office "Principal Corporate Trust Office" means the corporate trust office of the Trustee at 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Corporate Trust Services, provided, however, for that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted" or such other office designated by the Trustee from time to time. Principal Payment Date The term "Principal Payment Date" means any date on which principal on any Series of Bonds is scheduled to be paid, which dates shall be as set forth in the Indenture. Project The term "Project" means the undertaking of the Commission pursuant to the Redevelopment Plan and the Law for the redevelopment of the Project Area. D-9 Project Area The term "Project Area" means the project area described in the Redevelopment Plan Project Area No. 1 Component The term "Project Area No. 1 Component" means the redevelopment project area formerly designated as the Commission's "Project Area No. 1" described in the redevelopment plan approved and adopted by Ordinance No. 340, adopted by the City Council of the City on June 22, 1972. Project Area No. 1 Component Tax Revenues The term "Project Area No. 1 Component Tax Revenues" means Surplus Tax Revenues derived from the Project Area No. 1 Component of the Project Area. Project Area No. 2 Bonds The term "Project Area No. 2 Bonds" means tax allocation bonds of the Commission authorized and executed pursuant to the Indenture and issued and delivered in accordance with the Indenture after June 22, 2013 which are secured solely by Project Area No. 2 Component Tax Revenues. Project Area No. 2 Component The term "Project Area No. 2 Component" means the redevelopment project area formerly designated as the Commission's "Project Area No. 2" described in the redevelopment plan approved and adopted by Ordinance No. 809, adopted by the City Council of the City on June 27, 2000. Project Area No. 2 Component Tax Revenues The term "Project Area No. 2 Component Tax Revenues" means Tax Revenues derived from the Project Area No. 2 Component of the Project Area. Qualified Reserve Instrument The term "Qualified Reserve Instrument" means a letter of credit meeting the requirements of the Indenture as summarized herein in paragraph (4)(b) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund" or an insurance policy meeting the requirements as summarized herein in paragraph (4)(c) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund." Record Date The term "Record Date" means the 15th day of the month next preceding each Interest Payment Date, whether or not such day is a business day. Redevelopment Plan The term "Redevelopment Plan" means the redevelopment plan for the Rosemead Merged Project Area, adopted and approved as the Redevelopment Plan for the Project, by the City Council of the City by Ordinance No. 871, adopted on March 10, 2009, together with all amendments thereto thereafter made in accordance with the Law. D-10 Reserve Account Requirement The term "Reserve Account Requirement" means an amount equal to the lesser of (i) ten percent (10%) of the proceeds (within the meaning of Section 148 of the Code) of each Series of Bonds Outstanding, (ii) 125% of Average Annual Debt Service of such Bonds or (iii) Maximum Annual Debt Service on all Outstanding Bonds. Securities Depositories The term "Securities Depositories" shall mean: The Depository Trust Company, 55 Water Street, 50th Floor, New York, N.Y. 10041-0099 Attn. Call Notification Department, Fax (212) 855-7232; or to such other addresses and/or such other securities depositories as the Commission may designate to the Trustee in writing. Senior Bonds The term "Senior Bonds" means (i) the outstanding amount of, Rosemead Community Development Commission, Redevelopment Project Area No. 1 Tax Allocation Refunding Bonds, Series 2006A, (ii) the outstanding amount of Rosemead Community Development Commission, Redevelopment Project Area No. 1 Tax Allocation Refunding Bonds, Series 2006B and (iii) any Additional Senior Bonds authorized to be issued pursuant to the Indenture as summarized herein under the heading "COVENANTS OF THE COMMISSION - Against Encumbrances; Limitation on Issuance of Senior Bonds." Senior Bond Annual Debt Service The term "Senior Bond Annual Debt Service" means the sum of (1) the interest falling due on Senior Bonds, (2) the principal amount of such serial Senior Bonds falling due by their terms and (3) the amount of scheduled minimum sinking fund payments required to be made with respect to any such term Senior Bonds, as computed for the twelve-month period ending June 30 to which reference is made. Senior Bond Average Annual Debt Service The term "Senior Bond Average Annual Debt Service" means the sum of the Senior Bond Annual Debt Service becoming due in the then current and any future Fiscal Year, divided by the number of twelve-month periods ending on June 30 (including any fractional periods) remaining until the last maturity date of any outstanding Senior Bond. Senior Indenture The term "Senior Indenture" means that certain Indenture of Trust, dated as of October 1, 1993, as amended by a First Supplemental Indenture, dated as of March 1, 2006 and a Second Supplemental Indenture, dated as of December 1, 2006, each between the Commission and the Trustee, as hereafter amended. Senior Trustee The term "Senior Trustee" means U.S. Bank National Association, in its capacity as trustee under the Senior Indenture, or any successor trustee thereunder. Series The term "Series", when used with reference to the Bonds, means all of the Bonds authenticated and delivered on original issuance and identified pursuant to the Indenture or a Supplemental Indenture authorizing such Bonds as a separate Series of Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture. D-11 Sinking Account Installment The term "Sinking Account Installment" means the amount of money required by or pursuant to the Indenture to be paid by the Commission on any single date toward the retirement of any particular Term Bonds of any particular Series on or prior to their respective stated maturities. Sinking Account Payment Date The term "Sinking Account Payment Date" means any date on which Sinking Account Installments on any Series of Bonds are scheduled to be paid. Subsidy Payment "Subsidy Payments" means any payments by the federal government on account of the issuance of Build America Bonds pursuant to the federal American Recovery and Reinvestment Act of 2009 or any successor legislation, received by or on behalf of the Commission in connection with a debt service obligation of the Commission related to Bonds. Supplemental Indenture The term "Supplemental Indenture" means any indenture then in full force and effect which has been entered into by the Commission and the Trustee, amendatory of or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. Surplus Tax Revenues The term "Surplus Tax Revenues" means all of the Tax Revenues released from the pledge and lien of the Senior Indenture pursuant to the terms of the Senior Indenture. Surplus Tax Revenues shall also include Tax Revenues which may be required by the Law to be set aside for certain housing purposes, if such amounts may be lawfully made available as Tax Revenues. Tax Certificate The term "Tax Certificate" means the Tax Certificate dated the date of the original delivery of each Series of Bonds (except any Series of Bonds which is not intended to meet the requirements for tax exemption under the Code) relating to the requirements of the Code, as each such certificate may from time to time be modified or supplemented in accordance with the terms thereof. Tax-Exempt Bonds The term "Tax-Exempt Bonds" means Bonds that are described in Section 103(a) of the Code Tax Revenues The term "Tax Revenues" means, for each Bond Year, the taxes (including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Commission pursuant to the Law in connection with the Project Area as provided in the Redevelopment Plan (excluding to the extent there are any (i) amounts received by the Commission pursuant to Section 16111 of the Government Code; (ii) amounts payable pursuant to the County Agreement and (iii) amounts payable to taxing agencies pursuant to Section 33607.5 of the Law, except to the extent that such payments are subordinated pursuant to Subsection (e) of such Section 33607.5. "Tax Revenues" include amounts deposited by the Commission in the Housing Fund pursuant to Section 33334.2 or Section 33334.6 of the Law, as provided in the Redevelopment Plan, but only to the extent such amounts are used to pay principal or interest or other financing charges with respect to Bonds issued to increase, improve or preserve the supply of low and moderate income housing within or of benefit to the Project Area. D-12 Trustee The term "Trustee" means such trustee at its principal corporate trust office in Los Angeles, California, as may be appointed by the Commission and acting as an independent trustee with the duties and powers provided in the Indenture, and its successors and assigns, or any other corporation or association which may at any time be substituted in its place, as provided in the Indenture. Written Request of the Commission The term "Written Request of the Commission" means an instrument in writing signed by the Chairperson of the Commission, or by any other officer of the Commission duly authorized by the Commission for that purpose. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, the Indenture shall be deemed to be and shall constitute a contract between the Commission and the Trustee for the benefit of Owners from time to time of all Bonds issued under the Indenture and then Outstanding to secure the full and final payment of the interest on and principal or Accreted Value of and redemption premiums, if any, on all Bonds authorized, executed, issued and delivered under the Indenture, subject to the agreements, conditions, covenants and provisions contained in the Indenture; and the agreements and covenants specified in the Indenture to be performed on behalf of the Commission 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 Bonds over any other Bonds. GENERAL BOND PROVISIONS Transfer and Registration of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the Indenture, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Bond or Bonds shall be surrendered for transfer, the Commission shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds for a like aggregate principal amount of other authorized denominations. The Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Commission. The Commission shall not be required to issue, register the transfer of or exchange any Bond during the fifteen (15) days preceding any date established by the Trustee for selection of Bonds for redemption or any Bonds which have been selected for redemption. Exchange of Bonds. The Bonds may be exchanged at the Principal Corporate Trust Office for a like aggregate principal amount of Bonds of the same maturity of other authorized denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the Commission. No such exchange shall be required to be made during the fifteen (15) days preceding any date established by the Trustee for selection of Bonds for redemption or any Bonds which have been selected for redemption. Bond Registration Books. The Trustee will keep at the Principal Corporate Trust Office sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection by the Commission during regular business hours with reasonable prior notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer the Bonds on said books as provided in the Indenture. Mutilated, Destroyed, Stolen or Lost Bonds. In case any Bond shall become mutilated in respect of the body of such Bond, or shall be believed by the Commission to have been destroyed, stolen or lost, upon proof of D-13 ownership satisfactory to the Commission and the Trustee, and upon the surrender of such mutilated Bond at the Principal Corporate Trust Office, or upon the receipt of evidence satisfactory to the Commission and the Trustee of such destruction, theft or loss, and upon receipt also of indemnity satisfactory to the Commission and the Trustee, and upon payment of all expenses incurred by the Commission and the Trustee in the premises, the Commission shall execute and the Trustee shall authenticate and deliver at said Principal Corporate Trust Office a new Bond or Bonds of the same maturity and for the same aggregate principal amount, of like tenor and date, with such notations as the Commission shall determine, in exchange and substitution for and upon cancellation of the mutilated Bond, or in lieu of and in substitution for the Bond so destroyed, stolen or lost. If any such destroyed, stolen or lost Bond shall have matured or shall have been called for redemption, payment of the amount due thereon may be made by the Commission upon receipt by the Trustee and the Commission of like proof, indemnity and payment of expenses. Any such replacement Bonds issued pursuant to this section shall be entitled to equal and proportionate benefits with all other Bonds issued under the Indenture. The Commission and the Trustee shall not be required to treat both the original Bond and any replacement Bond as being Outstanding for the purpose of determining the principal amount of Bonds which may be issued under the Indenture or for the purpose of determining any percentage of Bonds Outstanding under the Indenture, but both the original and replacement Bond shall be treated as one and the same. Temporary Bonds. Until definitive Bonds shall be prepared, the Commission may cause to be executed and delivered in lieu of such definitive Bonds and subject to the same provisions, limitations and conditions as are applicable in the case of definitive Bonds, except that they may be in any denominations authorized by the Commission, one or more temporary typed, printed, lithographed or engraved Bonds in fully registered form, as may be authorized by the Commission, substantially of the same tenor and, until exchange for definitive Bonds, entitled and subject to the same benefits and provisions of the Indenture as definitive Bonds. If the Commission issues temporary Bonds it will execute and furnish definitive Bonds without unnecessary delay and thereupon the temporary Bonds may be surrendered to the Trustee at the Principal Corporate Trust Office, without expense to the Owner in exchange for such definitive Bonds. All temporary Bonds so surrendered shall be canceled by the Trustee and shall not be reissued. