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HomeMy WebLinkAboutStaff Report 4.A 09/12/2005CITY OF PETALUMA, CALIFORNIA A B 4.A GENDA ILL A�g e. Agenda Title: Resolution Authorizing the Issuance and the Sale of JI e 1 ber 121 2005 Not to Exceed $20 Million Principal Amount of PCDC Refunding September 12, 2005 Tax Allocation Bonds Meeting Time: © 3:00 PM ❑ 7:00 PM Category (check one): ❑ Consent Calendar ❑ Public Hearing ® New Business ❑ Unfinished Business ❑ Presentation Department: Director: Admin Services SJ Carmich Cost of Proposal: N/A Amount Budgeted: Attachments to Agenda Packet Item: Contact Person: Phone Number: Steven Carmichael 778-4352 Account Number: Name of Fund: Agenda Report Resolution Approving Issuance of PCDC Refunding Tax Allocation Bonds Fourth Supplemental Indenture with J.P. Morgan Trust Company, as Successor Trustee Appendix A — Form of Bond Purchase Contract Preliminary Official Statement Summary Statement: In 2000, the City Redevelopment Agency issued the 2000A Tax Allocation Bonds. These bonds are currently eligible to be refunded. With current rates, the refunding should save in excess of $900,000 on the current costs of the existing 2000A Bonds. Recommended Citv Council Action/Suggested Motion: Approve Resolution Approving Issuance of PCDC Refunding Tax Allocation Bonds, Fourth Supplemental Indenture with J.P. Morgan Trust Company, as Successor Trustee, and Appendix A — Forni of Bond which authorizes the Agency to sell Refunding Tax Allocation Bonds not to exceed $20 million. Reviewed by Admin. Svcs. Dir: Da e•. 411 Todav's Date: 1 Reviewed by City Attornev: Ap 1iy d by City Manager: Date: F/ Date: Revision # and Date Revised: File Code: CITY OF PETALUMA, CALIFORNIA SEPTEMBER 12, 2005 (Date of Meeting) AGENDA REPORT FOR Resolution Authorizing the Issuance and the Sale of Not to Exceed $20 Million Principal Amount of PCDC Refunding Tax Allocation Bonds (Name of Project — Use Same Language as Found for the Agenda Title on the Agenda Bill) EXECUTIVE SUMMARY: The 2000A PCDC Bonds can be refunded to save in excess of $900,000 in today's bond market. 2. BACKGROUND: The PCDC issues bonds using tax increment as pledge of revenues to repay bonds. These bond proceeds are then used to build capital projects in the redevelopment agency. 3. ALTERNATIVES: Do not sell the refunding bonds and lose opportunity to save $900,000. 4. FINANCIAL INIPACTS: Selling the bonds saves the PCDC roughly $900,000. 5. CONCLUSION: By selling bonds, PCDC can maximize the use of its tax increment monies to do capital projects. 6. OUTCOMES OR PERFORMANCE MEASUREMENTS THAT WILL IDENTIFY SUCCESS OR COAIPLETION: RECOMMENDATION: Approve resolutions to authorize sale of refunding tax allocation bonds. 5:/agenda/9-I2-05 PCDC refunding TAB's RESO. #2005 - RESOLUTION AUTHORIZING THE ISSUANCE AND THE SALE OF NOT TO EXCEED $20,000,000 PRINCIPAL AMOUNT OF PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT REFUNDING TAX ALLOCATION BONDS, SERIES 2005A; AUTHORIZING THE PREPARATION OF A PURCHASE CONTRACT RELATING THE PURCHASE OF SUCH BONDS ON CERTAIN TERMS AND CONDITIONS THERETO; APPROVING PREPARATION AND DISTRIBUTION OF THE OFFICIAL STATEMENT, AUTHORIZING CERTAIN OTHER OFFICIAL ACTION IN CONNECTION THEREWITH AND MAKING BENEFIT FINDINGS WHEREAS, the Petaluma Community Development Commission (the "Commission") is a redevelopment agency duly created, established and authorized to transact business and exercise its powers, all under and pursuant to the Community Redevelopment Law, being Section 33000 and following of the Health and Safety Code of the State of California (the "Law"), and the powers of the Commission include the power to issue bonds for any of its corporate purposes; and WHEREAS, Article 11 of Chapter 3 of Division 2 of Tide 5 of the Government Code of the State of California authorizes and empowers the Commission to issue bonds in refunding bonds; and WHEREAS, a redevelopment plan, known as the Redevelopment Plan for the Petaluma Community Development Project (die "Plan"), has been adopted and approved in accordance with the Law; and WHEREAS, the Plan provides that the Commission is specifically authorized to provide for the financing and refinancing of certain public improvements consistent with the Plan for the Petaluma Community Development Project (the "Project"); and WHEREAS, tie Commission has previously issued its Petaluma Community Development Project Tax Allocation Bonds, Series 1992A pursuant to an indenture, dated as of January 1, 1992 (as supplemented, the "Indenture"); and WHEREAS, the Commission has previously issued its Petaluma Community Development Project Tax Allocation Bonds, Series 2000A (the "Series 2000A Bonds") pursuant to the Indenture and a first supplemental indenture, dated as of June 1, 2000; and WHEREAS, tie Commission has previously issued its Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2001A pursuant to tie Indenture and a second supplemental indenture, dated as of June 1, 2001; and WHEREAS, die Commission has previously issued its Petaluma Community Development Commission Project Tax Allocation Bonds, Series 2003A pursuant to the Indenture and a third supplemental indenture, dated as of October 1, 2003; and RESO.05- PAGE 1 OF 4 DOCSSFI:629266.5 WHEREAS, the Indenture permits the issuance of Additional Bonds (as defined therein) pursuant to supplemental indentures; and WHEREAS, the Commission has been advised that a favorable interest rate market would make it possible for the Commission to demonstrably reduce the effective interest rate costs on its debt by the issuance of bonds; and WHEREAS, the Commission has determined to issue not to exceed $20,000,000 aggregate principal amount of its Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A (the "Series 2005A Bonds") for the expected purposes of (i) refunding a portion of the outstanding Series 2000A Bonds (the "Refunded 2000A Bonds"), (ii) satisfying the bond reserve account requirement with respect to the Series 2005A Bonds and (iii) paying the costs of issuing the Series 2005A Bonds; and WHEREAS, there has been presented at this meeting a form of Fourth Supplemental Indenture providing for the issuance of the Series 2005A Bonds; and WHEREAS, the Commission has determined that it is desirable sell the bonds by a negotiated sale and to enter into a purchase contract with Banc of America Securities LLC (the "Underwriter") for the purchase of the Series 2005A Bonds; NOW, THEREFORE, BE IT RESOLVED by the Petaluma Community Development Commission, as follows: Section 1. The Commission will proceed with the issuance and sale of not to exceed $20,000,000 aggregate principal amount of Petaluma Community Development Commission Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A in order to advance refund a portion of the Series 2000A Bonds. The Series 2005A Bonds are authorized to be executed by the manual or facsimile signature of the Chairperson of the Commission and the seal of the Commission is authorized to be affixed or imprinted thereon and attested by the manual or facsimile signature of the Secretary of the Commission. The seal of the Commission may be produced in facsimile form. The Series 2005A Bonds, when so executed, are authorized to be delivered to the Trustee for authentication. Section 2. The form of Fourth Supplemental Indenture, dated as of October 1, 2005 (the "Fourth Supplemental Indenture"), presented at flus meeting, is hereby approved, and the Chairperson or Vice Chairperson or the Executive Director and the Secretary are hereby authorized and directed, for and in the name of and on behalf of the Commission, to execute, acknowledge and deliver the Fourth Supplemental Indenture in substantially the form presented at this meeting with such changes therein as the officers executing the same may approve, such approval to be conclusively evidenced by the execution and delivery thereof. The date, maturity date or dates, interest rate or rates, interest payment dates, terms of redemption and other terms of the Series 2005A Bonds shall be as provided in the Fourth Supplemental Indenture as finally executed. Section 3. The form of Purchase Contract relating to the Series 2005 Bonds between the Agency and the Underwriter on file with the Secretary of the Agency and incorporated into this Resolution by reference (the "Purchase Contract") is hereby approved. The Chairperson or Vice Chairperson or the Executive Director and the Secretary is hereby authorized and directed, for RESO.05- PAGE 2 OF 4 DOCSSFI:829266.5 and in the name and on behalf of the Agency, to accept the offer of the Underwriter to purchase the Series 2005A Bonds as reflected in the Purchase Contract and to execute and deliver the Purchase Contract in substantially the form on file with the Secretary and presented to this meeting, with such additions thereto or changes or insertions that hereafter become necessary in the interest of the Agency and which are approved by the Chairperson or Vice Chairperson or the Executive Director, in consultation with the Agency's bond counsel, such approval to be conclusively evidenced by the execution and delivery of the Purchase Contract; provided, however, that such additions, changes or insertions in the Purchase Contract shall not specify a true interest cost of the Series 2005A Bonds in excess of 5.50% or an underwriter's discount in excess of 1.0%; provided further, that the refunding of the Refunded 2000A Bonds shall produce a net present value savings at the yield of the Series 2005A Bonds as certified by Kelling, Northcross & Nobriga, a Division of Zions First National Bank (the "Financial Advisor"); provided further, that the Chairperson or Vice Chairperson or the Executive Director is hereby authorized to have the Series 2005A Bonds placed or purchased by other purchasers. Section 4. The principal amount of Series 2005A Bonds to be sold shall be established by the Executive Director or the Treasurer, in consultation with the Financial Advisor, but shall not exceed $20,000,000. Section 5. The Commission authorizes an official statement relating to the Series 2005A Bonds to be prepared by Jones Hall, A Professional Law Corporation, as underwriter's counsel. Said official statement shall be substantially in the form presented to this meeting, with such changes, additions and completions therein as the Executive Director or the Treasurer or the designee or either may approve with the advice of counsel. When the form of said official statement have been approved by the Executive Director or the Treasurer or the designee or either, the Executive Director or the Treasurer or the designee of either may authorize the distribution of said official statement, the cost of printing and mailing said official statement to be borne by the Commission but reimbursable from Series 2005A Bond proceeds. Section 6. The Chairman, the Executive Director, the Treasurer, the Secretary and the Commission General Counsel are each hereby authorized and directed in the name and on behalf of the Commission to take any and all steps and to issue and deliver any and all certificates, requisitions, agreements, notices, consents, including, but not limited to, an escrow agreement, a tax certificate, a continuing disclosure certificate, and other documents, which they are any of them might deem necessary or appropriate in order to obtain credit ratings for the Series 2005A Bonds, to obtain bond insurance or a reserve fund suety bond for the Series 2005A Bonds if such insurance or reserve fund surety bond is deemed to be in the financial interest of the Commission as determined by the Executive Director or the Treasurer or the designee of either in consultation with the Financial Advisor, and to consummate the lawful issuance, sale and delivery of said Series 2005A Bonds. DOCSSFl:929266.5 RESO.05- PAGE 3 OF 4 approval. Section 7. This resolution shall take effect from and after its passage and ADOPTED this 12th day of September, 2005, by the following vote: Commissioner Ave No Absent ATTEST: Recording Secretary Chairperson RESO.05- PAGE 4 or 4 DOCSSf1:829266.5 fry �C/ PETALUMA COMMUNITY DEVELOPMENT COMMISSION J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION, as successor Trustee FOURTH SUPPLEMENTAL INDENTURE Dated as of 1, 2005 Relating to $[Par Amount] Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A DOCSSF1:829252.4 OH&S Draft 9/6/05 TABLE OF CONTENTS mm ARTICLE XXVII DEFINITIONS; EQUAL SECURITY...................................................... 2 SECTION 27.01. Definitions...................................................................................... 2 ARTICLE XXVIII SERIES 2005A BOND PROVISIONS 3 ..................................................... SECTION 28.01. Authorization.................................................................................3 SECTION 28.02. Terms of Series 2005A Bonds ....................................................... 4 SECTION28.03. ................................................................................................... 4 SECTION 28.04. Creation of Mandatory Sinking Accounts ..................................... 5 SECTION 28.05. Form of Series 2005A Bonds... ...... — .......... .......................... 5 SECTION 28.06. Redemption of Series 2005A Bonds; Selection of Bonds; Purchase in Lieu of Redemption; Notice... ..... .................... - ........ 