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any way by any proceedings taken by the Commission for the financing or refinancing of the Project, or by any contracts made by the Commission in connection therewith, and shall not be dependent upon the completion of the financing or refinancing of the Project or upon the performance by any person of his obligation with respect to the Project, and the recital contained in the Bonds that the same are issued pursuant to the Law shall be conclusive evidence of their validity and of the regularity of their issuance. Book-Entry System. Prior to the issuance of any Series of Bonds issued under the Indenture, the Commission may provide that such Series of Bonds (a) shall be initially issued as Book-Entry Bonds, and in such event, each maturity of such Series shall be in the form of a separate single fully registered Bond (which may be typewritten). Upon initial issuance, the ownership of each such Bond shall be registered in the bond register in the name of the Nominee, as nominee of the Depository. With respect to Book-Entry Bonds, the Commission and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such Book- Entry Bonds. Without limiting the immediately preceding sentence, the Commission 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 Participant with respect to any ownership interest in Book-Entry Bonds, (ii) the delivery to any Participant or any other person, other than an Owner as shown in the bond register, of any notice with respect to Book-Entry Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in Book-Entry Bonds to be redeemed in the event the Commission redeems such in part, or (iv) the payment of any Participant or any other person, other than an Owner as shown in the bond register, of any amount with respect to principal or Accreted Value of, premium, if any, or interest on Book-Entry Bonds. The Commission and the Trustee may treat and consider the person in whose name each Book-Entry Bond is registered in the bond register as the absolute Owner of such Book-Entry Bond for the purpose of payment of principal, premium and D-14 interest with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Trustee shall pay all principal or Accreted Value of, premium, if any, and interest on the Bonds only to or upon the order of the respective Owner, as shown in the bond register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Commission's obligations with respect to payment of principal or Accreted Value of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the bond register, shall receive a Bond evidencing the obligation of the Commission to make payments of principal, premium, if any, and interest pursuant to the Indenture. Upon delivery by the Depository to the Owner, Trustee and Commission of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions in the Indenture with respect to record dates, the word Nominee in the Indenture shall refer to such nominee of the Depository. (b) In order to qualify the Book-Entry Bonds for the Depository's book-entry system, the Commission and the Trustee (if required by the Depository) shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the Commission or the Trustee any obligation whatsoever with respect to persons having interests in such Book-Entry Bonds other than the Owners, as shown on the bond register. By executing a Letter of Representations, the Trustee shall agree to take all action necessary for all representations of the Trustee in such Letter of Representations to at all times be complied with. In addition to the execution and delivery of a Letter of Representations, the Commission and the Trustee, at the Commission's request, shall take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify Book-Entry Bonds for the Depository's book-entry program. (c) In the event (i) the Depository determines not to continue to act as securities depository for any Series of Book-Entry Bonds, or (ii) the Depository shall no longer so act and gives notice to the Trustee of such determination, then the Commission will discontinue the book-entry system with the Depository. If the Commission determines to replace the Depository with another qualified securities depository, the Commission shall prepare or direct the preparation of a new single, separate, fully registered Bond for each of the maturities of such Book-Entry Bonds, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Commission fails to identify another qualified securities depository to replace the Depository, then the Bonds shall no longer be restricted to being registered in such bond register in the name of the Nominee, but shall be registered in whatever name or names Owners transferring or exchanging such Bonds shall designate, in accordance with the Indenture. (d) Notwithstanding any other provision of the Indenture to the contrary, so long as any Book-Entry Bond is registered in the name of the Nominee, all payments with respect to principal or Accreted Value of, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, as provided in the Letter of Representations or as otherwise instructed by the Depository. ISSUANCE OF ADDITIONAL BONDS Conditions for the Issuance of Additional Bonds. The Commission may at any time after the issuance and delivery of the initial Series of Bonds under the Indenture issue Additional Bonds payable from Pledged Revenues and secured by a lien and charge upon Pledged Revenues equal to and on a parity with the lien and charge securing the Outstanding Bonds theretofore issued under the Indenture, but only subject to the following specific conditions, which are conditions precedent to the issuance of any such Additional Bonds: (a) The Commission shall be in compliance with all covenants set forth in the Indenture and any Supplemental Indentures, and a Certificate of the Commission to that effect shall have been filed with the Trustee. (b) The issuance of such Additional Bonds shall have been duly authorized pursuant to the Law and all applicable laws, and the issuance of such Additional Bonds shall have been provided for by a Supplemental Indenture duly adopted by the Commission which shall specify the following: D-15 (1) The purpose for which such Additional Bonds are to be issued and the fund or funds into which the proceeds thereof are to be deposited, including a provision requiring the proceeds of such Additional Bonds to be applied solely for (i) the purpose of aiding in financing the Project, including payment of all costs incidental to or connected with such financing, and/or (ii) the purpose of refunding any Bonds or other indebtedness related to the Project, including payment of all costs incidental to or connected with such refunding; (2) The authorized principal amount of such Additional Bonds; (3) The date and the maturity date or dates of such Additional Bonds; provided that (i) Principal and Sinking Account Payment Dates may occur only on Interest Payment Dates and (ii) fixed serial maturities or mandatory Sinking Account Installments, or any combination thereof, shall be established to provide for the retirement of all such Additional Bonds on or before their respective maturity dates; (4) The Interest Payment Dates for such Additional Bonds which shall be on the same semiannual dates as the Interest Payment Dates for the Series 2010A Bonds; provided that such Additional Bonds may provide for compounding of interest in lieu of payment of interest on such dates; (5) The denomination of such Additional Bonds; Bonds; (6) The redemption premiums, if any, and the redemption terms, if any, for such Additional (7) The amount and due date of each mandatory Sinking Account Installment, if any, for such Additional Bonds; (8) The amount, if any, to be deposited from the proceeds of such Additional Bonds in the Interest Account; (9) The amount, if any, to be deposited from the proceeds of such Additional Bonds into the Reserve Account; provided that the amount on deposit in the Reserve Account shall be increased at or prior to the time such Additional Bonds become Outstanding to an amount at least equal to the Reserve Account Requirement on all then Outstanding Bonds and such Additional Bonds, which amount shall be maintained in the Reserve Account; (10) The form of such Additional Bonds; and (11) Such other provisions as are necessary or appropriate and not inconsistent with the Indenture. (c) (i) The Combined Component Tax Revenues based upon the Assessed Value of taxable property in the Project Area, as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date of the Commission's adoption of the Supplemental Indenture providing for the issuance of such Additional Bonds, shall be in an amount equal to at least 125% of the Maximum Annual Debt Service on all then Outstanding Bonds and such Additional Bonds; and (ii) In addition, after June 22, 2013, Project Area No. 2 Component Tax Revenues based upon the Assessed Value of taxable property in the Project Area No. 2 Component, as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date of the Commission's adoption of the Supplemental Indenture providing for the issuance of such Additional Bonds, shall be in an amount equal to at least 125% of Maximum Annual Debt Service on all then Outstanding Project Area No. 2 Bonds and such Additional Bonds, for the current and each future Bond Year, D-16 For the purposes of the issuance of Additional Bonds, Outstanding Bonds shall not include any Bonds the proceeds of which are deposited in an escrow fund held by an escrow agent, provided that the Supplemental Indenture authorizing issuance of such Additional Bonds shall provide that: (A) such proceeds shall be deposited or invested with or secured by an institution rated "AA" by S&P and "Aa" by Moody's at a rate of interest which, together with amounts made available by the Commission from bond proceeds or otherwise, is at least sufficient to pay Annual Debt Service on the foregoing Bonds; (B) moneys may be transferred from said escrow fund only if the above stated tests for the issuance of Additional Bonds are satisfied, in each case, for the current and each future Bond Year, for a principal amount of Bonds less a principal amount of Bonds which is equal to moneys on deposit in said escrow fund after each such transfer, as demonstrated to the Trustee in a certificate of an Independent Financial Consultant; and (C) Additional Bonds shall be redeemed from moneys remaining on deposit in said escrow fund at the expiration of a specified escrow period in such manner as may be determined by the Commission. In the event such Additional Bonds are to be issued solely for the purpose of refunding and retiring any Outstanding Bonds, interest and principal payments on the Outstanding Bonds to be so refunded and retired from the proceeds of such Additional Bonds being issued shall be excluded from the foregoing computation of Maximum Annual Debt Service. Nothing contained in the Indenture shall limit the issuance of any tax allocation bonds of the Commission payable from Pledged Revenues and secured by a lien and charge on Pledged Revenues if, after the issuance and delivery of such tax allocation bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding nor shall anything contained in the Indenture prohibit the issuance of any tax allocation bonds or other indebtedness by the Commission secured by a pledge of tax increment revenues (including Pledged Revenues) subordinate to the pledge of Pledged Revenues securing the Bonds. Procedure for the Issuance of Additional Bonds. All of the Additional Bonds shall be executed by the Commission for issuance under the Indenture and delivered to the Trustee and thereupon shall be delivered by the Trustee upon the Written Request of the Commission, but only upon receipt by the Trustee of the following documents or money or securities: (1) A certified copy of the Supplemental Indenture authorizing the issuance of such Additional Bonds; (2) A Written Request of the Commission as to the delivery of such Additional Bonds; (3) An opinion of counsel of recognized standing in the field of law relating to municipal bonds substantially to the effect that (a) the Commission has the right and power under the Law to execute and deliver the Supplemental Indenture thereto, and the Indenture and all such Supplemental Indentures have been duly and lawfully executed and delivered by the Commission, are in full force and effect and are valid and binding upon the Commission and enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors' rights); and (b) such Additional Bonds are valid and binding special obligations of the Commission, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors' rights) and the terms of the Indenture and all Supplemental Indenture thereto and are entitled to the benefits of the Indenture and all such Supplemental Indentures and the Law, and such Additional Bonds have been duly and validly authorized and issued in accordance with the Law and the Indenture and all such Supplemental Indentures; (4) A Certificate of the Commission containing such statements as may be reasonably necessary to show compliance with the requirements of the Indenture; and (5) Such further documents, money and securities as are required by the provisions of the Indenture and the Supplemental Indenture providing for the issuance of such Additional Bonds. Limit on Indebtedness. The Commission covenants with the Owners of all of the Bonds at any time Outstanding that it will not enter into any Commission Indebtedness or make any expenditure payable from taxes allocated to the Commission under the Law the payments of which, together with payments theretofore made or to be made with respect to other Commission Indebtedness (including, but not limited to the Bonds) previously entered D-17 into by the Commission, would exceed the then-effective limit on the amount of taxes which can be allocated to the Commission pursuant to the Law and the Redevelopment Plan. PLEDGED REVENUES; CREATION OF FUNDS Pledge of Pledged Revenues. All the Pledged Revenues and all money in the Revenue Fund established under the Indenture, and in the funds or accounts so specified and provided for in the Indenture (except the Rebate Fund), are irrevocably pledged to the punctual payment of the interest on and principal or Accreted Value of and redemption premiums, if any, on the Bonds, and the Pledged Revenues and such other money shall not be used for any other purpose while any of the Bonds remain Outstanding; subject to the provisions of the Indenture permitting application thereof for the purposes and on the terms and conditions set forth in the Indenture. This pledge shall constitute a first and exclusive lien on the Pledged Revenues and such other money for the payment of the Bonds in accordance with the terms thereof. Revenue Fund; Debt Service Fund; Receipt and Deposit of Pledged Revenues. There is established a special fund to be known as the "Rosemead Community Development Commission, Rosemead Merged Project Area Pledged Revenue Account of the Special Fund" (herein the "Revenue Fund") which shall be held by the Commission. The Commission shall promptly deposit all of the Pledged Revenues received in any Bond Year in the Revenue Fund, until such time during such Bond Year as the amounts on deposit in the Revenue Fund equal the aggregate amounts required to be transferred to the Trustee for deposit into the Debt Service Fund in such Bond Year pursuant to this section. All Pledged Revenues received by the Commission during any Bond Year in excess of the amount required to be deposited in the Revenue Fund during such Bond Year pursuant to the preceding sentence may be released from the pledge and lien under the Indenture. So long as any Bonds remain Outstanding under the Indenture, the Commission shall not have any beneficial interest in or right to the moneys on deposit in the Revenue Fund, except as may be provided in the Indenture. There is established a special fund to be known as the "Rosemead Community Development Commission, Rosemead Merged Project Area, Tax Allocation Bonds Debt Service Fund" (herein the "Debt Service Fund") which shall be held by the Trustee. On or before five (5) days preceding each Interest Payment Date, the Commission shall transfer from the Revenue Fund to the Trustee for deposit in the Debt Service Fund an amount equal to the amount required to be transferred by the Trustee from the Debt Service Fund to the Interest Account, Principal Account, Sinking Account and Reserve Account pursuant to the Indenture as summarized herein under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund"; provided, that the Commission shall not be obligated to transfer to the Trustee in any Bond Year an amount of Pledged Revenues which, together with other available amounts then in the Debt Service Fund, exceeds the amounts required to be transferred to the Trustee for deposit in the Interest Account, the Principal Account, the Sinking Account and the Reserve Account in such Bond Year, pursuant to the Indenture as summarized herein under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund." Pledged Revenues shall not be transferred to the Trustee for deposit in the Debt Service Fund in an amount in excess of that amount which, together with all money then on deposit with the Trustee in the Debt Service Fund and the accounts therein, shall be sufficient to discharge all Outstanding Bonds as provided in the Indenture as summarized herein under the heading "DEFEASANCE - Discharge of Indebtedness." Notwithstanding the foregoing, there shall be irrevocably deposited with the Trustee on or prior to June 22, 2023 an amount equal to the principal and interest due with respect to Allocable Project Area No. 1 Debt Service due on December 1, 2023, which shall be held and invested by the Trustee in a manner such that such principal and interest shall be deemed to have been paid within the meaning of the