6 ARTICLE XXIX ISSUANCE OF SERIES 2005A BONDS; APPLICATION OF PROCEEDSOF SALE..............................................................................7 SECTION 29.01, Issuance of Series 2005A Bonds .................................................... 7 SECTION 29.02. Application of Proceeds of Sale of Series 2005A Bonds -- Allocation Among Funds and Accounts ........................................ 7 ARTICLE XXX ADDITIONAL COVENANTS................................................................. 8 SECTION 30.01. Continuing Disclosure................................................................... 8 ARTICLE XXXI MISCELLANEOUS.................................................................................. 8 SECTION 31.01. Concerning the Series 2005A Bond Insurer .................................. 8 SECTION 31.02, Payments Under the Series 2005A Bond Insurance Policy; OtherProvisions............................................................................. 9 SECTION 31.03. Incorporation of Indenture............................................................. 9 SECTION 31.04. Execution in Several Counterparts ................................................. 9 SECTION31.05. Notices........................................................................................... 9 APPENDIX A - Form of Bond A-1 nOCSSFE829252.4 FOURTH SUPPLEMENTAL INDENTURE THIS FOURTH SUPPLEMENTAL INDENTURE (this "Fourth Supplemental Indenture") is made and entered into as of 1, 2005, by and between the Petaluma 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"), and J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION (as a successor to Chase Manhattan Bank and Trust Company, National Association), a national banking association organized and existing under the laws of the United States and authorized to accept and execute trusts of the character herein set out with a corporate trust offices located in San Francisco and Houston, Texas, as trustee (the "Trustee"); WITNESSETH: WHEREAS, the Commission is a redevelopment agency, a public body, corporate and politic duly created, established and authorized to transact business and exercise its powers, all under and pursuant to the Community Redevelopment Law (Part 1 of Division 24 of the Health and Safety Code of the State of California and referred to herein as the "Law") and the powers of such agency include the power to issue bonds for any of its corporate purposes; and WHEREAS, Article 11 of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California authorizes and empowers the Commission to issue bonds to refund bonds (the "Refunding Law"); and WHEREAS, a redevelopment plan for a redevelopment project known and designated as "Petaluma Community Development Project' has been adopted and approved and all requirements of law for, and precedent to, the adoption and approval of said plan have been duly complied with; and WHEREAS, the plan contemplates that the Commission will issue its bonds to finance or refinance a portion of the cost of such redevelopment; and WHEREAS, the Commission, by Resolution No. 91-06A, adopted December 16, 1991, authorized the issuance of not to exceed $5,000,000 aggregate principal amount of its Petaluma Community Development Project Tax Allocation Bonds, Series 1992A (the "Series 1992A Bonds") for the purpose of financing and refinancing portions of the redevelopment project; and WHEREAS, the Commission entered into an Indenture, dated as of January 1, 1992 (together with this Fourth Supplemental Indenture, the "Indenture") for the purposes of issuing the Series 1992A Bonds and additional bonds from time to time; and WHEREAS, the Commission, by Resolution No. 00-08, adopted April 17, 2000, authorized the issuance and sale of not to exceed $18,000,000 aggregate principal amount of its Petaluma Community Development Project Tax Allocation Bonds, Series 2000A (the "Series 2000A Bonds") for the purpose of financing and refinancing portions of the redevelopment project pursuant to a First Supplemental Indenture, dated as of June 1, 2000 (the "First Supplemental Indenture"); and DOCSSF1:829252.4 WHEREAS, the Commission, by Resolution No. 2001-005, adopted May 7, 2001 authorized the issuance and sale of not to exceed $5,000,000 aggregate principal amount of its Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2001A for the purpose of defeasing the outstanding Series 1992A Bonds pursuant to a Second Supplemental Indenture, dated as of June 1, 2001 (the "Second Supplemental Indenture"); and WHEREAS, the Commission by Resolution No. 2003-12, adopted August 18, 2003, authorized the issuance and sale of not to exceed $30,000,000 aggregate principal amount of its Petaluma Community Development Commission Project Tax Allocation Bonds, Series 2003A (the "Series 2003A Bonds") for the purpose of financing and refinancing portions of the redevelopment project pursuant to the Third Supplemental Indenture, dated as of October 1, 2003 (the "Third Supplemental Indenture"); and WHEREAS, the Commission by Resolution No. 2005-_, adopted 2005, authorized the issuance and sale of not to exceed $ aggregate principal amount of its Petaluma Community Development Commission Project Refunding Tax Allocation Bonds, Series 2005A (the "Series 2005A Bonds") for the purpose of advance refunding a portion of the outstanding Series 2000A Bonds maturing May 1, 20 through May 1, 20_ (the "Defeased 2000A Bonds") pursuant to this Fourth Supplemental Indenture; and WHEREAS, all things necessary to cause the Series 2005A Bonds, when authenticated by the Trustee and issued as in this Indenture provided, to be legal, special obligations of the Commission, enforceable in accordance with their terms, and to constitute this Indenture a valid agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the creation, execution and delivery of this Indenture and the creation, execution and issuance of the Series 2005A Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW THEREFORE, THIS FOURTH SUPPLEMENTAL INDENTURE WITNESSETH, that in order to secure the payment of the principal of, and the interest and premium, if any, on, the Series 2005A Bonds at any time issued and outstanding under the Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the series 2005A Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Series 2005A Bonds by owners thereof, and for other valuable consideration, the receipt whereof is hereby acknowledged, the Commission does hereby covenant and agree with the Trustee, for the benefit of the respective holders from time to time of the Bonds, as follows: ARTICLE XXVII DEFINITIONS; EQUAL SECURITY SECTION 27.01. Definitions. Except as otherwise provided below, unless the context otherwise requires, capitalized terms used herein shall have the meanings ascribed thereto in Section 1.01 of the Indenture. Unless the context otherwise requires, the terms defined DOCSSF1:829252.4 2 in this section shall for all purposes of the Indenture and of the Bonds and of any certificate, opinion, report, request or other document herein or therein mentioned have the meanings herein specified. Principal Pavment 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 Section 28.02 for the Series 2005A Bonds. Series 2000A Trustee The tern "Series 2000A Trustee" shall mean J.P. Morgan Trust Company, National Association, successor to Chase Manhattan Bank and Trust Company, National Association, as trustee for the Defeased 2000A Bonds. Series 2005A Bond Insurer The term "Series 2005A Bond Insurer" means [Bond Insurer]. Series 2005A Bond Insurance Policv The term "Series 2005A Bond Insurance Policy" means the Financial Guaranty Insurance Policy issued by the Series 2005A Bond Insurer. Series 2005A Bonds The term "Series 2005A Bonds" means the Petalurna Community Development Commission, Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A issued pursuant to this Fourth Supplemental Indenture, ARTICLE XXVIII SERIES 2005A BOND PROVISIONS SECTION 28.01. Authorization. The Commission has reviewed all proceedings heretofore taken relative to the authorization of the Series 2005A Bonds and has found, as a result of such review, and hereby finds and determines that all acts, conditions and things required by law to exist, happen or be performed precedent to and in connection with the issuance of the Series 2005A Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the Commission is now duly authorized, pursuant to each and every requirement of law, to issue the Series 2005A Bonds in the manner and form provided in this Indenture. Accordingly, the Commission hereby authorizes the issuance of the Series 2005A Bonds for the purpose of providing funds to aid in financing and refinancing the Project. DOCSSFI:829252.4 3 SECTION 28.02. Terns of Series 2005A Bonds. The Series 2005A Bonds authorized to be issued by the Commission under and subject to the terms of this Indenture and the Refunding Law shall be designated the "Petaluma Community Development Commission Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A" and shall be in the aggregate principal amount of Dollars ($[Par Amount]). The Series 2005A Bonds shall be dated . 2005, shall bear interest at such rate or rates (payable on May 1 and November I in each year, commencing May 1, 2006), and shall mature and become payable on May 1 in each of the years as to principal in the amounts set forth below: Maturity Date Principal Ma 1 Amount * Term Bond SECTION 28.03. Maturity Interest Date Principal Rate (May 1) Amount Interest Rate Interest on the Series 2005A Bonds shall be computed on the basis of a 360 -day year of twelve 30 -day months. The Series 2005A Bonds shall be issued as fully registered bonds in the denomination of $5,000, or any integral multiple of $5,000 (not exceeding the principal amount of Series 2005A Bonds maturing at any one time). The Series 2005A Bonds shall be Book -Entry Bonds as provided in Section 2.12. The Series 2005A Bonds shall 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 shall bear interest from such Interest Payment Date, or unless such date of registration is on or before the fifteenth day of the month next preceding the first Interest Payment Date, in which event they shall bear interest from their dated date; provided, however, that if, at the time of registration of any Series 2005A Bond, interest is then in default on the Outstanding Series 2005A Bonds, such Series 2005A Bond shall bear interest from the Interest Payment Date to which interest previously has been paid or made available for payment on the Outstanding Series 2005A Bonds. Payment of interest on the Series 2005A Bonds due on or before the maturity or prior redemption of such Series 2005A Bonds shall be made to the person whose name appears on the bond registration books of the Trustee as DOCSSFI:829252.4 4 the registered owner thereof, as of the close of business on the 15th day of the month next preceding the Interest Payment Date on each Interest Payment Date, such interest to be paid by check mailed on the applicable 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 fifteenth day of the month preceding an Interest Payment Date, of an Owner of at least $1,000,000 in aggregate principal amount of Series 2005A Bonds, by wire transfer in immediately available funds to an account within the continental United States designated by such Owner. Principal of and redemption premium, if any, on the Series 2005A Bonds shall be payable upon the surrender thereof at maturity or the earlier redemption thereof at the principal corporate trust office of the Trustee or such other place as designated by the Trustee. Principal of and redemption premiums, if any, and interest on the Series 2005A Bonds shall be paid in lawful money of the United States of America. SECTION 28.04. Creation of Mandatory Sinkina Accounts. The Trustee shall establish and maintain with the Special Fund separate subaccounts for the Series 2005A Bonds maturing on May 1, 20_. Subject to the terms and conditions set forth in this Indenture, the Series 2005A Bonds maturing on May 1, 20_ shall be redeemed (or paid at maturity, as the case may be) by the application of mandatory Sinking Account Installments in the amounts and upon the Sinking Account Payment Dates hereby established for the Series 2005A Bonds maturing on May 1, 20_, as follows: Series 2005A 20 Term Bond Sinkina Account Mandatory Sinking Account Payment Date Mandatory Sinking (May 1) Account Installments * Maturity SECTION 28.05. Form of Series 2005A Bonds. The Series 2005A Bonds, the authentication and registration endorsement and the assignment to appear thereon shall be substantially in the form attached hereto as Appendix "A", with necessary or appropriate variations, omissions and insertions as permitted or required by this Indenture. DOCSSF1:829252.4 SECTION 28.06. Redemption of Series 2005A Bonds; Selection of Bonds; Purchase in Lieu of Redemution; Notice. (a) Optional Redemption. Series 2005A Bonds maturing on or after May 1, 20_ shall be subject to redemption, as a whole or in part in such maturities as are selected by the Commission prior to their respective maturity dates, at the option of the Commission, in such order as determined by the Commission, on any date on or after May 1, 20_, from funds derived by the Commission from any source and deposited with the Trustee on or prior to the date of redemption, at a redemption price equal to the principal amount of Series 