Indenture as summarized herein under the heading "DEFEASANCE - Discharge of Indebtedness." All such Pledged Revenues deposited in the Special Fund shall be disbursed, allocated and applied solely to the uses and purposes specified in the Indenture, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the Commission. Establishment of Funds. In addition to the Revenue Fund and the Debt Service Fund, there are further created a special trust fund to be held by the Commission called the "Rosemead Community Development Commission, Rosemead Merged Project Area Redevelopment Fund" (the "Redevelopment Fund"); and a special trust fund to be held by the Trustee called the "Rosemead Community Development Commission, Rosemead Merged Project Area Expense Fund" (the "Expense Fund"). The Redevelopment Fund may be consolidated with D-18 any other similar fund or account established for the purposes described in the Indenture as summarized herein under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Redevelopment Fund"; provided, that proceeds of Bonds deposited in such fund shall be separately accounted for to the extent appropriate or as required by any Tax Certificate. So long as any of the Bonds, or any interest thereon, remain unpaid, the moneys in the foregoing funds shall be used for no purpose other than those required or permitted by the Indenture and the Law. Pursuant to the Tax Certificate, the funds and accounts established in the Indenture may be divided into sub-accounts for each Series of Bonds issued under the Indenture, in order to perform the necessary rebate calculations. Redevelopment Fund. Moneys in the Redevelopment Fund shall be used and disbursed in the manner provided by law for the purpose of aiding in financing or refinancing the Project (or for making reimbursements to the Commission for such costs theretofore paid by it), including payment of all costs incidental to or connected with such financing or refinancing. Any balance of money remaining in the Redevelopment Fund after the date of completion of the financing or refinancing of the Project shall be deposited in the Revenue Fund. The Commission shall pay moneys from the Redevelopment Fund upon receipt of requisitions drawn thereon and signed by at least one duly authorized officer or member of the Commission. The Commission warrants that each withdrawal from the Redevelopment Fund shall be made in the manner provided by law for the purpose of aiding in financing or refinancing the Project or for making reimbursements to the Commission for such costs theretofore paid by the Commission. Expense Fund. All moneys in the Expense Fund shall be applied to the payment of costs and expenses incurred in connection with the authorization, issuance and sale of the Bonds. Upon the payment in full of such costs and expenses or the making of adequate provision for the payment thereof, evidenced by a Certificate of the Commission to the Trustee, any balance remaining in such Fund shall unless otherwise instructed by the Commission in accordance with the Tax Certificate be transferred to the Commission and deposited by the Commission in the Debt Service Fund established pursuant to the Indenture as summarized herein under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Revenue Fund; Debt Service Fund; Receipt and Deposit of Pledged Revenues," and pending such transfer and application, the moneys in such Fund may be invested as permitted by the Indenture as summarized herein under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Investment of Moneys in Funds and Accounts"; provided, however, that investment income resulting from any such investment shall be retained in the Expense Fund. Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund. All moneys in the Debt Service Fund shall be set aside by the Trustee in each Bond Year when and as received in the following respective special accounts within the Debt Service Fund (each of which is created and each of which the Commission covenants and agrees to cause to be maintained with the Trustee), in the following order of priority (except as otherwise provided in subsection (2) below): (1) Interest Account; (2) Principal Account; (3) Sinking Account; (4) and Reserve Account. All moneys in each of such accounts shall be held in trust by the Trustee and shall be applied, used and withdrawn only for the purposes hereinafter authorized in this section. (1) Interest Account. The Trustee shall set aside from the Debt Service Fund and deposit in the Interest Account an amount of money which, together with any money contained therein, is equal to the aggregate amount of the interest becoming due and payable on all Outstanding Bonds on the Interest Payment Dates in such Bond Year. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the aggregate amount of the interest becoming due and payable on all Outstanding Bonds on the Interest Payment Dates in such Bond Year. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). D-19 (2) Principal Account. The Trustee shall set aside from the Debt Service Fund and deposit in the Principal Account an amount of money which, together with any money contained therein, is equal to the aggregate amount of the principal becoming due and payable on all Outstanding Serial Bonds on the Principal Payment Date in such Bond Year. In the event that there shall be insufficient money in the Debt Service Fund to make in full all such principal payments and Sinking Account Installments required to be made pursuant to the Indenture as summarized herein in paragraph (3) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund" in such Bond Year, then, subject to subparagraph below, the money available in the Debt Service Fund shall be applied pro rata to the making of such principal payments and such Sinking Account Installments in the proportion which all such principal payments and Sinking Account Installments bear to each other. No deposit need be made into the Principal Account if the amount contained therein is at least equal to the aggregate amount of the principal or Accreted Value of all Outstanding Serial Bonds becoming due and payable on the Principal Payment Date in such Bond Year. All money in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal or Accreted Value of the Serial Bonds as they shall become due and payable. (3) Sinking Account. The Trustee shall deposit in the Sinking Account an amount of money equal to the Sinking Account Installment payable on the Sinking Account Payment Date in such Bond Year. All moneys in the Term Bonds Sinking Account shall be used by the Trustee to redeem (or purchase) the Term Bonds in accordance with the Indenture. (4) Reserve Account. (a) The Trustee shall set aside from the Debt Service Fund and deposit in the Reserve Account an amount of money (or other authorized deposit of security, as contemplated by the following paragraphs) equal to the Reserve Account Requirement. No deposit need be made in the Reserve Account so long as there shall be on deposit therein an amount equal to the Reserve Account Requirement. All money in (or available to) the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account, the Principal Account or the Sinking Account in such order, in the event of any deficiency at any time in any of such accounts, or for the purpose of paying the interest on or principal or Accreted Value of or redemption premiums, if any, on the Bonds in the event that no other money of the Commission is lawfully available therefor, or for the retirement of all Bonds then Outstanding, except that for so long as the Commission is not in default under the Indenture, any amount in the Reserve Account in excess of the Reserve Account Requirement may, upon Written Request of the Commission, be withdrawn from the Reserve Account by the Trustee and transferred to the Commission. (b) In lieu of making the Reserve Account Requirement deposit in the Reserve Account or in replacement of moneys then on deposit in the Reserve Account (which shall be transferred by the Trustee to the Commission upon delivery of a letter of credit satisfying the requirements stated below), the Commission, with the consent of the Bond Insurer, and with prior written notification to S&P and Moody's, may deliver to the Trustee an irrevocable letter of credit issued by a financial institution having, at the time of such delivery, unsecured debt obligations rated in at least the second highest rating category (without respect to any modifier) of S&P and Moody's, in an amount, together with moneys, Authorized Investments or insurance policies (as described in the Indenture as summarized herein in paragraph (4)(c) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund") on deposit in the Reserve Account, equal to the Reserve Account Requirement. Draws on such letter of credit must be payable no later than two (2) Business Days after presentation of a sight draft thereunder. Such letter of credit shall have a term of no less than three (3) years. The issuer of such letter of credit shall be required to notify the Trustee and the Commission whether or not the letter of credit will be extended no later than 13 months prior to the stated expiration date thereof. At least one year prior to the stated expiration of such letter of credit, the Commission shall either (i) deliver a replacement letter of credit, (ii) deliver an extension of the letter of credit for at least an additional year, or (iii) deliver to the Trustee an insurance policy satisfying the requirements of the Indenture as summarized herein in paragraph (4)(c) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund." Upon delivery of such replacement letter of credit, extended letter of credit, or insurance policy, the Trustee shall cancel and deliver the then-effective letter of credit to the issuer thereof. If the Commission shall fail to deposit a replacement letter of credit, extended letter D-20 of credit or insurance policy with the Trustee, the Commission shall immediately commence to make monthly deposits with the Trustee so that an amount equal to the Reserve Account Requirement is on deposit in the Reserve Account no later than the stated expiration date of the letter of credit. If the Commission shall fail to make such deposits, the Trustee shall draw on such letter of credit on or before 10 days prior to its stated expiration date in an amount necessary to replenish the Reserve Account to the Reserve Account Requirement. If a drawing is made on the letter of credit, the Commission shall make such payments as may be required by the terms of the letter of credit or any obligations related thereto (but no less than quarterly pro rata payments) so that the letter of credit shall, absent the delivery to the Trustee of an insurance policy satisfying the requirements of the Indenture as summarized herein in paragraph (4)(c) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund" or the deposit in the Reserve Account of an amount sufficient to increase the balance in the Reserve Account to the Reserve Account Requirement, be reinstated in the amount of such drawing within one year of the date of such drawing. (c) In lieu of making the Reserve Account Requirement in the Reserve Account or in replacement of moneys then on deposit in the Reserve Account (which shall be transferred by the Trustee to the Commission upon delivery of an insurance policy satisfying the requirements stated below), the Commission, with the consent of the Bond Insurer, and with prior written notification to S&P and Moody's, may also deliver to the Trustee an insurance policy securing an amount, together with moneys, Authorized Investments or letters of credit (as described in the Indenture as summarized herein in paragraph (4)(b) under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Establishment and Maintenance of Accounts for Use of Moneys in the Debt Service Fund") on deposit in the Reserve Account, no less than the Reserve Account Requirement, issued by an insurance company licensed to issue insurance policies guaranteeing the timely payment of debt service on the Bonds and whose unsecured debt obligations (or for which obligations secured by such insurance company's insurance policies), at the time of such delivery, are rated in the two highest rating categories (without respect to any modifier) of S&P and Moody's. (d) If and to the extent that the Reserve Account has been funded with a combination of cash (or Authorized Investments) and a Qualified Reserve Instrument, then all such cash (or Authorized Investments) shall be completely used before any demand is made on such Qualified Reserve Instrument, and replenishment of the Qualified Reserve Instrument shall be made prior to any replenishment of any cash (or Authorized Investments). If the Reserve Account is funded, in whole or in part, with more than one Qualified Reserve Instrument, then any draws made against such Qualified Reserve Instrument shall be made pro-rata. (e) The Commission shall make payments sufficient to restore the Reserve Account to the Reserve Account Requirement from any available Pledged Revenues following any withdrawal from the Reserve Account which causes the amount therein to be less than the Reserve Account Requirement, or following any calculation of the value of the Reserve Account at an amount less than the Reserve Account Requirement. (5) Surplus. Subject to the Indenture as summarized herein in the third sentence under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Revenue Fund; Debt Service Fund; Receipt and Deposit of Pledged Revenues," if during any Bond Year (i) Pledged Revenues remain in the Debt Service Fund after providing (or otherwise reserving) for all deposits required by paragraphs (1) through (3) above during such Bond Year, (ii) the amounts on deposit in the Reserve Account equal the Reserve Account Requirement, (iii) Qualified Reserve Instruments, if any, used to fund the Reserve Account are fully replenished and all interest on amounts advanced under such Qualified Reserve Instruments has been paid to the provider thereof and (iv) the Commission is not in default under the Indenture, then the Trustee shall transfer any amount remaining on deposit in the Debt Service Fund to the Commission to be used for any lawful purpose of the Commission. Investment of Moneys in Funds and Accounts. Upon the written direction of the Commission, received by the Trustee at least two (2) Business Days prior to such investment, moneys in the Debt Service Fund, the Interest Account, the Principal Account, any Sinking Account, the Expense Fund, the Rebate Fund or the Reserve Account shall be invested by the Trustee in Authorized Investments. In the absence of such instructions the Trustee shall invest in the investments described in paragraph 4(a) of the definition of Authorized Investments, except as otherwise provided in this section. The obligations in which moneys in the Debt Service Fund, the Interest Account, the Principal Account or any Sinking Account are so invested shall mature prior to the date on which such moneys are estimated to be required to be paid out under the Indenture. The obligations in which moneys in the Reserve Account are so invested shall be invested in obligations maturing no more than five years from the date of purchase D-21 by the Trustee or on the final maturity date of the Bonds, whichever date is earlier; provided, however, that if an obligation may be redeemed at par on the business day prior to each Interest Payment Date during which such obligation is outstanding, such obligation may have any maturity. The Trustee shall determine the value of Reserve Account investments semiannually (and monthly from the date of any deficiency until such deficiency is cured). Any interest, income or profits from the deposits or investments of all funds (except the Revenue Fund, Redevelopment Fund, Expense Fund and Rebate Fund) and accounts shall be deposited in the Debt Service Fund. All earnings on amounts in the Revenue Fund, Expense Fund, Redevelopment Fund and Rebate Fund shall remain in such funds. For purposes of determining the amount on deposit in any fund or account held under the Indenture, all Authorized Investments credited to such fund or account shall be valued at the cost thereof (excluding accrued interest and brokerage agencies, if any). Except as otherwise provided in this section, Authorized Investments representing an investment of moneys attributable to any fund or account and all investment profits or losses thereon shall be deemed at all times to be a part of said fund or account. Amounts deposited in the Revenue Fund and the Redevelopment Fund may be invested in any investment permitted by law for Commission funds. The Trustee or any of its affiliates may act as principal or agent in the acquisition or disposition of investments under the Indenture. The Trustee may commingle moneys in any of the funds or accounts created under the Indenture for purposes of investment. The Trustee may conclusively rely on the instructions of the Commission that the Authorized Investment is a legal investment under the laws of the State of California for such purposes. Absent negligence, bad faith or willful misconduct by the Trustee, the Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with this section. The Commission acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Commission the right to receive brokerage confirmations of security transactions as they occur, the Commission will not receive such confirmations from the Trustee to the extent permitted by law. The Trustee will furnish the Commission periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Indenture. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. COVENANTS OF THE COMMISSION Punctual Payment. The Commission will punctually pay the interest on and principal or Accreted Value of and redemption premiums, if any, to become due with respect to the Bonds, in strict conformity with the terms of the Bonds and of the Indenture and will faithfully satisfy, observe and perform all conditions, covenants and requirements of the Bonds and of the Indenture. Against Encumbrances; Limitation on Issuance of Senior Bonds. Except for the Senior Bonds, the Commission may not create or allow to exist any liens on Tax Revenues senior to or on a parity with the Bonds except as provided in the Indenture and as provided below. In furtherance of this covenant, the Commission WILL NOT issue any additional bonds or other obligations payable from Tax Revenues under the Senior Indenture, and the lien of the Senior Indenture shall be closed to the issuance of further debt henceforth and forever more; provided, however, that nothing in the Indenture is intended or shall be construed in any way to impair the authority of the Commission to issue bonds, including notes or other obligations or indebtedness on a parity with the Senior Bonds ("Additional Senior Bonds"), if following the issuance of such Additional Senior Bonds debt service on all then Outstanding Senior Bonds is reduced in each year and the final maturity date for the Senior Bonds is not extended. Extension or Funding of Claims for Interest. In order to prevent any claims for interest after maturity, the Commission will not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any Bonds and will not, directly or indirectly, be a party to or approve any such arrangements by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the Commission, such claim for interest so extended or funded shall not be entitled, in case of default under the Indenture, to the benefits of the Indenture, except subject to D-22 the prior payment in full of the principal or Accreted Value of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. Management and Operation of Properties. The Commission will manage and operate all properties owned by the Commission and comprising any part of the Project in a sound and business-like manner and in conformity with all valid requirements of any governmental authority relative to the Project or any part thereof, and will keep such properties insured at all times in conformity with sound business practice. Payment of Claims. The Commission will pay and discharge 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 Commission or upon the Tax Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Bonds; provided that nothing contained in the Indenture shall require the Commission to make any such payments so long as the Commission in good faith shall contest the validity of any such claims. Books and Accounts; Financial and Project Statements. The Commission will keep proper books of record and accounts, separate from all other records and accounts of the Commission, in which complete and correct entries shall be made of all transactions relating to the Project and the Revenue Fund. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Trustee or of the Owners of not less than ten per cent (10%) of the aggregate principal amount of the Bonds then Outstanding or their representatives authorized in writing. The Commission will prepare and file with the Trustee and the Bond Insurer, annually as soon as practicable, but in any event not later than 270 days after the close of each Fiscal Year, so long as any Bonds are Outstanding, an audited financial statement of the Commission relating to the Revenue Fund and all other funds or accounts established pursuant to the Indenture for the preceding Fiscal Year prepared by an Independent Certified Public Accountant, showing the balances in each such fund as of the beginning of such Fiscal Year and all deposits in and withdrawals from each such fund during such Fiscal Year and the balances in each such fund as of the end of such Fiscal Year, which audited financial statement shall include a statement as to the manner and extent to which the Commission has complied with the provisions of the Indenture as it relates to such funds. The Commission will furnish a copy of such audited financial statement to any Owner upon request. The Trustee is authorized to furnish and the Commission will furnish to the Trustee such reasonable number of copies of such audited financial statement as may be required by the Trustee for distribution (at the expense of the Commission) to investment bankers, security dealers and others interested in the Bonds. The Trustee shall have no duty or responsibility to review such financial statements. The Bond Insurer shall be provided notice of each change in Independent Certified Public Accountant. Protection of Security and Rights of Owners. The Commission will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any Bonds by the Commission, such Bonds shall be incontestable by the Commission. Payment of Taxes and Other Charges. Subject to the provisions of the Indenture as summarized herein under the heading "COVENANTS OF THE COMMISSION - Taxation of Leased Property," the Commission will pay and discharge all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Commission or any properties owned by the Commission in the Project Area, or upon the revenues therefrom, when the same shall become due; provided that nothing contained in the Indenture shall require the Commission to make any such payments so long as the Commission in good faith shall contest the validity of any such taxes, service charges, assessments or other governmental charges. Financing the Project. The Commission will commence the financing of the Project to be aided with the proceeds of the Bonds with all practicable dispatch, and such financing will be accomplished and completed in a sound, economical and expeditious manner and in conformity with the Redevelopment Plan and the Law so as to complete the Project as soon as possible. Taxation of Leased Property. Whenever any property in the Project is redeveloped by the Commission and thereafter is leased by the Commission to any person or persons, or whenever the Commission leases any real D-23 property in the Project to any person or persons for redevelopment, the property shall be assessed and taxed in the same manner as privately-owned property (in accordance with the Law), and the lease or contract shall provide (1) that the lessee shall pay taxes upon the assessed value of the entire property and not merely upon the assessed value of the leasehold interest, and (2) that if for any reason the taxes paid by the lessee on such property in any year during the term of the lease shall be less than the taxes that would have been payable upon the entire property if the property were assessed and taxed in the same manner as privately-owned property, the lessee shall pay such difference to the Commission within thirty (30) days after the taxes for such year become payable, and in any event prior to the delinquency date of such taxes established by law, which such payments shall be treated as Tax Revenues. Disposition of Property in Project Area. The Commission will not participate in the disposition of any land or real property in the Project Area 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) if such disposition, when taken together with other such dispositions, would either (a) aggregate more than 10% of the assessed valuation of the property in the Project Area, or (b) cause the amount of Pledged Revenues to be received in any succeeding Bond Year to fall below 125% of Maximum Annual Debt Service. Amendment of Redevelopment Plan. If the Commission proposes to amend the Redevelopment Plan, it shall cause to be filed with the Trustee a Consultant's Report on the effect of such proposed amendment. If the Consultant's Report concludes that such proposed amendment will not cause the amount of Pledged Revenues to be received in any succeeding Bond Year to fall below 125% of Maximum Annual Debt Service, the Commission may adopt such amendment. If the Consultant's Report concludes that Pledged Revenues will cause the amount of Pledged Revenues to be received in any succeeding Bond Year to fall below 125% of Maximum Annual Debt Service, the Commission shall not adopt such proposed amendment. Tax Revenues. The Commission 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 Los Angeles County. Insofar as the payment of Annual Debt Service on the Series 2010A Bonds is fully secured by Project Area No. 1 Component Tax Revenues and Project Area No. 2 Component Tax Revenues, the Commission shall identify the Series 2010A Bonds as debt with respect to the Project Area No. 1 Component and the Project Area No. 2 Component, on the statement of indebtedness filed with Los Angeles County pursuant to Section 33675(b) of the Law. The Commission shall, in addition, comply with all requirements of the Law relating to the deposit of tax revenues allocated to the Commission from the Project Area in the Low and Moderate Income Housing Fund, established by the Commission pursuant to Section 33334.3 of the Law. Investment Agreement. The Commission covenants that it will not modify or amend any Investment Agreement without first obtaining the written consent of the Bond Insurer, if any, and an opinion of nationally recognized bond counsel to the effect that the proposed modification or amendment will not constitute a violation of the Indenture as summarized herein under the heading "PLEDGED REVENUES; CREATION OF FUNDS - Investment of Moneys in Funds and Accounts." Further Assurances. The Commission will adopt, make, execute and deliver any and all such further indentures, 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 Bonds of the rights and benefits provided in the Indenture. Tax Covenants; Rebate Fund. (a) In addition to the accounts created under the Indenture, the Trustee shall establish and maintain with respect to each Series of Bonds issued under the Indenture (other than any Series of Bonds which the Commission shall certify to the Trustee is exempt from the requirements of Section 148 of the Code related to rebate of arbitrage earnings) a fund separate from any other fund or account established and maintained under the Indenture designated as the "Series Rebate Fund" hereinafter in this section referred to as the "Rebate Fund." The provisions of this section shall apply separately to each Rebate Fund established for each Series of Bonds. Upon the written direction of the Commission, there shall be deposited in the Rebate Fund such amounts as are required to be D-24 deposited therein pursuant to the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement (as defined in the Tax Certificate), for payment to the United States of America. Notwithstanding the provisions of the Indenture as summarized herein under the headings "PLEDGED REVENUES; CREATION OF FUNDS - Pledge of Pledged Revenues," Revenue Fund; Debt Service Fund; Receipt and Deposit of Pledged Revenues" and Investment of Moneys in Funds and Accounts" and under the heading "DEFEASANCE - Discharge of Indebtedness" relating to the pledge of Pledged Revenues, the allocation of money in the Revenue Fund, the investments of money in any fund or account and the defeasance of Outstanding Bonds, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this section and by the Tax Certificate (which is incorporated by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the Written Request of the Commission, and shall have no liability or responsibility to enforce compliance by the Commission with the terms of the Tax Certificate or any of the covenants of the Commission in this section. (b) The Commission shall not use or permit the use of any proceeds of Bonds or any funds of the Commission, directly or indirectly, to acquire any securities or obligations, and shall not take or permit to be taken any other action or actions, which would cause any Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code of "federally guaranteed" within the meaning of Section 149(b) of the Code and any such applicable requirements promulgated from time to time thereunder and under Section 103(c) of the Internal Revenue Code of 1954, as amended. The Commission shall observe and not violate the requirements of Section 148 of the Code and any such applicable regulations. The Commission shall comply with all requirements of Sections 148 and 149(d) of the Code to the extent applicable to the Bonds. In the event that at any time the Commission is of the opinion that for purposes of this paragraph it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under the Indenture, the Commission shall so instruct the Trustee under the Indenture in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. The Commission shall not use or permit the use of any proceeds of the Bonds or any funds of the Commission, directly or indirectly, in any manner, and shall not take or omit to take any action that would cause any of the Tax-Exempt Bonds to be treated as an obligation not described in Section 103(a) of the Code; or cause any Bonds which are Build America Bonds to fail to meet the requirements of Section 54AA of the Code. (c) Notwithstanding any provisions of this section, if the Commission shall provide to the Trustee an opinion of nationally recognized bond counsel that any specified action required under this section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest with respect to the Bonds, the Trustee and the Commission may conclusively rely on such opinion in complying with the requirements of this section, and, notwithstanding the terms of the Indenture as summarized herein under the heading "AMENDMENT OF THE INDENTURE," the covenants under the Indenture shall be deemed to be modified to that extent. (d) The Commission covenants and agrees to take all actions required by applicable laws and regulations to provide for the receipt of Subsidy Payments. (e) The provisions of this section shall not apply to any Series of Bonds which the Commission shall certify to the Trustee is not intended to comply with the requirements of the Code necessary to make interest on such Series of Bonds excludable from gross income for federal tax purposes. Agreements with Other Taxing Agencies. So long as any Bonds are Outstanding, the Commission shall not (a) enter into any new agreement, or amend any existing agreement, with any taxing agency entered into (i) pursuant to Section 33401 of the Law or (ii) which operates as a waiver of the Commission's right to receive Tax Revenues under the Redevelopment Plan, or (b) enter into any disposition, development, owner participation or other agreement, or amend