2005A Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium. (b) Selection of Bonds. Except as provided in subsection (a) above, 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 fair. (c) Notice. Notice of redemption shall be mailed by first class mail by the Trustee, not less than 30 nor more than 60 days prior to the redemption date to (i) the respective Owners of Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee, (ii) one or more Infonnation Services designated in writing to the Trustee by the Commission and (iii) the Securities Depositories. Each notice of redemption shall 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 shall 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 shall cease to accrue, and shall require that such Bonds be then surrendered at the address or addresses of the Trustee specified in the redemption notice. The Commission may direct the Trustee to make any notice of redemption hereunder conditional upon the deposit with the Trustee of funds sufficient to redeem Bonds called for redemption on or prior to the redemption date. In the event a conditional notice of redemption is given, the notice shall state that it is conditional and shall state that, in the event funds are not so deposited, the redemption shall be cancelled and the Bonds called for redemption shall remain Outstanding. DOCSSFI;829252.4 6 Failure by the Trustee to give notice pursuant to this Section to any one or more of the Information Services or Securities Depositories, or the insufficiency of any such notice shall 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 shall not affect the sufficiency of the proceedings for redemption. (d) Partial Redemption. (i) Upon surrender of any Bond redeemed in pall only, the Commission shall execute (manually or by facsimile) and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Commission, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bond surrendered and of the same interest rate and the same maturity. (ii) In the event of partial redemption of any Term Bond, the mandatory Sinking Account Installments for such Tenn Bond shall be reduced proportionately (taking into account the minimum $5,000 authorized denominations); provided, that the Commission may specify another method of reducing the mandatory sinking Account Installments by written request to the Trustee. (e) Effect of Redemption. 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 Bonds from and after the redemption date specified in such notice. All Bonds redeemed pursuant to the provisions of this section shall be destroyed by the Trustee and the Trustee shall deliver a certificate of destruction to the Commission. ARTICLE XXIX ISSUANCE OF SERIES 2005A BONDS; APPLICATION OF PROCEEDS OF SALE SECTION 29.01. Issuance of Series 2005A Bonds. The Commission may at any time execute and deliver the Series 2005A Bonds authorized to be issued hereunder. SECTION 29.02. Anolication of Proceeds of Sale of Series 2005A Bonds -- Allocation Amone Funds and Accounts. (a) Upon receipt of payment for the Series 2005A Bonds, the Trustee shall set aside and deposit the proceeds received from such sale and delivery in the following respective Rinds and accounts: DDCSSFI:829252.4 7 (i) [The Trustee shall deposit in the Reserve Account the amount of $ , being the amount necessary to satisfy the Reserve Account Requirement as of the closing date of the Series 2005A Bonds.] (ii) The Trustee shall deposit in the Expense Fund the amount of $ being the amount necessary to pay the costs incurred or to be incurred by the Commission in connection with the issuance of the Series 2005A Bonds. (iii) The Trustee shall transfer to the Series 2000A Trustee the amount of $ , such amount being (along with the funds currently held by the Series 2000A Trustee) the amount necessary to defease the principal and interest with respect to the Defeased 2000A Bonds. (b) For record keeping purposes the Trustee may establish such accounts as may be necessary to reflect such transfer of proceeds. ARTICLE XXX ADDITIONAL COVENANTS SECTION 30.01. Continuing Disclosure. The Commission and the Trustee hereby covenant and agree that they will comply with and carry out all of the provisions of the Continuing Disclosure Certificate, dated , 2005 (the "2005 Continuing Disclosure Certificate"). Notwithstanding any other provision of this Indenture, failure of the Commission or the Trustee to comply with the 2005 Continuing Disclosure Certificate shall not be considered an Event of Default, provided that the Trustee at the written request of any Participating Underwriter (as defined in the 2005 Continuing Disclosure Certificate) or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, shall (but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including, without limitation, reasonable fees and expenses of its attorneys) or any Owner or Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Commission or the Trustee, as the case may be, to comply with its obligations under this Section. For purposes of this Section, "Beneficial Owner" means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). r:11411;411MVIVAI fu [.Y91Dl�f .'"MM16101y SECTION 31.01. Concerning the Series 2005A Bond Insurer. (a) So long as the Series 2005A Bond Insurance Policy is in full force and effect, in the event of any amendment to the Indenture, DOCSSF1;829252.4 (i) if such amendment requires consent of the Owners pursuant to Section 8.01, the Series 2005A Bond Insurer shall be deemed to be the Owner of all of the Series 2005A Bonds for such purpose; and (b) So long as the Series 2005A Bond Insurance Policy, in an Event of Default, the Series 2005A Bond Insurer shall be deemed to be the Owner of all Series 2005A Bonds for the purpose of exercising any and all rights of the Owners of the Series 2005A Bonds to direct or approve remedies, consent to actions of the Trustee or others, or any other such rights. SECTION 31.02. Pavments Under the Series 2005A Bond Insurance Policv: Other Provisions. (a) [to come] SECTION 31.03. Incomoration of Indenture. Except as expressly provided in this Fourth Supplemental Indenture, every term and condition contained in the Indenture, the First Supplemental Indenture, the Second Supplemental Indenture and the Third Supplemental Indenture shall apply to this Fourth Supplemental Indenture and to the Series 2005A Bonds with the same force and effect as if the same were herein set forth at length, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Fourth Supplemental Indenture. This Fourth Supplemental Indenture and all the terms and provisions herein contained shall form part of the Indenture as fully and with the same effect as if all such terms and provisions had been set forth in the indenture. The Indenture is hereby ratified and confirmed and shall continue in full force and effect in accordance with the terms and provisions thereof, as supplemented and amended hereby. SECTION 31.04. Execution in Several Countemarts. This Fourth Supplemental Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Commission and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. SECTION 31.05. Notices. Whenever any notice is required to be given hereunder, such notice shall be mailed, first-class mail, postage prepaid, to the following parties at the following addresses: If to the Commission: Petaluma Community Development Commission 11 English St. Petaluma, CA 94952-2610 Attn: Commission Treasurer If to the Trustee: J.P. Morgan Trust Company, National Association 560 Mission Street, 13th Floor San Francisco, CA 94105 Attn: Corporate Trust Administration nocssFI:829252.4 9 If to the Series 2005A [Bond Insurer] Bond Insurer: [to come] Attention: DOCSSFL829252.4 10 IN WITNESS WHEREOF, the PETALUMA COMMUNITY DEVELOPMENT COMMISSION has caused this Indenture to be signed in its name by its Chairperson and its seal to be hereunto affixed and attested by its Secretary, and J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION, in token of its acceptance of the trusts created hereunder, has caused this Fourth Supplemental Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the date and year first above written. [Seal] Attest: Secretary PETALUMA COMMUNITY DEVELOPMENT COMMISSION Chairperson J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION, as successor Trustee Authorized Officer DOCSSF1:829252.4 I I No. A-1 APPENDIX A PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT REFUNDING TAX ALLOCATION BOND, SERIES 2005A RATE OF INTEREST: u�Q Registered Owner: Principal Amount: MATURITY DATE: May 1, CEDE & CO. DATED DATE: Date of Delivery DOLLARS $ CUSIP: THE PETALUMA COMMUNITY DEVELOPMENT COMMISSION, a public body, corporate and politic, duly organized and existing wider and pursuant to the laws of the State of California (the "Commission"), for value received hereby promises to pay to flee registered owner specified above, or registered assigns, on the Maturity Date specified above the Principal Amount specified above, (together with interest thereon from the interest payment date next preceding the date of registration on this Bond (unless this Bond is registered 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 it shall bear interest from such interest payment date, or unless this Bond is registered on or before the fifteenth day of the month next preceding the first interest payment date, in which event it shall bear interest from the dated date) until the principal hereof shall have been paid, at the Rate of Interest specified above, payable on May 1, 2006, and semiannually thereafter on November I and May 1 in each year. Interest on the Bonds shall be computed on the basis of a 360 -day year of twelve 30 -day months. Both the interest hereon and principal hereof are payable in Iawful money of the United States of America. The principal (or redemption price) hereof is payable upon surrender hereof at maturity or the earlier redemption hereof at the principal corporate trust office of J.P. Morgan Trust Company, National Association, as Trustee, in San Francisco, California or such other place as designated by the Trustee. Interest hereon is payable by check mailed on each interest payment date by first class mail to the person in whose name this Bond is registered at the close of business on the 15th day of the month next preceding the applicable interest payment date at such person's address as it appears on the registration books of the Trustee, or upon written request received by tine Trustee prior to the fifteenth day of the month preceding an Interest Payment Date of an Owner of at least $1,000,000 in aggregate principal amount of Series 2005A Bonds, by wire transfer in D0055F1:829252.4 A-1 immediately available funds to an account within the continental United States designated by such Owner. This Bond is one of a duly authorized issue of the Petaluma Community Development Commission Petaluma Community Development Project Tax Allocation Bonds, Series 2005A (the "Bonds"), limited in aggregate principal amount to Dollars ($ ), all of like tenor and date (except for such variations, if any, as may be required to designate varying numbers, maturities, interest rates or redemption provisions), all issued under the provisions of the Community Redevelopment Law of the State of California, as supplemented and amended (the "Law") or the provisions of Article 11 of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California (the "Refunding Law"), and pursuant to the provisions of an Indenture, dated as of January 1, 1992, a First Supplemental Indenture, dated as of June 1, 2000, a Second Supplemental Indenture, dated as of June 1, 2001, a Third Supplemental Indenture, dated as of October 1, 2003 and a Fourth Supplemental Indenture, dated as of 1, 2005 (collectively, the "Indenture"), between the Commission and the Trustee. All Bonds and all bonds heretofore and hereafter issued under the Indenture are equally and ratably secured in accordance with the terms and conditions of the Indenture, and reference is hereby made to the Indenture, to any indentures supplemental thereto and to the Law and the Refunding Law for a description of the terms on which the Bonds are issued, for the provisions with regard to the nature and extent of the security provided for the Bonds and of the nature, extent and manner of enforcement of such security, and for a statement of the rights of the registered owners of the Bonds; and all the terms of the Indenture, the Law and the Refunding Law are hereby incorporated herein and constitute a contract between the Commission and the registered owner from time to time of this Bond, and to all the provisions thereof the registered owner of this Bond, by such owner's acceptance hereof, consents and agrees. Each registered owner hereof shall have recourse to all the provisions of the Law or the Refunding Law and the Indenture and shall be bound by all the terms and conditions thereof. The Bonds are issued to provide funds to aid in the financing and refinancing of the Petaluma Community Development Project of the Commission, a duly adopted redevelopment project in Petaluma, California, as more particularly described in the Indenture. The Bonds are special obligations of the Commission and are payable, as to interest thereon, principal thereof and any premiums upon the redemption thereof, exclusively from the Tax Revenues (as that term is defined in the Indenture and herein called the "Tax Revenues"), and the Commission is not obligated to pay them except from the Tax Revenues. The Bonds, the Commission's Petaluma Community Development Project Tax Allocation Bonds, Series 2000A, the Commission's Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2001A and the Commission's Petaluma Community Development Commission Project Tax Allocation Bonds, Series 2003A are equally secured by a pledge of, and charge and lien upon, the Tax Revenues, and the Tax Revenues constitute a trust fund for the security and payment of the interest on and principal of and redemption premiums, if any, on the Bonds. Additional tax allocation bonds payable from the Tax Revenues may be issued which will rank equally as to security with the Bonds, but only subject to terms and conditions set forth in the Indenture. The Commission hereby covenants and warrants that, for the payment of the interest on and principal of and redemption premium, if any, on this Bond and all other Bonds OOCSSF1:829252.4 A-2 issued under the Indenture when due, there has been created and will be maintained by the Trustee a special fund into which all Tax Revenues shall be deposited, and as an irrevocable charge the Commission has allocated the Tax Revenues solely to the payment of the interest on and principal of and redemption premiums, if any, on the Bonds, and the Commission will pay promptly when due the interest on and principal of and redemption premium, if any, on this Bond and all other Bonds of this issue and all additional tax allocation bonds authorized by the Indenture out of said special fund, all in accordance with the terms and provisions set forth in the Indenture. Series 2005A Bonds are subject to optional redemption on the dates, in the amounts and at the redemption prices set forth in the Fourth Supplemental Indenture. As provided in the Indenture, notice of redemption of this Bond shall be mailed not less than thirty (30) days nor more than sixty (60) days before the redemption date to the registered owner hereof, but failure to receive such notice shall not affect the sufficiency of such proceedings for redemption. If notice of redemption has been duly given as aforesaid and money for payment of the above-described redemption price is held by the Trustee, then such Bonds shall, on the redemption date designated in such notice, become due and payable at the above-described redemption price; and from and after the date so designated interest on the Bonds so called for redemption shall cease to accrue and registered owners of such Bonds shall have no rights in respect thereof except to receive payment of such redemption price thereof. If an event of default, as defined in the Indenture, shall occur, the principal of all Bonds may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture; except that the Indenture provides that in certain events such declaration and its consequences may be rescinded by the registered owners of at least twenty- five percent (25%) in aggregate principal amount of the Bonds then outstanding. The Bonds are issuable only in the form of fully registered Bonds in the denomination of $5,000 or any integral multiple of $5,000 (not exceeding the principal amount of Bonds maturing at any one time). The owner of any Bond or Bonds may surrender the same at the above-mentioned office of the Trustee or such other place as designated by the Trustee in exchange for an equal aggregate principal amount of fully registered Bonds of any other authorized denominations, in the manner, subject to the conditions and upon the payment of the charges provided in the Indenture. This Bond is transferable, as provided in the Indenture, only upon a register to be kept for that purpose at the above-mentioned office of the Trustee or such other place as designated by the Trustee by the registered owner hereof in person, or by his duly authorized attorney, upon surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee duly executed by the registered owner or his duly authorized attorney, and thereupon a new fully registered Bond or Bonds, in the same aggregate principal amount, shall be issued to the transferee in exchange therefor as provided in the Indenture, and upon payment of the charges therein prescribed. The Commission and the Trustee may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment of, or on account of, the interest hereon and principal hereof and redemption premium, if any, hereon and for all other purposes. OOCSSFl:829252.4 A-3 The rights and obligations of the Commission and of the registered owners of the Bonds may be amended at any time in the manner, to the extent and upon the terms provided in the hidenture, but no such amendment shall (1) extend the maturity of this Bond, or reduce the interest rate hereon, or otherwise alter or impair the obligation of the Commission to pay the interest hereon or principal hereof or any premium payable on the redemption hereof at the time and place and at the rate and in the currency provided herein, without the express written consent of the registered owner of this Bond, or (2) permit the creation by the Commission of any mortgage, pledge or lien upon the Tax Revenues superior to or on a parity with the pledge and lien created in the Indenture for the benefit of the Bonds and all additional tax allocation bonds authorized by the Indenture or (3) reduce the percentage of Bonds required for the written consent to an amendment of the Indenture, or (4) modify any rights or obligations of the Trustee without its prior written assent thereto; all as more fully set forth in the Indenture. This Bond is not a debt of the City of Petaluma, the State of California or any of its political subdivisions, and neither said City, and State nor any of its political subdivisions is liable hereon, nor in any event shall this Bond or any interest hereon or any redemption premium hereon 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 debt limitation or restriction, and neither the members of the Commission nor any persons executing the Bonds shall be personally liable on the Bonds by reason of their issuance. This Bond shall not be entitled to any benefits under the Indenture or become valid or obligatory for any purpose until the certificate of authentication and registration hereon endorsed shall have been manually signed by the Trustee. It is hereby certified that all of the acts, conditions and things required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law and that the amount of this Bond, together with all other indebtedness of the Commission, does not exceed any limit prescribed by the Constitution or laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. OOCSSF1:829252.4 A-4 IN WITNESS WHEREOF, the Petaluma Community Development Commission has caused this Bond to be executed in its name and on its behalf by its Chairperson and attested by its Secretary, and has caused this Bond to be dated 12005. Attest: PETALUMA COMMUNITY DEVELOPMENT COMMISSION 10 Secretary Chairperson [CERTIFICATE OF AUTHENTICATION AND REGISTRATION] This is one of the Bonds described in the within -mentioned Indenture which has been authenticated and registered on 2005. J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee Authorized Officer [STATEMENT OF INSURANCE] DOCSSF1:829252.4 A-5 [FORM OF ASSIGNMENT] For value received the undersigned do(es) hereby sell, assign and transfer unto the within -mentioned registered Bond and do(es) hereby irrevocably constitute and appoint attorney to transfer the same on the bond register of the Trustee, with full power of substitution in the premises. Dated: Note: The signature(s) to this Assignment must correspond with the name(s) as written on the face of the within registered Bond in every particular, without alteration or enlargement or any change whatsoever. nOCSSF1:629252.4 A-6 12061-38 JH:SM:Idw 08/18/05 08/25/05 $ PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT (SONOMA COUNTY, CALIFORNIA) REFUNDING TAX ALLOCATION BONDS, SERIES 2005A PURCHASE CONTRACT September_, 2005 Petaluma Community Development Commission 11 English Street Petaluma, California 94952-2610 Ladies and Gentlemen: The undersigned, Banc of America Securities LLC (the "Underwriter"), offers to enter into this Purchase Contract (this "Purchase Contract") with the Petaluma Community Development Commission (the "Commission"), which will be binding upon the Commission and the Underwriter upon the acceptance hereof by the Commission. This offer is made subject to its acceptance by the Commission by execution of this Purchase Contract and its delivery to the Underwriter on or before 5:00 p.m., California time, on the date hereof. All terms used herein and not otherwise defined shall have the respective meanings given to such terms in the Indenture (as hereinafter defined). Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, the Underwriter hereby agrees to purchase from the Commission for offering to the public, and the Commission hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the $ aggregate principal amount of the Commission's Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A (the "Bonds"), at a purchase price equal to $ (being the aggregate principal amount thereof less an underwriter's discount of $ [plus/minus] a net original issue [premium/discount] of $). Section 2. Description of the Bonds. The Bonds shall be issued pursuant to an Indenture dated as of January 1, 1992 (as supplemented as described below, the "Indenture"), by and between the Commission and Bank of America National Trust and Savings Association, as trustee, as previously supplemented and amended and as supplemented by a Fourth Supplemental Indenture, dated as of September 1, 2005, by and between the Commission and J.P. Morgan Trust Company, National Association, San Francisco, California, as successor trustee (the "Trustee"), and pursuant the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code and a resolution of the Commission adopted September 12, 2005. The Bonds shall be as described in the Indenture and the Official Statement dated the date hereof relating to the Bonds (which, together with all exhibits and appendices included therein or attached thereto and such amendments or supplements thereto which shall be approved by the Underwriter, is hereinafter called the "Official Statement"). The Indenture, together with the Escrow Agreement and the Continuing Disclosure Certificate (both hereinafter defined), are referred to herein as the "Commission Documents". The net proceeds of the Bonds shall be used to refund and defease a portion of the Commission's Petaluma Community Development Project Tax Allocation Bonds, Series 2000A (the "Refunded Series 2000A Bonds"), all as provided in the Escrow Agreement dated as of September 1, 2005 (the "Escrow Agreement") between the Commission and J.P. Morgan Trust Company, National Association, as escrow agent (the "Escrow Agent"). The Bonds shall be secured by a first pledge of and lien on all of the Tax Revenues (as defined in the Indenture) allocated to the Commission with respect to the Commission's Petaluma Community Redevelopment Project on a parity with certain other obligations of the Commission (as provided in the Indenture). Payment of principal and interest on the Bonds, when due, shall be insured by (the "Insurer") pursuant to a [municipal bond] insurance policy (the "Policy") issued by the Insurer. Section 3. Public Offering. The Underwriter agrees to make a bona fide public offering of all the Bonds initially at the public offering prices (or yields) set forth on Appendix A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth on Appendix A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. Section 4. Delivery of Official Statement. The Commission has delivered or caused to be delivered to the Underwriter prior to the execution of this Purchase Contract, copies of the Preliminary Official Statement, dated September _, 2005, relating to the Bonds (the "Preliminary Official Statement"), Such Preliminary Official Statement is the official statement deemed final by the Commission for purposes of Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule"), and has been approved for distribution by the Resolution. The Commission shall have executed and delivered to the Underwriter a certification to such effect in the form attached hereto as Appendix B. Within seven (7) business days from the date hereof, and in sufficient time to accompany any confirmation that requests payment from any customer, the Commission shall deliver to the Underwriter a sufficient number of copies of the final Official Statement, executed on behalf of the Commission by an authorized representative of the Commission and dated the date hereof, which shall include information permitted to be omitted by paragraph (b)(1) of the Rule and with such other amendments or supplements as shall have been approved by the Commission and the Underwriter to enable the Underwriter to distribute a single copy of each Official Statement to any potential customer of the Underwriter requesting an Official Statement during the time period beginning when the Official Statement becomes available and ending on the End of the Underwriting Period (defined below). The Commission also agrees to delivery to the Underwriter, at the Commission's' sole cost and at such address as the Underwriter shall specify, as many copies of the