any existing agreement, which requires the Commission to make payments from Tax Revenues, unless the Commission's obligations under such agreement are made expressly subordinate and junior to the Commission's obligations under the Indenture and the Bonds. Housing Fund. The Commission covenants and agrees to use the moneys in the Housing Fund in accordance with Sections 33334.2, 33334.3, and 33334.6 of the Law, and further covenants and agrees to disburse, expend or encumber any "excess surplus" (as defined in Section 33334.12 of the Law) in the Housing Fund at such D-25 times and in such manner that the Commission shall not be subject to sanctions pursuant to subdivision (e) of said Section 33334.12. Continuing Disclosure. The Commission 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 Commission to comply with the Continuing Disclosure Agreement shall not be considered an event of default under the Indenture; provided, however, that the Trustee may (and, at the written direction of any Underwriter or the Owners of at least 25% aggregate principal amount of Series 2010A Bonds, shall but only to the extent indemnified to its satisfaction from and against any liability or expense) or any Owner or beneficial owner of the Series 2010A Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. THE TRUSTEE Appointment of Trustee. U.S. Bank National Association, a national banking association organized and existing under and by virtue of the laws of the United States, is appointed Trustee by the Commission for the purpose of receiving all moneys required to be deposited with the Trustee under the Indenture and to allocate, use and apply the same as provided in the Indenture. The Commission agrees that it will maintain a Trustee having a corporate trust office in the State, with a combined capital and surplus, or a member of a bank holding company system the lead bank of which shall have a combined capital and surplus, of at least $75,000,000, and subject to supervision or examination by Federal or State authority, so long as any Bonds are Outstanding. If such bank, national banking association 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 section the combined capital and surplus of such bank, national banking association 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. The Trustee is authorized to pay the principal or Accreted Value of and interest and redemption premium (if any) on the Bonds when duly presented for payment at maturity, or on redemption prior to maturity, and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds and accounts administered by it and of all Bonds paid and discharged. Acceptance of Trusts. The Trustee accepts the trusts imposed upon it by the Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: (a) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (b) Whenever in the administration of the Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action under the Indenture, the Trustee (unless other evidence is specifically prescribed under the Indenture) may, in the absence of bad faith on its part, rely upon a Certificate of the Commission. (c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (d) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order bond or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (e) The Trustee, prior to the occurrence of an Event of Default under the Indenture and after the curing or waiving of all such Events of Default that may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Indenture and no covenants of or against the Trustee shall be implied D-26 in the Indenture. In case an Event of Default under the Indenture has occurred (which has not been cured or waived), the Trustee may exercise such of the rights and powers vested in it by the Indenture, and shall use the same degree of care and skill in the exercise of such rights and powers as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (f) The Trustee may execute any of the trusts or powers under the Indenture and perform the duties required of it under the Indenture either directly or by or through attorneys or agents, shall not be liable for the acts or omissions of such attorneys or agents appointed with due care, and shall be entitled to advice of counsel concerning all matters of trust and its duty under the Indenture. The Trustee may conclusively rely on an opinion of counsel as full and complete authorization and protection for any action taken, suffered or omitted by it under the Indenture. (g) The Trustee shall not be responsible for any recital in the Indenture or in the Bonds, or for any of the supplements thereto or instruments of further assurance, or for the sufficiency of the security for the Bonds issued under the Indenture or intended to be secured under the Indenture and makes no representation as to the validity or sufficiency of the Bonds or the Indenture. The Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants, conditions or agreements on the part of the Commission under the Indenture. The Trustee shall not be responsible for the application by the Commission of the proceeds of the Bonds. (h) The Trustee may become the Owner or pledgee of Bonds secured under the Indenture with the same rights it would have if not the Trustee; may acquire and dispose of other bonds or evidences of indebtedness of the Commission with the same rights it would have if it were not the Trustee; and may act as a depositary for and permit any of its officers or directors to act as a member of, or in the capacity with respect to, any committee formed to protect the rights of Owners of Bonds, whether or not such committee shall represent the Owners of the majority in aggregate principal amount of the Bonds then Outstanding. (i) The Trustee may rely and shall be protected in acting or refraining from acting, in good faith and without negligence, upon any notice, resolution, opinion, report, direction, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it to be genuine and to have been signed or presented by the proper person or persons. Any action taken or omitted to be taken by the Trustee in good faith and without negligence pursuant to the Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of Bond by such person shall be reflected on the Registration Books. 0) The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers, directors, employees and agents. (k) The Trustee shall not be required to take notice or to be deemed to have notice of any Event of Default under the Indenture except failure by the Commission to make any of the payments to the Trustee required to be made by the Commission pursuant to the Indenture, unless the Trustee shall be specifically notified in writing of such default by the Commission or by the Owners of at least 25% in aggregate principal amount of the Bonds then Outstanding and all notice or other instruments required by the Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the Principal Corporate Trust Office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default under the Indenture except as aforesaid. (1) Notwithstanding any other provision of the Indenture, in determining whether the rights of the Owners will be adversely affected by and action taken or omitted under the Indenture, the Trustee shall consider the effect on the Owners as if there were no Bond Insurance Policy. Fees, Charges and Expenses of Trustee. The Trustee shall be entitled to payment and reimbursement for reasonable fees for its services rendered under the Indenture and all advances, counsel fees (including expenses) and other expenses reasonably and necessarily made or incurred by the Trustee in connection with such services and the D-27 Commission shall pay such amounts to the Trustee upon receipt of an invoice from the Trustee. Upon the occurrence of an Event of Default under the Indenture, but only upon any Event of Default, the Trustee shall have a first lien with right of payment prior to payment of any Bond upon the amounts held under the Indenture for the foregoing fees, charges and expenses incurred by it. Any amounts advanced by the Trustee under the Indenture shall be reimbursed, together with interest thereon at the maximum rate allowed by law. Notice to Bond Owners of Default. If an Event of Default under the Indenture occurs with respect to any Bonds of which the Trustee has been given or is deemed to have notice, as provided in the Indenture as summarized herein in paragraph (k) under the heading "THE TRUSTEE - Acceptance of Trusts," then the Trustee shall, in addition to any notice required under the Indenture, within 30 days of the receipt of such notice, give written notice thereof by first class mail to the Owner of each such Bond and to the Bond Insurer, unless such Event of Default shall have been cured before the giving of such notice; provided, however, that unless such Event of Default consists of the failure by the Commission to make any payment when due, the Trustee may elect not to give such notice to the Owners (but shall give such notice to the Bond Insurer) if and so long as the Trustee in good faith determines that it is in the best interests of the Bond Owners not to give such notice. Intervention by Trustee. In any judicial proceeding to which the Commission is a party that, in the opinion of the Trustee and its counsel, has a substantial bearing on the interests of Owners of any of the Bonds under the Indenture, the Trustee may intervene on behalf of such Bond Owners, and subject to the Indenture as summarized herein in paragraph (c) under the heading "THE TRUSTEE - Acceptance of Trusts," shall do so if requested in writing by the Owners of at least 25% in aggregate principal amount of such Bonds then Outstanding. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing, filed with the Trustee and signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds and the Bond Insurer or, in the case of breach by the Trustee of its obligations under the Indenture, by the Bond Insurer alone. The Commission may also remove the Trustee at any time, except during the existence of an Event of Default. The Trustee may be removed at any time for any breach of the Trustee's duties set forth in the Indenture. No removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to the Bond Insurer, shall be appointed. Resignation by Trustee. The Trustee and any successor Trustee may at any time give prior written notice of its intention to resign as Trustee under the Indenture, such notice to be given to the Commission and the Bond Insurer by registered or certified mail. Upon receiving such notice of resignation, the Commission shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the Commission shall cause notice thereof to be given by first class mail, postage prepaid, to the Bond Owners at their respective addresses set forth on the Registration Books. The Bond Insurer shall receive prior written notice of any name change of the Trustee or the resignation or removal of the Trustee. No removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to the Bond Insurer, shall be appointed. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to the Indenture as summarized herein under the heading "THE TRUSTEE - Removal of Trustee" or Resignation by Trustee," respectively, with the prior written consent of the Bond Insurer, the Commission shall promptly appoint a successor Trustee. In the event the Commission shall for any reason whatsoever fail to appoint a successor Trustee within 30 days following the delivery to the Trustee of the instrument described in the Indenture as summarized herein under the heading "THE TRUSTEE - Removal of Trustee" or within 30 days following the receipt of notice by the Commission pursuant to the Indenture as summarized herein under the heading "THE TRUSTEE - Resignation by Trustee," the Trustee may, at the expense of the Commission, apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of the Indenture as summarized herein under the heading "THE TRUSTEE - Appointment of Trustee." Any such successor Trustee appointed by such court shall become the successor Trustee under the Indenture notwithstanding any action by the Commission purporting to appoint a successor Trustee following the expiration of such 30-day period. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust D-28 business, provided that such company shall meet the requirements set forth in the Indenture as summarized herein under the heading "THE TRUSTEE - Appointment of Trustee," shall be the successor to the Trustee and vested with all of the title to the trust estate and all of the trusts, powers, discretion, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any paper or further act, anything in the Indenture to the contrary notwithstanding. Concerning any Successor Trustee. Every successor Trustee appointed under the Indenture shall execute, acknowledge and deliver to its predecessor and also to the Commission an instrument in writing accepting such appointment under the Indenture and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessors; but such predecessor shall, nevertheless, on the Written Request of the Commission, or of the Trustee's successor, execute and deliver an instrument transferring to such successor all the estates, properties, rights, powers and trusts of such predecessor under the Indenture; and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee under the Indenture to its successor. Should any instrument in writing from the Commission be required by any successor Trustee for more fully and certainly vesting in such successor the estate, rights, powers and duties vested under the Indenture or intended to be vested in the predecessor Trustee, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Commission. Appointment of Co-Trustee. It is the purpose of the 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 the 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 granted under the Indenture to the Trustee or hold title to the properties, in trust, as granted under the Indenture, or take any other action that may be desirable or necessary in connection therewith, it may be necessary that the Trustee or the Commission appoint an additional individual or institution as a separate trustee or co-trustee. The following provisions of this section are adopted to these ends. In the event that the Trustee or the Commission appoints an additional individual or institution as a separate trustee or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by the 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 trustee or co-trustee but only to the extent necessary to enable such separate trustee or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate trustee or co-trustee shall run to and be enforceable by either of them. Should any instrument in writing from the Commission be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Commission. In case any separate trustee or co-trustee, or a successor to either, shall become incapable of acting, shall resign or shall be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-trustee. Limited Liability of Trustee. No provision in the Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability under the Indenture. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Bond Insurer or of the Owners of at least 25% in aggregate principal amount of Bonds Outstanding relating to the time, method and place of conducting any proceeding or remedy available to the Trustee under the Indenture or exercising any power conferred upon the Trustee under the Indenture. The Commission agrees to indemnify and hold harmless the Trustee for any cost, expense, claim, loss or liability incurred by the Trustee, including, without limitation, fees and expenses of its attorneys, not relating to its own negligence or willful misconduct. The obligations of the Commission under the Indenture as summarized herein under the heading "THE TRUSTEE - Fees, Charges and Expenses of Trustee" and this section shall survive the resignation or removal of the Trustee under the Indenture. D-29 AMENDMENT OF THE INDENTURE Amendment by Consent of Owners. The Indenture and the rights and obligations of the Commission and of the Owners may be amended at any time by a Supplemental Indenture which shall become binding when the written consents of the Owners of at least sixty per cent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Indenture as summarized herein under the heading "AMENDMENT OF THE INDENTURE - Disqualified Bonds," and the written consent of the Bond Insurer, if any, are filed with the Trustee. No such amendment shall (1) extend the maturity of or reduce the interest rate on, or otherwise alter or impair the obligation of the Commission to pay the interest or principal or redemption premium, if any, at the time and place and at the rate and in the currency provided in the Indenture of any Bond, without the express written consent of the Owner of such Bond, or (2) permit the creation by the Commission of any mortgage, pledge or lien upon the Pledged Revenues superior to or on a parity with the pledge and lien created in the Indenture for the benefit of the Bonds, except as expressly permitted by the Indenture, or (3) reduce the percentage of Bonds required for the written consent to any such amendment, or (4) modify the rights or obligations of the Trustee without its prior written assent thereto. The Indenture and the rights and obligations of the Commission and of the Owners may also be amended at any time by a Supplemental Indenture which shall become binding upon execution, without the consent of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (a) To add to the covenants and agreements of the Commission in the Indenture contained, other covenants and agreements thereafter to be observed, or to surrender any right or power reserved under the Indenture to or conferred upon the Commission; (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 regard to questions arising under the Indenture, as the Commission may deem necessary or desirable and not inconsistent with the Indenture, and which shall not adversely affect the interest of the Owners; (c) To provide for the issuance of any Additional Bonds, and to provide the terms and conditions under which such Additional Bonds may be issued, subject to and in accordance with the Indenture as summarized herein under the heading "ISSUANCE OF ADDITIONAL BONDS"; (d) To modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Owners of the Bonds; (e) To maintain the exclusion of interest on the Bonds from gross income for federal income tax purposes; (f) To the extent necessary to obtain a Bond Insurance Policy, to obtain a rating on the Bonds or in connection with satisfying all or a portion of the Reserve Account Requirement by crediting a letter of credit or Bond Insurance Policy to the Reserve Account; or (g) For any other purpose that does not materially adversely affect the interests of the Owners. Disqualified Bonds. Bonds owned or held by or for the account of the Commission or the City shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Bonds in the Indenture provided for, and shall not be entitled to consent to, or take any other action in the Indenture provided for. Upon request of the Trustee, the Commission shall specify in a certificate to the Trustee those Bonds disqualified pursuant to this section and the Trustee may conclusively rely on such certificate. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as provided in the Indenture, the Commission may determine that the Bonds may bear a notation, by endorsement in D-30 form approved by the Commission, as to such action, and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for the purpose at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation as to such action shall be made on such Bond. If the Commission shall so determine, new Bonds so modified as, in the opinion of the Commission, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Owner of any Bond Outstanding at such effective date such new Bonds shall be exchanged at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, without cost to each Owner, for Bonds then Outstanding, upon surrender of such Outstanding Bonds. Amendment by Mutual Consent. The provisions of this article shall not prevent any Owner from accepting any amendment as to the particular Bonds held by him, provided that due notation thereof is made on such Bonds. Opinion of Counsel. The Trustee may conclusively accept an opinion of counsel to the Commission that an amendment of the Indenture is in conformity with the provisions of this article. EVENTS OF DEFAULT AND REMEDIES OF OWNERS Events of Default and Acceleration of Maturities. If one or more of the following events (herein called "Events of Default") shall happen, that is to say: (a) If default shall be made in the due and punctual payment of the principal or Accreted Value of or redemption premium, if any, or any mandatory sinking fund payment, 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 in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; (c) If default shall be made by the Commission in the observance of any of the agreements, conditions or covenants on its part in the Indenture or in the Bonds contained, and such default shall have continued for a period of 60 days after the Commission shall have been given notice in writing of such default by the Trustee; provided, however, that such default shall not constitute an Event of Default under the Indenture if the Commission shall commence to cure such default within said 60-day period and thereafter diligently and in good faith proceed to cure such default within a reasonable period of time; or (d) If the Commission shall file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Commission, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Commission or of the whole or any substantial part of its property; then, and in each and every such case during the continuance of such event of default, the Trustee may, and upon the direction of the Bond Insurer or upon the written request of the Owners of not less than twenty-five per cent (25%) in aggregate principal amount of the Bonds at the time Outstanding with the consent of the Bond Insurer, shall, by notice in writing to the Commission, declare the principal or Accreted Value of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding; provided, however, that any such declaration shall be subject to the prior written consent of the Bond Insurer, if any. This provision, however, is subject to the condition that if, at any time after the principal or Accreted Value of the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the money due shall have been obtained or entered, the Commission 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) D-31 upon all the Bonds, with interest at the rate of ten per cent (10%) per annum on such overdue installments of principal and interest, and the expenses of the Trustee, including attorneys fees, and any and all other defaults known to the Trustee (other than in the payment of principal or Accreted Value 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 twenty-five per cent (25%) in aggregate principal amount of the Bonds then Outstanding, by written notice to the Commission and to the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences; provided, however, that no such rescission or annulment shall occur without the prior written consent of the Bond Insurer, if any. 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 Upon Acceleration. All money in the funds and accounts provided for in the Indenture upon the date of the declaration of acceleration by the Trustee as provided in the Indenture as summarized herein under the heading "EVENTS OF DEFAULT AND REMEDIES OF OWNERS - Events of Default and Acceleration of Maturities," and all Tax Revenues thereafter received by the Commission under the Indenture, shall be transmitted to the Trustee and shall be applied by the Trustee in the following order: First, to the payment of the costs and expenses of the Trustee, if any, in carrying out the provisions of this article, including reasonable compensation to its agents, attorneys and counsel and incurred in and about the performance of its powers and duties under the Indenture. Second, upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid, to the payment of the whole amount then owing and unpaid upon the Bonds for interest and principal, with interest on the overdue interest and principal at the rate of ten per cent (10%) per annum, and in case such money shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such interest, principal and interest on overdue interest and principal without preference or priority among such interest, principal and interest on overdue interest and principal, ratably to the aggregate of such interest, principal and interest on overdue interest and principal. Other Remedies of Owners. Any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: (a) By mandamus or other suit or proceeding at law or in equity to enforce his rights against the Commission and any of the members, officers and employees of the Commission, and to compel the Commission or any such members, officers or employees to perform and carry out their duties under the Law and their agreements with the Owners as provided in the Indenture; (b) By suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Owners; or (c) Upon the happening of an event of default (as defined in the Indenture as summarized herein under the heading "EVENTS OF DEFAULT AND REMEDIES OF OWNERS - Events of Default and Acceleration of Maturities"), by a suit in equity to require the Commission and its members, officers and employees to account as the trustee of an express trust. Non-Waiver. Nothing in this article or in any other provision of the Indenture, or in the Bonds, shall affect or impair the obligation of the Commission, which is absolute and unconditional, to pay the interest on and principal or Accreted Value of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as provided in the Indenture, out of the Tax Revenues pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Indenture. A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon any default shall impair any such right or D-32 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 by the Law or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the Trustee, the Commission 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. 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 under the Indenture may be brought by the Trustee for the equal benefit and protection of all Owners, and the Trustee is appointed (and the successive respective Owners of the Bonds issued under the Indenture, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the 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 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 enforce any right or remedy unless it has been indemnified by the Owners from any liability or expense including without limitation fees and expenses of its attorneys. Remedies Not Exclusive. No remedy under the Indenture 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 under the Indenture 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. Owners' Direction of Proceedings. The Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, with the written consent of the Bond Insurer, by an instrument or concurrent instruments in writing executed and delivered to the Trustee and upon furnishing the Trustee with indemnification satisfactory to it, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. Bond Insurer Deemed Owner. For the purposes of (i) the giving of consents to amendments to this Subordinate Indenture pursuant to the Indenture as summarized herein under the heading "AMENDMENT OF THE INDENTURE - Amendment by Consent of Owners," (ii) the giving of any other consent of the Owners under the Indenture, and (iii) the control and direction of all rights and remedies upon the occurrence of an Event of Default, the Bond Insurer shall be deemed to be an Owner of the Bonds for so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy; provided, however, that, notwithstanding the foregoing, the Bond Insurer shall not be deemed to be the Owner of the Bonds for any consent to an amendment to the Indenture that (1) extends the maturity of or reduces the interest rate on of any Bond or extends the time of payment of such interest or reduces the amount of principal thereon, (2) reduces the percentage of Owners whose consent is required for the execution of any amendment or supplement to the Indenture, or (3) amends the Indenture as summarized herein under the heading "AMENDMENT OF THE INDENTURE - Amendment by Consent of Owners." Limitation on Owners' 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 the protection or enforcement of any right or remedy under the Indenture, the Law or any other applicable law with respect to such Bond, unless (1) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted under the Indenture or to institute such suit, action or proceeding in its own name; (3) such Owner or said Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) 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; and (5) the Trustee shall not have received contrary directions from the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. D-33 Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Indenture, the Law or other applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture. DEFEASANCE Discharge of Indebtedness. If the Commission shall pay or cause to be paid, or there shall otherwise be paid, to the Owners of all Outstanding Bonds the interest due thereon and the principal thereof, at the times and in the manner stipulated therein and in the Indenture, then the Owners of such Bonds shall cease to be entitled to the pledge of Pledged Revenues, and all covenants, agreements and other obligations of the Commission to the Owners of such Bonds under the Indenture shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Commission all such instruments as may be desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Commission all money or securities held by them pursuant to the Indenture which are not required for the payment of the interest due on and the principal or Accreted Value of such Bonds other than the moneys, if any, in the Rebate Fund. Bonds for the payment of which money shall have been set aside (through deposit by the Commission or otherwise) to be held in trust by the Trustee for such payment at the maturity or redemption date thereof shall be deemed, as of the date of such setting aside, to have been paid within the meaning and with the effect expressed in the first paragraph of this section. Any Outstanding Bonds shall prior to the maturity date thereof be deemed to have been paid within the meaning and with the effect expressed in the first paragraph of this section if (1) there shall have been deposited with the Trustee either money in an amount which shall be sufficient, or Federal Securities (including any Federal Securities issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) the principal of and the interest on which when paid will provide money which, together with the money, if any, deposited with the Trustee at the same time, shall be sufficient to pay when due the interest due and to become due on such Bonds on and prior to the maturity date thereof, and the principal or Accreted Value of such Bonds (the sufficiency of such amounts to be appropriately verified), (2) the Commission shall have given the Trustee in form satisfactory to it irrevocable instructions to mail, as soon as practicable, a notice to the Owners of such Bonds that the deposit required by (1) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with this section and stating the maturity date upon which money is to be available for the payment of the principal or Accreted Value of such Bonds, (3) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the Commission) to apply such money to the payment of such principal of and premium, if any, and interest on such Bonds and provided, further, that the Commission and the Trustee shall have received (A) an opinion of nationally recognized bond counsel to the effect that such deposit shall not cause interest on the Bonds to be included in the gross income of the beneficial owner thereof for federal income tax purposes and that the Bonds