Official Statement as the Underwriter shall reasonably request as necessary to comply with paragraph (b)(4) of the Rule and with Rule G-32 and all other applicable rules of the Municipal Securities Rulemaking Board. -2- As used herein and for the purposes of the foregoing, the term "End of the Underwriting Period" for the Bonds shall have the meaning assigned to such term in the Rule; provided that the End of the Underwriting Period will be assumed to have occurred on the date of Closing (as defined in Section 5 hereof) unless the Underwriter shall have notified the Commission in writing to the contrary. The Commission will undertake, pursuant to the Indenture and a continuing disclosure certificate (the "Continuing Disclosure Certificate"), to provide certain annual financial information and notices of the occurrence of certain events, if material. The form of the Continuing Disclosure Certificate is appended to the Official Statement. Except as disclosed in the Official Statement, the Commission has not previously failed to comply in all material terms with a previous continuing disclosure undertaking under the Rule. Section 5. The Closing. At 8:00 a.m., California time, on September _, 2005, or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the Commission and the Underwriter, the Commission will deliver (i) the Bonds in definitive form (one bond for each annual maturity) to the Underwriter through the facilities of The Depository Trust Company ("DTC") in New York, New York, with CUSIP identification numbers printed thereon, in fully registered form and registered in the name of Cede & Co., and (ii) the closing documents hereinafter mentioned at the offices of Orrick, Herrington & Sutcliffe LLP ("Bond Counsel"), in San Francisco, California, or another place to be mutually agreed upon by the Commission and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by federal funds wire payable to the order of the Trustee on behalf of the Commission. This payment and delivery, together with the delivery of the aforementioned documents, is herein called the "Closing." Section 6. Commission Representations, Warranties and Covenants. The Commission represents, warrants and covenants to the Underwriter that: (a) Due Organization and Existence of Commission. The Commission is a public body corporate and politic, organized and existing under the laws of the State, including the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code (the "Redevelopment Law"), with full right, power and authority to execute, deliver and perform its obligations under this Purchase Contract and, as applicable, the Commission Documents and to carry out and consummate the transactions contemplated by the Commission Documents and the Official Statement. (b) Due Authorization and Approval. By all necessary official action of the Commission, the Commission has duly authorized and approved the execution and delivery of, and the performance by the Commission of the obligations contained in, the Commission Documents and as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, as applicable, the Commission Documents will constitute the legally valid and binding obligations of the Commission enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors' rights generally. The Commission has complied, and will at the Closing be in compliance in all respects, with the terms of the Commission Documents, provided that no representation is made with respect to compliance with the securities or "Blue Sky" laws of the various states of the United States. -3- (c) Official Statement Accurate and Complete. The Preliminary Official Statement was as of its date, and the final Official Statement is, and at all times subsequent to the date of the final Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement and the final Official Statement contain, and up to and including the Closing will contain, no misstatement of any material fact and do not, and up to and including the Closing will not, omit any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading. (d) Underwriter's Consent to Amendments and Supplements to Official Statement. The Commission will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The Commission will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (e) No Breach or Default. As of the time of acceptance hereof and as of the time of the Closing, except as otherwise disclosed in the Official Statement, the Commission is not and will not be in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Commission is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument; and, as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the Commission Documents and compliance with the provisions of each of such agreements or instruments do not and will not conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Commission (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be provided by the Commission Documents. (f) No Litigation. As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, after due inquiry, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or threatened (i) in any way questioning the corporate existence of the Commission or the titles of the officers of the Commission to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Commission Documents or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Commission and its authority to pledge the Tax Revenues; (iii) which may -4- result in any material adverse change relating to the Commission; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the final Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the final Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of this sentence. (g) Preliminary Official Statement. For purposes of the Rule, the Commission has heretofore deemed final the Preliminary Official Statement prior to its use and distribution by the Underwriter, except for the information specifically permitted to be omitted by paragraph (b)(1) of the Rule. The Commission has never failed to comply timely with any filing requirements under the Rule. (h) Excess Surplus. The Commission's Low and Moderate Income Housing Fund established pursuant to Section 33334.3 of the Redevelopment Law does not on the date hereof, and will not on the date of the Closing, contain an "excess surplus" (within the meaning of Section 33334.12 of the Redevelopment Law) that would cause the Commission to be subject to the sanctions contained in Section 33334.12(e)(1) of the Redevelopment Law. (i) Filing Requirements. As of the time of acceptance hereof and of the date of the Closing, except as otherwise disclosed in the Official Statement, the Commission has complied with the filing requirements of Section 33080, Section 33334.6 (if applicable) and Section 33675 of the Law. 0) Court Order. The Commission is not subject to a court order rendered pursuant to Section 33080.8 of the Redevelopment Law prohibiting the Commission from among other things, issuing, selling, offering for sale, or delivering bonds or other evidences of indebtedness. (k) Arbitrage Certificate. The Commission has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certificates may not be relied upon. Section 7. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties and covenants herein and the performance by the Commission of its obligations hereunder, both as of the date hereof and as of the date of the Closing. The Underwriter's obligations under this Purchase Contract to purchase and pay for the Bonds shall be subject to the following additional conditions: (a) Bring -Down Representation. The representations, warranties and covenants of the Commission contained herein shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing. (b) Executed Agreements and Performance Thereunder. At the time of the Closing (i) the Commission Documents shall be in full force and effect, and shall not have been amended, modified or supplemented except with the written consent of the Underwriter and (ii) there shall be in full force and effect such resolutions of the Commission and the City of Petaluma as, in the opinion of Bond Counsel, shall be -5- necessary in connection with the transactions contemplated by this Purchase Contract, the Official Statement and the Commission Documents. (c) Closing Documents. At or prior to the Closing, the Underwriter shall receive the certificate of the Commission identified in Section 4 and each of the documents identified in Section 8. Section 8. Closing Documents. In addition to the other conditions to the Underwriter's obligations under this Purchase Contract to purchase and pay for the Bonds, at or before the Closing the Underwriter shall receive each of the following documents, provided that the actual payment for the Bonds by the Underwriter and the acceptance of delivery thereof shall be conclusive evidence that the requirements of this Section 8 shall have been satisfied or waived by the Underwriter. (a) Bond Counsel Opinion. An approving opinion of Bond Counsel, dated the date of the Closing and substantially in the form appended to the Official Statement, together with a letter from Bond Counsel, dated the date of the Closing and addressed to the Underwriter, to the effect that the foregoing opinion may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it. (b) Supplemental Opinion. A supplemental opinion or opinions of Bond Counsel addressed to the Underwriter, in form and substance acceptable to the Underwriter, and dated the date of the Closing substantially to the following effect: (i) This Purchase Contract has been duly executed and delivered by the Commission and is a valid and binding agreement of the Commission, enforceable in accordance with its terms. (ii) The statements contained in the Official Statement under the captions "THE SERIES 2005A BONDS," "SECURITY FOR THE SERIES 2005A BONDS" and "TAX MATTERS," and in APPENDIX D — "SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE" and APPENDIX E — "PROPOSED FORM OF OPINION OF BOND COUNSEL," excluding any material that may be treated as included under such caption by cross-reference, insofar as such statements expressly summarize certain provisions of the Indenture and the form and content of the Bond Counsel Opinion referenced in (a) above, are accurate in all material respects. (iii) The Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended, provided that no opinion is expressed with respect to the Policy or the Surety Bonds (as defined in (k) below). (c) Commission Counsel Opinion. An opinion of Counsel to the Commission, dated the date of the Closing and addressed to the Underwriter, in form and substance acceptable to the Underwriter substantially to the following effect: (i) The Commission is a public body corporate and politic duly organized and validly existing under the laws of the State of California; 51 (ii) The resolution of the Commission approving and authorizing the execution and delivery of the Commission Documents and approving the Official Statement (the "Commission Resolution") was duly adopted at a meeting of the Commission which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Commission Resolution is in full force and effect and has not been modified, amended or rescinded. (iii) The Commission Documents have been duly authorized, executed and delivered by the Commission and, assuming due authorization, execution and delivery by the other parties thereto, constitute the valid, legal and binding obligations of the Commission enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting enforcement of creditors rights and by the application of equitable principles if equitable remedies are sought; (iv) The execution and delivery of the Commission Documents and the Official Statement and compliance with the provisions of the Commission Documents, under the circumstances contemplated thereby, (1) do not and will not in any material respect conflict with or constitute on the part of the Commission a breach of or default under any agreement or other instrument to which the Commission is a party or by which it is bound, and (2) do not and will not in any material respect constitute on the part of the Commission a violation, breach of or default under any existing law, regulation, court order or consent decree to which the Commission is subject; (v) Except as otherwise disclosed in the Official Statement and to the best knowledge of such counsel after due inquiry, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency or body, pending or threatened against the Commission, challenging the creation, organization or existence of the Commission, or the validity of the Commission Documents or seeking to restrain or enjoin the repayment of the Bonds or in any way contesting or affecting the validity of the Commission Documents or contesting the authority of the Commission to enter into or perform its obligations under any of the Commission Documents, or under which a determination adverse to the Commission would have a material adverse effect upon the financial condition or the revenues of the Commission, or which, in any manner, questions the right of the Commission to use the Tax Revenues for repayment of the Bonds or affects in any manner the right or ability of the Commission to collect or pledge the Tax Revenues; and (vi) The information in the Official Statement relating to the Commission, the Tax Revenues and the Project Areas (excluding any