to be discharged are no longer Outstanding and (B) a verification report of a firm of certified public accountants or other financial services firm acceptable to the Commission and the Bond Insurer verifying that the money or securities so deposited or held together with earnings thereon will be sufficient to make all payments of principal of and premium, if any, and interest on the Bonds to be discharged to and including the earlier of their respective maturity dates or the date they are to be redeemed; and (4) the Commission shall have received and the Bond Insurer shall have approved opinions regarding the validity and enforceability of the escrow agreement. Further, the Bond Insurer shall be provided an opinion of counsel that (A) the escrow deposit will not constitute a voidable preference or transfer under the Federal Bankruptcy Code or any other similar state or federal statute in the event the Commission becomes a debtor within the meaning of the Federal Bankruptcy Code or comes within the protection of such similar state or federal statute ("Insolvency Event"), and (B) in such Insolvency Event, the escrow deposit will not be treated as part of the estate of the Commission. Any escrow agreement must be reasonably acceptable to the Bond Insurer. D-34 Neither Federal Securities nor money deposited with the Trustee pursuant to this section nor interest or principal payments on any such Federal Securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the interest on and principal or Accreted Value of such Bonds; provided that any cash received from such interest or principal payments on such Federal Securities deposited with the Trustee, if not then needed for such purpose, shall, to the extent practicable, be reinvested at the written direction of the Commission in Federal Securities maturing at times and in amounts sufficient to pay when due the interest on and principal or Accreted Value of such Bonds on and prior to such maturity date thereof, and interest earned from such reinvestments shall be deposited in the Special Fund. For the purposes of this section, Federal Securities shall mean and include only such securities as are not subject to redemption prior to their maturity. Unclaimed Moneys. Anything in the Indenture to the contrary notwithstanding, any money held by the Trustee in trust for the payment and discharge of any of the Bonds which remain unclaimed for two (2) years after the date when such Bonds have become due and 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 said date when such Bonds or interest thereon become due and payable, shall, at the Written Request of the Commission, be repaid by the Trustee to the Commission, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Commission for the payment of such Bonds; provided, however, that before being required to make any such payment to the Commission, the Trustee shall, at the expense of the Commission, cause to be mailed to the registered Owners of such Bonds at their addresses as they appear on the registration books of the Trustee a notice that said money remains unclaimed and that, after a date named in said notice, which date shall not be less than thirty (30) days after the date of the mailing of such notice, the balance of such money then unclaimed will be returned to the Commission. MISCELLANEOUS Liability of Commission Limited to Pledged Revenues. Notwithstanding anything in the Indenture contained, the Commission shall not be required to advance any money derived from any source of income other than the Pledged Revenues for the payment of the interest on or the principal or Accreted Value of the Bonds or for the performance of any covenants contained in the Indenture, other than the covenants contained in the Indenture as summarized herein under the heading "COVENANTS OF THE COMMISSION - Tax Covenants; Rebate Fund." The Commission may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose. The Commission's obligation to pay the Rebate Requirement to the United States of America pursuant to the Indenture as summarized herein under the heading "COVENANTS OF THE COMMISSION - Tax Covenants; Rebate Fund," shall be considered the general obligation of the Commission and shall be payable from any available funds of the Commission. The Bonds are limited obligations of the Commission and are payable, as to interest thereon and principal thereof, exclusively from the Pledged Revenues, and the Commission is not obligated to pay them except from the Pledged Revenues. All of the Bonds are equally secured by a pledge of, and charge and lien upon, all of the Pledged Revenues, and the Pledged Revenues constitute a trust fund for the security and payment of the interest on and the principal or Accreted Value of the Bonds. The Bonds are not a debt of the City of Rosemead, the State of California or any of its political subdivisions, and neither said City, said State nor any of its political subdivisions is liable therefor, nor in any event shall the Bonds be payable out of any funds or properties other than those of the Commission. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory limitation or restriction, and neither the members of the Commission nor any persons executing the Bonds are liable personally on the Bonds by reason of their issuance. Benefits of Indenture Limited to Parties. Nothing in the Indenture, expressed or implied, is intended to give to any person other than the Commission, the Trustee, the Bond Insurer and the Owners any right, remedy or claim under or by reason of the Indenture. Any covenants, stipulations, promises or agreements in the Indenture contained by and on behalf of the Commission or any member, officer or employee thereof shall be for the sole and exclusive benefit of the Commission, the Trustee, the Bond Insurer and the Owners. Successor Is Deemed Included In All References to Predecessor. Whenever in the Indenture either the Commission or any member, officer or employee thereof is named or referred to, such reference shall be deemed to D-35 include the successor to the powers, duties and functions, with respect to the management, administration and control of the affairs of the Commission, that are presently vested in the Commission or such member, officer or employee, and all the agreements, covenants and provisions contained in the Indenture by or on behalf of the Commission or any member, officer or employee thereof shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Execution of Documents by Owners. Any request, declaration or other instrument which the Indenture may require or permit to be executed by Owners may be in one or more instruments of similar tenor, and shall be executed by Owners in person or by their attorneys appointed in writing. Except as otherwise expressly provided in the Indenture, 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 or territory 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. Except as otherwise expressly provided in the Indenture, the amount of Bonds transferable by delivery held by any person executing such request, declaration or other instrument or writing as a Owner, and the numbers thereof, and the date of his holding such Bonds, may be proved by a certificate, which need not be acknowledged or verified, satisfactory to the Trustee, executed by a trust company, bank or other depositary wherever situated, showing that at the date therein mentioned such person had on deposit with such depositary the Bonds described in such certificate. Continued ownership after the date of deposit stated in such certificate may be proved by the presentation of such certificate if the certificate contains a statement by the depositary that the Bonds therein referred to will not be surrendered without the surrender of the certificate to the depositary, except with the consent of the Trustee. The Trustee may nevertheless in its discretion require further or other proof in cases where it deems the same desirable. The ownership of registered Bonds and the amount, maturity, number and date of holding the same shall be proved by the registry books provided for in the Indenture. Any request, declaration or other instrument or writing of the Owner of any Bond shall bind all future Owners of such Bond in respect of anything done or suffered to be done by the Commission in good faith and in accordance therewith. Waiver of Personal Liability. No member, officer or employee of the Commission shall be individually or personally liable for the payment of the interest on or principal or Accreted Value of the Bonds; but nothing contained in the Indenture shall relieve any member, officer or employee of the Commission from the performance of any official duty provided by law. Acquisition of Bonds by Commission. All Bonds acquired by the Commission, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for cancellation. Destruction of Canceled Bonds. Whenever in the Indenture provision is made for return to the Commission of any Bonds which have been canceled pursuant to the provisions of the Indenture, the Trustee shall destroy such Bonds and furnish to the Commission a certificate of such destruction. Content of Certificates and Reports. Every certificate or report with respect to compliance with a condition or covenant provided for in the Indenture except the certificate contemplated by the Indenture as summarized herein under the heading "MISCELLANEOUS - Destruction of Canceled Bonds," shall include (a) a statement that the person or persons making or giving such certificate or report have read such covenant or condition and the definitions in the Indenture relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or report are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with. D-36 Any such certificate made or given by an officer of the Commission may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based, as aforesaid, are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any such certificate or opinion or representation made or given by counsel may be based, insofar as it relates to factual matters information with respect to which is in the possession of the Commission, upon the certificate or opinion of or representations by an officer or officers of the Commission, unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate, opinion or representation may be based, as aforesaid, are erroneous, or in exercise of reasonable care should have known that the same were erroneous. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Commission or the Trustee may be established and maintained in the accounting records of the Commission or the Trustee either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with sound accounting practices and with due regard for the protection of the security of the Bonds and the rights of the Owners. Partial Invalidity. If any one or more of the agreements or covenants or portions thereof provided in the Indenture to be performed on the part of the Commission (or of the Trustee) should be contrary to law, then such agreement or agreements, such covenant or covenants, or such portions thereof, shall be null and void and shall be deemed separable from the remaining agreements and covenants or portions thereof and shall in no way affect the validity of the Indenture or of the Bonds; but the Owners shall retain all the rights and benefits accorded to them under the Law or any other applicable provisions of law. The Commission declares that it would have adopted the Indenture and each and every other section, paragraph, subdivision, sentence, clause and phrase of the Indenture and would have authorized the issuance of the Bonds pursuant to the Indenture irrespective of the fact that any one or more sections, paragraphs, subdivisions, sentences, clauses or phrases of the Indenture or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Business Days. When any action is provided for in the Indenture to be done on a day named or within a specified time period, and the day or the last day of the period falls on a day other than a day which is not a Saturday, a Sunday, or a day on which banks located in the city where the principal corporate trust office of the Trustee is located are required or authorized to remain closed (a "business day"), such action may be performed on the next ensuing business day with the same effect as though performed on the appointed day or within the specified period. Governing Law. The Indenture shall be governed and construed in accordance with the laws of the State of California. D-37 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E FORM OF OPINION OF BOND COUNSEL Upon the issuance and sale of the Series 2010A Bonds, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, proposes to render its final approving opinion with respect to the Series 2010A Bonds in substantially the following form: [Date of Delivery] Rosemead Community Development Commission Rosemead, California Re: Rosemead Community Development Commission (Los Angeles County, California) the Rosemead Merged Project Area Tax Allocation Bonds, Series 2010A (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to and in connection with the issuance by the Rosemead Community Development Commission (the "Commission") of $ aggregate principal amount of bonds designated Rosemead Community Development Commission (Los Angeles County, California) the Rosemead Merged Project Area Tax Allocation Bonds, Series 2010A Series 2010A (the "Bonds"), issued pursuant to the provisions of the Community Redevelopment Law of the State of California (being Part I of Division 24 of the Health and Safety Code of the State of California), as amended, and a Indenture, dated as of June 1, 2010 (the "Indenture"), by and between the Commission and U.S. Bank National Association, as trustee (the "Trustee"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Tax Certificate of the Commission, dated the date hereof (the "Tax Certificate"), opinions of counsel to the Commission, the Trustee, certificates of the Commission, the Trustee, and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Indenture, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, the defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed E-1 the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Commission. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Tax Certificate including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against redevelopment agencies in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum or waiver provisions contained in the foregoing documents. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: The Bonds constitute valid and binding limited obligations of the Commission. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Commission. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Pledged Revenues and any other amounts held by the Trustee in any fund or account established pursuant to the Indenture, except the Rebate Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and upon the terms and conditions set forth in the Indenture. 3. The Bonds are not a lien or charge upon the funds or property of the Commission except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing power of the State of California or of any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds. The Bonds are not a debt of the City of Rosemead, the State of California or any of its political subdivisions, and neither said City, said State nor any of its political subdivisions is liable therefor, nor in any event shall the Bonds be payable out of any funds or properties other than those of the Commission. E-2 4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP Per E-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX F DTC AND BOOK-ENTRY ONLY SYSTEM The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Series 2010A Bonds, payment of principal of and interest on the Series 2010A Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Series 2010A Bonds, and other Series 2010A Bonds-related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the Commission believes to be reliable, but the Commission takes no responsibility for the completeness or accuracy thereof. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Series 2010A Bonds"). The Series 2010A Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2010A Bond will be issued for the Series 2010A Bonds in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information on such websites is not incorporated herein by such reference or otherwise. Purchases of Series 2010A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2010A Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2010A Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2010A Bonds are to be accomplished by entries made on F-1 the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2010A Bonds, except in the event that use of the book-entry system for the Series 2010A Bonds is discontinued. To facilitate subsequent transfers, all Series 2010A Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2010A Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2010A Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2010A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as maybe in effect from time to time. Beneficial Owners of Series 2010A Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Series 2010A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series 2010A Bonds may wish to ascertain that the nominee holding the Series 2010A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2010A Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2010A Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Commission 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 Series 2010A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series 2010A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the Commission or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, nor its nominee, the Trustee, or the Commission, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Commission or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2010A Bonds at any time by giving reasonable notice to the Commission or the Trustee. Under such F-2 circumstances, in the event that a successor securities depository is not obtained, Series 2010A Bonds are required to be printed and delivered. The Commission may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2010A Bonds will be printed and delivered to DTC. The information herein concerning DTC and DTC's book-entry system has been obtained from sources that the Commission believes to be reliable, but the Commission takes no responsibility for the accuracy thereof. F-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), is executed and entered into as of June 1, 2010, by and among the ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION, a public body, corporate and politic, organized and existing under, and by virtue of the laws of the State of California (the "Commission"), U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, in its capacity as trustee (the "Trustee"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, in its capacity as Dissemination Agent (the "Dissemination Agent"). WITNESSETH: WHEREAS, pursuant to the Indenture, dated as of June 1, 2010 (the "Indenture"), by and between the Commission and the Trustee, the Commission has issued the Rosemead Community Development Commission Rosemead Merged Project Area Tax Allocation Bonds, Series 2010A (the "Bonds") in the aggregate principal amount of $ ; and WHEREAS, this Disclosure Agreement is being executed and delivered by the Commission and U.S. Bank National Association, in its capacity as Trustee and in its capacity as Dissemination Agent, for the benefit of the holders and beneficial owners of the Bonds and in order to assist the underwriters of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. In addition, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the Commission pursuant to, and as described in, Sections 2 and 3 hereof. "Annual Report Date" means not later than 270 days following the end of the Commission's fiscal year (which is currently June 30), commencing March 31, 2011. "Commission" means the Rosemead Community Development Commission. "Disclosure Representative" means the Executive Director of the Commission, or his or her designee, or such other person as the Commission shall designate in writing to the Trustee from time to time. "Dissemination Agent" means U.S. Bank National Association, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Commission and which has filed with the Trustee a written acceptance of such designation. "EMMA System" means the MSRB's Electronic Municipal Market Access system, or such other electronic system designated by the MSRB. G-1 "Listed Events" means any of the events listed in Section 4(a) hereof. "MSRB" means the Municipal Securities Rulemaking Board, or any successor thereto. "Official Statement" means the Official Statement, dated , 2010, relating to the Bonds. "Participating Underwriter" means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Provision of Annual Reports. (a) The Commission shall, or, upon furnishing the Annual Report to the Dissemination Agent, shall cause the Dissemination Agent to, provide to the MSRB through the EMMA System, in an electronic format and accompanied by identifying information all as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2009-10 fiscal year. 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 3 hereof, provided, however, that the audited financial statements of the Commission, if any, may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the Commission's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) for the providing of the Annual Report to the MSRB, the Commission shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the Commission and the Dissemination Agent to inquire if the Commission is in compliance with the first sentence of this subsection (b). (c) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a) of this Section, the Trustee shall send a notice to the MSRB through the EMMA System in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) provide any Annual Report received by it to the MSRB, as provided herein; and (ii) file a report with the Commission and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was so provided. Section 3. Content of Annual Reports. The Commission's Annual Report shall contain or incorporate by reference the following: (a) The Commission's audited financial statements, if any, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Commission's audited financial statements, if any, are not available by the time the Annual Report is required to be filed pursuant to Section 2(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to G-2 that used for the Commission's audited financial statements, and the audited financial statements, if any, shall be filed in the same manner as the Annual Report when they become available. (b) The following information: (i) An update of the information contained in Table 2 of the Official Statement for the most recently completed fiscal year. (ii) An update of the information contained in Table 3 of the Official Statement for the most recently completed fiscal year. (iii) An update of the information contained in Table 4 of the Official Statement for the most recently completed fiscal year. (iv) An update of the information contained in Table 5 of the Official Statement for the most recently completed fiscal year. (v) An update of the information contained in Table 6 of the Official Statement based upon the most recently completed fiscal year. (vi) An update of the information contained in Table 7 of the Official Statement for the most recently completed fiscal year. (vii) The amount of any payments by the Commission during the most recently completed Fiscal Year of the type described in "RISK FACTORS - State Budget Deficit and Its Impact on Pledged Tax Revenues" in the Official Statement. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the Commission shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Commission or related public entities, which have been submitted to the MSRB through the EMMA System. The Commission shall clearly identify each such other document so included by reference. Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section, the Commission shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. G-3 (b) The Trustee shall, within five business days of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the Commission promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f); provided, however, that the Dissemination Agent shall have no liability to Bond owners for any failure to provide such notice. For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of the Listed Events described under clauses (ii), (iii), (vi), (x) and (xi) above shall mean actual knowledge by an officer at the corporate trust office of the Trustee. The Trustee shall have no responsibility for determining the materiality of any of the Listed Events. (c) If the Commission determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Commission shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (e) of this Section. (d) If in response to a request under subsection (b) of this Section, the Commission determines that the Listed Event would not be material under applicable Federal securities law, the Commission shall so notify the Trustee in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e) of this Section. (e) If the Dissemination Agent has been instructed by the Commission to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB through the EMMA System. Notwithstanding the foregoing, notice of Listed Events described in paragraphs (viii) and (ix) of subsection (a) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture. Section 5. Termination of Reporting Obligation. The Commission's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Commission shall give notice of such termination in the same manner as for a Listed Event under Section 4(f) hereof. Section 7. Dissemination Agent. The Commission may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty days' written notice to the Commission and the Trustee. The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible for filing any Annual Report not provided to it by the Commission in a timely manner and in a form suitable for filing. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Commission, the Trustee and the Dissemination Agent may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Commission, so long as such amendment does not adversely affect the rights or obligations of the Trustee or the Dissemination Agent), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to Sections 2(a), 3 or 4(a) hereof it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in G-4 law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver (i) is approved by holders of sixty percent 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 holders. 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 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 statements or information, in order to provide information to investors to enable them to evaluate the ability of the Commission to meet its obligations, including its obligation to pay debt service on the Bonds. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be given in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Commission from disseminating any other information, using the means of dissemination set forth in this 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 Commission 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 Commission 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 Commission to comply with any provision of this Disclosure Agreement, the Trustee at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Trustee, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Commission 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 Commission or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. G-5 Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture, and the Trustee and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded to the Trustee thereunder. The Dissemination Agent and the Trustee shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement. The Commission agrees to indemnify and save the Dissemination Agent, the Trustee, their officers, directors, employees and agent, harmless against any loss, expense and liabilities which it may incur arising out of the disclosure of information pursuant to this Disclosure Agreement or arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. This Disclosure Agreement does not apply to any other securities issued or to be issued by the Commission. The Dissemination Agent shall have no obligation to make any disclosure concerning the Bonds, the Commission or any other matter except as expressly set out herein, provided that no provision of this Disclosure Agreement shall limit the duties or obligations of the Trustee under the Indenture. The Dissemination Agent shall have no responsibility for the preparation, review, form or content of any Annual Report or any notice of a Listed Event. The Dissemination Agent may conclusively rely upon the Annual Report provided to it by the Commission as constituting the Annual Report required of the Commission in accordance with the Disclosure Agreement. The fact that the Trustee has or may have any banking, fiduciary or other relationship with the Commission or any other party, apart from the relationship created by the Indenture and this Disclosure Agreement, shall not be construed to mean that the Trustee has knowledge or notice of any event or condition relating to the Bonds or the Commission except in its respective capacities under such agreements. No provision of this Disclosure Agreement shall require or be construed to require the Dissemination Agent to interpret or provide an opinion concerning any information disclosed hereunder. Information disclosed hereunder by the Dissemination Agent may contain such disclaimer language concerning the Dissemination Agent's responsibilities hereunder with respect thereto as the Dissemination Agent may deem appropriate. The Dissemination Agent may conclusively rely on the determination of the Commission as to the materiality of any event for purposes of Section 4 hereof. Neither the Trustee nor the Dissemination Agent make any representation as to the sufficiency of this Disclosure Agreement for purposes of the Rule. The Dissemination Agent shall be paid compensation by the Commission for its services provided hereunder in accordance with its schedule of fees, as amended from time to time, and all expenses, legal fees and advances made or incurred by the Dissemination in the performance of its duties hereunder. The Commission's obligations under this Section shall survive the termination of this Disclosure Agreement. Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Commission, the Trustee, 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. Section 13. Counterparts. This Disclosure 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. Section 14. Merger. Any person succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act. G-6 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. ROSEMEAD COMMUNITY DEVELOPMENT COMMISSION By: ATTEST: By: Secretary Authorized Officer U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent By: Authorized Officer G-7 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Rosemead Community Development Commission Name of Bond Issue: Rosemead Community Development Commission Rosemead Merged Project Area Tax Allocation Bonds, Series 2010A Date of Issuance: , 2010 NOTICE IS HEREBY GIVEN that the Rosemead Community Development Commission (the "Commission") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of June 1, 2010, by and among the Commission and U.S. Bank National Association, in its capacity as Trustee and in its capacity as Dissemination Agent. [The Commission anticipates that the Annual Report will be filed by Dated: By: U.S. Bank National Association, as Trustee, on behalf of the Rosemead Community Development Commission cc: Rosemead Community Development Commission G-A-1 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] 0 Mixed Sources nadue,wwvtromwa~ ea <.<3a.awoaa«tim< FSC ygs««95[s~~M~%0993 Printed by: ImageMaster, Inc.