financial or statistical data with respect thereto, as to which no opinion is expressed) is true and correct in all material respects, and the Official Statement contains no misstatement of any material fact and does not omit any statement necessary to make the statements contained therein with respect to, in the light of the circumstances in which such statements were made, not misleading. (d) Trustee Counsel's Opinion. The opinion of counsel to the Trustee, dated the date of the Closing, addressed to the Underwriter, to the effect that: -7- (i) The Trustee is a national banking association, duly organized and validly existing under the laws of the United States of America, having full power to enter into, accept and administer the trust created under the Indenture. (ii) The Indenture has been duly authorized, executed and delivered by the Trustee, and the Indenture constitutes the legal, valid and binding obligation of the Trustee enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought. (iii) Except as may be required under Blue Sky or other securities laws of any state, no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Indenture, or the consummation of the transactions contemplated by the Indenture. (iv) The execution and delivery of the Indenture, and compliance with the provisions on the Trustee's part contained therein will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, note, resolution, agreement or other instrument to which the Trustee, as applicable, is a party or is otherwise subject (except that no representation, warranty agreement is made with respect to any federal or state securities or blue sky laws or regulations), nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets held by the Trustee, pursuant to the lien created by the Indenture under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the Indenture. (e) Escrow Agent Counsel's Opinion. The opinion of counsel to the Escrow Agent, dated the date of the Closing, addressed to the Underwriter, to the effect that: (i) The Escrow Agent is a national banking association, duly organized and validly existing under the laws of the United States of America, having full power to enter into, accept and administer the trust created under the Escrow Agreement. (ii) The Escrow Agreement hase been duly authorized, executed and delivered by the Escrow Agent, and the Escrow Agreement constitutes the legal, valid and binding obligation of the Escrow Agent enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought. (iii) Except as may be required under Blue Sky or other securities laws of any state, no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Escrow Agent that has not been obtained is or will be required for the execution and delivery of 0 the Escrow Agreement, or the consummation of the transactions contemplated by the Escrow Agreement. (iv) The execution and delivery of the Escrow Agreement, and compliance with the provisions on the Escrow Agent's part contained therein will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, loan agreement, indenture, note, resolution, agreement or other instrument to which the Escrow Agent is a party or is otherwise subject (except that no representation, warranty agreement is made with respect to any federal or state securities or blue sky laws or regulations), nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets held by the Escrow Agent, as applicable, pursuant to the lien created by the Indenture under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the Indenture. (f) Commission Certificate. A certificate of the Commission, dated the date of the Closing, signed on behalf of the Commission by the Executive Director or other duly authorized officer of the Commission to the effect that: (i) The representations, warranties and covenants of the Commission contained herein are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the Commission has complied with all of the terms and conditions of this Purchase Contract required to be complied with by the Commission at or prior to the date of the Closing. (ii) No event affecting the Commission has occurred since the date of the Official Statement which has not been disclosed therein or in any supplement or amendment thereto which event should be disclosed in the Official Statement in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) No further consent is required to be obtained for the inclusion of the Commission's audited financial statements, including the accompanying accountant's letter, for Fiscal Year 2003/04 in the Official Statement. (iv) Except as otherwise disclosed in the Official Statement and to the best knowledge of such signing officer after due inquiry, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency or body, pending or threatened against the Commission, challenging the creation, organization or existence of the Commission, or the validity of the Commission Documents or seeking to restrain or enjoin the repayment of the Bonds or in any way contesting or affecting the validity of the Commission Documents or contesting the authority of the Commission to enter into or perform its obligations under any of the Commission Documents, or under which a determination adverse to the Commission would have a material adverse effect upon the financial condition or the revenues of the Commission, or which, in any manner, questions the right of the Commission to use the Tax Revenues for repayment of the Bonds and any Additional Bonds 0 outstanding under the Indenture or affects in any manner the right or ability of the Commission to collect or pledge the Tax Revenues. (g) Trustee's Certificate. A certificate of the Trustee, dated the date of Closing, in form and substance acceptable to counsel for the Underwriter, to the following effect: (i) The Trustee is duly organized and existing as a national banking association in good standing under the laws of the United States of America, having the full power and authority to enter into and perform its duties under the Indenture. (ii) The Trustee is duly authorized to enter into the Indenture. (iii) To its best knowledge after due inquiry, there is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body that has been served on the Trustee or threatened against the Trustee which in the reasonable judgment of the Trustee, would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Indenture or contesting the powers of the Trustee or its authority to enter into and perform its obligation under the Indenture. (h) Escrow Agent's Certificate. A certificate of the Escrow Agent, dated the date of Closing, in form and substance acceptable to counsel for the Underwriter, to the following effect: (i) The Escrow Agent is duly organized and existing as a national banking association in good standing under the laws of the United States of America, having the full power and authority to enter into and perform its duties under the Escrow Agreement. (ii) The Escrow Agent is duly authorized to enter into the Escrow Agent. (iii) To its best knowledge after due inquiry, there is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body that has been served on the Escrow Agent or threatened against the Escrow Agent which in the reasonable judgment of the Escrow Agent, would affect the existence of the Escrow Agent or in any way contesting or affecting the validity or enforceability of the Indenture or contesting the powers of the Escrow Agent or its authority to enter into and perform its obligation under the Escrow Agreement. (i) Documents. An original executed copy of each of the Commission Documents, a certified copy of the Commission Resolution, the resolution of the City of Petaluma approving the issuance of the Bonds, and a tax and arbitrage certificate in form acceptable to Bond Counsel. 0) Insurance Policy. A copy of the Policy, as duly executed and delivered by the Insurer, together with certificates and opinions with -10- respect thereto in form and substance satisfactory to Bond Counsel and the Underwriter. (k) [Debt Service Reserve Fund] Surety Bond. A copy of the [Debt Service Reserve Fund] Surety Bond (the "Surety Bond") issued by the Insurer, together with agreements, certificates and opinions with respect thereto in form and substance satisfactory to Bond Counsel and the Underwriter. (1) Rating Letters. A letter from Moody's Investor's Service to the effect that the Bonds have been assigned a rating of "AAA" (with an underlying rating of which rating shall be in effect as of the date of Closing; (m) Verification Report. The verification report of Causey Demgen & Moore Inc., Denver, Colorado, regarding the sufficiency of the amounts on deposit under the Escrow Agreement to pay the debt service and redemption price of the Refunded Series 2000A Bonds on a timely basis, in form and substance satisfactory to Bond Counsel. (n) Underwriter's Counsel Opinion. A letter of Jones Hall, A Professional Law Corporation, dated the date of the Closing, addressed to the Underwriter, to the effect that, based upon its participation in the preparation of the Official Statement and without having undertaken to determine independently the fairness, accuracy or completeness of the statements contained in the Official Statement, such counsel has no reason to believe that, as of the date of the Closing, the Official Statement (excluding therefrom the reports, financial and statistical data and forecasts therein and the information included in the Appendices A, B, C, D, E and G thereto, and excluding information relating to DTC, as to which no advice need be expressed) contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (o) Additional Documents. Such additional certificates, instruments and other documents as Bond Counsel, the Commission or the Underwriter may reasonably deem necessary. If the Commission shall be unable to satisfy the conditions contained in this Purchase Contract, or if the obligations of the Underwriter shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriter nor the Commission shall be under further obligation hereunder, except as further set forth in Section 11 hereof. Section 10. Termination Events. The Underwriter shall have the right to terminate this Purchase Contract, without liability therefor, by notification to the Commission if at any time between the date hereof and prior to the Closing: (a) any event shall occur which causes any statement contained in the Official Statement to be materially misleading or results in a failure of the Official Statement to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading; or (b) the marketability of the Bonds or the market price thereof, in the reasonable opinion of the Underwriter, has been materially adversely affected by an -11- amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Contract in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any Federal or State court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority materially adversely affecting the federal or State tax status of the Commission, or the interest on bonds or notes or obligations of the general character of the Bonds; or (c) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State, or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (d) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, or that the Indenture needs to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (e) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter's ability to trade the Bonds; or (f) a general banking moratorium shall have been established by federal or State authorities; or (g) the United States has become engaged in hostilities which have resulted in a declaration of war or a national emergency or there has occurred any other outbreak of hostilities or a national or international calamity or crisis, or there has occurred any escalation of existing hostilities, calamity or crisis, financial or otherwise, the effect of which on the financial markets of the United States being such as, in the -12- reasonable opinion of the Underwriter, would affect materially and adversely the ability of the Underwriter to market the Bonds; or (h) any rating of the Bonds shall have been downgraded, suspended or withdrawn by a national rating service, which, in the Underwriter's reasonable opinion, materially adversely affects the marketability or market price of the Bonds; or (i) the commencement of any action, suit or proceeding described in Section 6(f) hereof which, in the judgment of the Underwriter, materially adversely affects the market price of the Bonds; or Q) there shall be in force a general suspension of trading on the New York Stock Exchange. Section 11. Expenses. The Underwriter shall be under no obligation to pay, and the Commission shall pay or cause to be paid, the expenses incident to the performance of the obligations of the Commission hereunder including but not limited to (a) the costs of the preparation and printing, or other reproduction (for distribution on or prior to the date hereof) of the Commission Documents and the cost of preparing, printing, issuing and delivering the definitive Bonds, (b) the fees and disbursements of any counsel, financial advisors, fiscal consultants, accountants or other experts or consultants retained by the Commission; (c) the fees and disbursements of Bond Counsel; (d) the cost of printing the Preliminary Official Statement and any supplements and amendments thereto and the cost of printing the Official Statement, including the requisite number of copies thereof for distribution by the Underwriter; (e) charges of rating agencies for the rating of the Bonds; (f) any out-of-pocket disbursements of the Commission incurred in connection with the public offering and distribution of the Bonds, including any advertising expenses and expenses (included in the expense component of the spread) incurred on behalf of the Commission's employees which are incidental to implementing this Purchase Contract including, but not limited to, meals, transportation, lodging and entertainment of those employees; and (g) the premiums payable to the Insurer in consideration of the issuance by the Insurer of the Policy and the Surety Bond. The Underwriter shall pay, and the Commission shall be under no obligation to pay including but not limited to, all expenses incurred by it in connection with the public offering and distribution of the Bonds, the fees and expenses of counsel to the Underwriter (if any), the fees of the California Debt and Investment Advisory Commission, any costs associated with the delivery of the Bonds through DTC, the costs of Blue Sky reports and filings, if any, and the CUSIP Service Bureau charge for the assignment of CUSIP numbers to the Bonds. Section 12. Notice. Any notice or other communication to be given to the Commission under this Purchase Contract may be given by delivering the same in writing tc such entity at the address set forth above. Any notice or other communication to be given tc the Underwriter under this Purchase Contract may be given by delivering the same in writing to: Banc of America Securities LLC 600 Montgomery Street, Suite 1800 CA5-801-18-36 San Francisco, CA 94111 Attn: Scott Nagelson Section 13. Entire Agreement. This Purchase Contract, when accepted by the Commission, shall constitute the entire agreement between the Commission and the -13- Underwriter and is made solely for the benefit of the Commission and the Underwriter (including the successors or assigns of any Underwriter). No other person shall acquire or have any right hereunder by virtue hereof, except as provided herein. All the Commission's representations, warranties and covenants in this Purchase Contract shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter. Section 14. Counterparts. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section 15. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 16. State of California Law Governs. The validity, interpretation and performance of this Purchase Contract shall be governed by the laws of the State. -14- Section 17. No Assignment. The rights and obligations created by this Purchase Contract shall not be subject to assignment by the Underwriter or the Commission without the prior written consent of the other parties hereto. Accepted as of the date first stated above: PETALUMA COMMUNITY DEVELOPMENT COMMISSION R1 Executive Director ATTEST: Recording Secretary APPROVED AS TO FORM: General Counsel APPROVED: Department Director APPROVED: Risk Manager APPROVED: -15- BANK OF AMERICA SECURITIES LLC R1 Authorized Officer Director of Administrative Services -16- Maturity (May 1) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 APPENDIX A PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT REFUNDING TAX ALLOCATION BONDS, SERIES 2005A Principal Coupon A-1 Yield APPENDIX B RULE 15c2-12 CERTIFICATE The undersigned hereby certify and represent to Banc of America Securities LLC (the "Underwriter") that they are duly appointed and acting officers of the Petaluma Community Development Commission (the "Commission"), and as such is to execute and deliver this Certificate and further hereby certify and reconfirm on behalf of the Commission to the Underwriter as follows: (1) This Certificate is delivered to enable the Underwriter to comply with Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule") in connection with the offering and sale of the Commission's Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A (the "Bonds"). (2) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, dated as of September_, 2005, setting forth information concerning the Bonds and the issuer of the Bonds (the "Preliminary Official Statement"). (3) As used herein, "Permitted Omissions" shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Bonds depending on such matters and the identity of the underwriter(s), all with respect to the Bonds. (4) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final within the meaning of the Rule and has been, and the information therein is accurate and complete in all material respects except for the Permitted Omissions. (5) If, at any time prior to the execution of the final contract of purchase, any event occurs as a result of which the Preliminary Official Statement might include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Commission shall promptly notify the underwriter thereof. IN WITNESS WHEREOF, we have hereunto set our hands as of the _ day of September, 2005. PETALUMA COMMUNITY DEVELOPMENT COMMISSION go Executive Director Director of Economic Development and Redevelopment L� 12061-38 JH:SM:Idw 09/02/05 PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER, 2005 NEW ISSUE- BOOK ENTRY ONLY RATING: Moody's: _ (See "RATINGS" herein) In the opinion of Omck, Herrington 8 Sutcliffe LLP, 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 2005A Bands Is excluded tram gross income for federal income lax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt tram Stale of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2005A Bonds is not a specific preference item for purposes of the federal Individual or corporate alternative minimum faxes, although Bond Counsel observes that such interest is 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 2005A Bonds. See "TAX MATTERS"herein. 5 ' PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT (SONOMA COUNTY, CALIFORNIA) REFUNDING TAX ALLOCATION BONDS, SERIES 2005A Dated: Data of Delivery Due: May It as shown below The Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A (the "Series 2005A Bonds"), will be issued by the Petaluma Community Development Commission (the "Commission") under an Indenture dated as of January 1, 1992, by and between the Commission and Bank of America National Treat and Savings Association, as Imslee, as previously supplemented and amended and as supplemented by a Fourth Supplemental Indenture, dated as of September 1, 2005, by and between the Commission and J.P. Morgan Treat Company, National Association, San Francisco, California, as successor trustee (the "Trustee") to the Bank of America National Trust and Savings Association (as supplemented, the 'Indenture"). The proceeds of the Series 2005A Bonds will be used by the Commission (i) to refund a portion of the Commission's Petaluma Community Development Project Tax Allocation Bands, Series 2000A (the "Refunded Series 2000A Bonds"); (11) to purchase a debt service reserve fund surety bond with respect to the Senes 2005A Bonds; and (iii) to finance costs of Issuance of the Series 2005A Bands. The Series 2005A Bonds are special obligations of the Commission payable from and secured by Tax Revenues, as defined in the Indenture, on a partly with (i) the Commission's outstanding Tax Allocation Bonds, Series 2000A that are not being refunded through the Issuance of the Series 2005A Bonds (the "Series 2000A Bonds'), (II) the Commission's outstanding Refunding Tax Allocation Bonds, Series 2001A (the "Series 2001A Bands"), and (ill) the Commission's outstanding Tax Allocation Bonds, Sense 2003A (the "Series 2003A Bonds" and, together with the Series 2000A Bonds, the Series 2001A Bonds, the Series 2005A Bonds and any Additional Bonds hereinafter issued and outstanding under the Indenture, the "Bands'). Interest on the Series 2005A Bands will be payable semiannually on each May 1 and November 1 In each year, commencing May 1, 2006 (each, an "Interest Payment Date"), The Series 2005A Bonds will be Issued as fully registered bonds and will initially be subject to a Book -Entry System (as described herein) of registration and transfer. Under the Book -Entry System, the Series 2005A Bands, when delivered, will be registered in the name of Cede 8 Co, as nominee of The Depository Trust Company, New York, New York ("DTC"). OTC will act as securities depository for the Series 2005A Bands. The beneficial ownership Interests of individual purchasers of the Series 2005A Bonds will be recorded through the records of a DTC Participant (a securities broker, bank, trust company, clearing corporation or certain other types of organization) in amounts equal to 55,000 or an Integral multiple thereof. Individual purchasers will not receive securities certificates representing their beneficial ownership Interests In the Series 2005A Bonds purchased. The Series 2005A Bands are subject to redemption prior to maturity as described herein. Payment of the principal and interest on the Series 2005A Bands, when due, will be insured by a financial guaranty insurance policy to be Issued concurrently with the issuance and delivery of the Series 2005A Bonds by See "BOND INSURANCE" herein. [LOGO] THE BONDS, INCLUDING THE SERIES 2005A BONDS, ARE PAYABLE SOLELY FROM THE TAX REVENUES (AS DEFINED HEREIN) ALLOCATED AND PAID TO THE COMMISSION WITH RESPECT TO THE PROJECT AREA. THE BONDS, INCLUDING THE SERIES 21 BONDS, ARE NOT A DEBT OF THE CITY OF PETALUMA, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE CITY, THE STATE, NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE THEREFOR. THE COMMISSION HAS NO TAXING POWER. THE BONDS, INCLUDING THE SERIES 2005A BONDS, DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION. Fora discussion of some offlue risks associated with a purchase of the Series 2005A Bonds, sae "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS' and "RISK FACTORS"herein. This coverpage contains certain information for general reference only. It is not intended lobe a summary of the security or terms of this Issue. Investors am advised to mad the entire Oficial Statement to obtain infonnalion essential to the making of an informed investment decision. Capitalized terms used and not defined on this coverpage shall have the meanings set forth herein 'Preliminary, subject to change. MATURITY SCHEDULE (See Inside Cover) The Series 2005A Bonds are offered when, as and If Issued and accepted by the Underwriter, subject to approval as to validity by Orrick, Herrington 8 Sutcliffe LLP, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the Commission by the City Attorney of the City, as counsel for the Commission. Jones Hall, A Professional Law Corporation, San Francisco, California Is serving as Underwriter's Counsel. It Is anticipated that the Series 2005A Bonds, In book -entry form, will be available for delivery through The Depository Trost Company Book -Entry System In New York, New York on or about September _,2005. Banc of America Securities LLC Dated September _, 2005. MATURITY SCHEDULE Malunty Maturily Dale Pr, cdpal Interest CUSIP No Date Pnncipai Interest CUSIP No. (May tl Amount Rale Pnca 17158951 MI av 11 Amount Rate Price 715095 %Term Bands Due May 1, 20_—_% %Term Bonds Due May 1, 20_—_% Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Series 2005A Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Oficial Statement is not to be construed as a contract with the purchasers of the Series 2005A Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Agency in any press release and in any oral statement made with the approval of an authorized officer of the Agency or any other entity described or referenced herein, the words or phrases ,.will likely result," "are expected to", "will continue", "is anticipated", "estimate', "project", "forecast", "expect', "intend" and similar expressions identify "forward looking statements'. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. 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, give rise to any implication that there has been no change in the affairs of the Agency or any other entity described or referenced herein since the date hereof. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations in connection with the offer or sale of the Series 2005A Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Agency or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2005A Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Series 2005A Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2005A Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE SERIES 2005A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE SERIES 2005A BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. PETALUMA COMMUNITY DEVELOPMENT COMMISSION AND CITY COUNCIL MEMBERS David Glass, Chairperson and Mayor Michael Harris, Vice Chairperson and Vice Mayor Keith Canevaro, Commission and Council Member Michael Healy, Commission and Council Member Karen Nau, Commission and Council Member Michael O'Brien, Commission and Council Member Pamela Torliatt, Commission and Council Member REDEVELOPMENT COMMISSION AND CITY STAFF Michael Bierman, Executive Director and City Manager Steven Carmichael, Treasurer and Administrative Services Director Paul Marangella, Economic and Redevelopment Director Richard Rudnansky, Commission Counsel and City Attorney Claire Cooper, CMC, Secretary and City Clerk SPECIAL SERVICES Financial Advisor Kelling, Northcross & Nobriga A Division of Zions First National Bank Oakland, California Fiscal Consultant Seifel Consulting Inc. San Francisco, California Bond Counsel Orrick Herrington & Sutcliffe LLP San Francisco, California Special Counsel to the Commission Meyers Nave Riback Silver & Wilson Oakland, California Trustee J.P. Morgan Trust Company, National Association San Francisco, California Verification Agent Causey Demgen & Moore Inc. Denver, Colorado TABLE OF CONTENTS INTRODUCTORY STATEMENT.................................................................................................. 1 AUTHORITY FOR ISSUANCE AND PURPOSE..................................................................................... 1 THE CITY AND THE COMMISSION................................................................................................... 1 TAX ALLOCATION FINANCING........................................................................................................ 2 PROJECTAREA........................................................................................................................... 2 SECURITY FOR THE SERIES 2005A BONDS; OUTSTANDING ADDITIONAL BONDS ............................... 2 BONDINSURANCE....................................................................................................................... 3 DESCRIPTION OF THE SERIES 2005A BONDS................................................................................. 3 OFFERING AND DELIVERY OF THE SERIES 2005A BONDS............................................................... 3 PROFESSIONALS INVOLVED IN THE OFFERING................................................................................ 4 CONTINUING DISCLOSURE........................................................................................................... 4 SUMMARIES OF DOCUMENTS........................................................................................................ 4 FORWARD LOOKING STATEMENTS................................................................................................ 4 OTHER INFORMATION.................................................................................................................. 5 PLAN OF FINANCE..................................................................................................................... 5 REFUNDING OF REFUNDED SERIES 2000A BONDS........................................................................ 5 ESTIMATED SOURCES AND USES OF FUNDS.................................................................................. 7 THE SERIES 2005A BONDS....................................................................................................... 7 DESCRIPTION OF THE SERIES 2005A BONDS................................................................................. 7 FORM AND REGISTRATION............................................................................................................ 8 REDEMPTION.............................................................................................................................. 8 DEBTSERVICE SCHEDULE..................................................................................................... 11 SECURITY FOR THE SERIES 2005A BONDS.......................................................................... 12 TAX ALLOCATION FINANCING...................................................................................................... 12 ALLOCATION OF TAXES.............................................................................................................. 12 TAXREVENUES......................................................................................................................... 13 RESERVEACCOUNT.................................................................................................................. 14 SERIES 2005A RESERVE SURETY [TO BE UPDATED AS APPROPRIATE] ........................................... 15 ISSUANCE OF ADDITIONAL BONDS............................................................................................... 16 ISSUANCE OF SUBORDINATE DEBT.............................................................................................. 17 EVENTS OF DEFAULT AND ACCELERATION OF MATURITIES............................................................ 17 LOW AND MODERATE INCOME HOUSING...................................................................................... 17 BOND INSURANCE................................................................................................................... 18 THEPOLICY.............................................................................................................................. 18 LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS ................... 18 PROPERTY TAX LIMITATIONS - ARTICLE XI IIA.............................................................................. 18 CHALLENGES TO ARTICLE XI I IA.................................................................................................. 19 IMPLEMENTING LEGISLATION...................................................................................................... 19 PROPERTY TAX COLLECTION PROCEDURES................................................................................ 19 APPROPRIATIONS LIMITATIONS - ARTICLE XI I IB OF THE CALIFORNIA CONSTITUTION ....................... 22 ARTICLES XII IC AND XIIID OF THE CALIFORNIA CONSTITUTION..................................................... 23 PROPOSITION87....................................................................................................................... 23 UNITARY PROPERTY.................................................................................................................. 23 FUTURE INITIATIVES AND CHANGES IN LAW................................................................................. 24 ASSEMBLY BILL 1290 - REDEVELOPMENT TIME LIMITS............................................................... 24 SENATEBILL 211...................................................................................................................... 24 TAXSHARING STATUTES........................................................................................................... 25 STATEMENT OF INDEBTEDNESS.................................................................................................. 26 TAX SHARING AGREEMENTS...................................................................................................... 27 LOW AND MODERATE INCOME HOUSING FUND............................................................................. 27 RISKFACTORS......................................................................................................................... 27 REDUCTION IN TAXABLE VALUE— ECONOMIC FACTORS, PROPERTY DAMAGE AND APPEALS OF ASSESSEDVALUE.................................................................................................................... 27 HIGH CONCENTRATION OF UNSECURED VALUE; CISCO SYSTEMS ................................................. 28 REDUCTION IN INFLATIONARY RATE............................................................................................ 29 LEVY AND COLLECTION.............................................................................................................. 29 STATEBUDGET......................................................................................................................... 30 SEISMIC CONSIDERATIONS......................................................................................................... 30 FLOODRISK.............................................................................................................................. 31 HAZARDOUS SUBSTANCES......................................................................................................... 31 BANKRUPTCY AND FORECLOSURE.............................................................................................. 31 SECONDARY MARKET................................................................................................................ 32 LOSS OF TAX EXEMPTION; RISK OF TAX AUDIT............................................................................ 32 1ii1=1»C1111L4IewHe]14h71PlNkva111AN=IS6l11ilyd=1a[K0L4114161.9to] . R COMMISSION AND MANAGEMENT................................................................................................ 33 ADMINISTRATION....................................................................................................................... 33 POWERS................................................................................................................................... 34 HOUSING AUTHORITY POWERS.................................................................................................. 34 PETALUMA COMMUNITY DEVELOPMENT PROJECT........................................................... 35 BACKGROUND........................................................................................................................... 35 PLANLIMITS............................................................................................................................. 35 PROJECT AREA DESCRIPTION.................................................................................................... 36 HISTORICTAX REVENUES.......................................................................................................... 37 SECURED TAX CHARGES AND DELINQUENCIES............................................................................ 39 MAJOR PROPERTY OWNERS AND APPEALS................................................................................. 39 TAX SHARING AGREEMENTS...................................................................................................... 41 OTHER PROJECTAREA INDEBTEDNESS....................................................................................... 41 ESTIMATED DEBT SERVICE COVERAGE....................................................................................... 42 LITIGATION................................................................................................................................ 45 CONTINUING DISCLOSURE LEGAL MATTERS TAX MATTERS 46 46 46 47 UNDERWRITING........................................................................................................................ 49 FINANCIAL ADVISOR............................................................................................................... 49 FISCAL CONSULTANT 49 VERIFICATION OF MATHEMATICAL COMPUTATIONS......................................................... 50 ADDITIONAL INFORMATION.................................................................................................... 50 APPENDIX A AUDITED GENERAL PURPOSE FINANCIAL STATEMENTS OF THE PETALUMA COMMUNITY DEVELOPMENT COMMISSION FOR FISCAL YEAR ENDED JUNE 30, 2004 APPENDIX B CITY OF PETALUMA CITY GENERAL INFORMATION AND ECONOMICS APPENDIX C BOOK ENTRY ONLY SYSTEM APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY [INSERT MAP OF PROJECT AREA] OFFICIAL STATEMENT PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT REFUNDING TAX ALLOCATION BONDS, SERIES 2005A INTRODUCTORY STATEMENT This Official Statement, including the cover page and appendices hereto, is provided to furnish information regarding the Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A (the "Series 2005A Bonds"), in the aggregate principal amount of $ of the Petaluma Community Development Commission (the "Commission'). Authority for Issuance and Purpose The Series 2005A Bonds will be issued pursuant to the Constitution and the laws of the State of California, including the California Community Redevelopment Law, constituting Part 1, Division 24 of the California Health and Safety Code (the "Law"), and the provisions of Article 11 of Chapter 3 of Division 2 of Title 5 of the California Government Code (the "Refunding Law"), an Indenture, dated as of January 1, 1992 by and between the Commission and Bank of America National Trust and Savings Association, as trustee, as previously supplemented and amended and as supplemented by a Fourth Supplemental Indenture, dated as of September 1, 2005 by and between the Commission and J.P. Morgan Trust Company, National Association, as successor trustee (the "Trustee") to the Bank of America National Trust and Savings Association (as supplemented, the "Indenture'), and a resolution of the Commission adopted September 12, 2005. The proceeds of the Series 2005A Bonds will be used by the Commission (i) to refund a portion of the Commission's Petaluma Community Development Project Tax Allocation Bonds, Series 2000A (the "Refunded Series 2000A Bonds"); (it) to purchase a debt service reserve fund surety bond with respect to the Series 2005A Bonds; and (iii) to finance costs of issuance of the Series 2005A Bonds. The Series 2005A Bonds are special obligations of the Commission payable, on a parity with certain other bonds of the Commission, from Tax Revenues (as defined in the Indenture). See "SECURITY FOR THE BONDS — Tax Revenues." The City and the Commission The City of Petaluma (the "City") is located in the County of Sonoma (the "County"), approximately 40 miles north of San Francisco. The Commission was activated as the redevelopment agency of the City pursuant to Part 1.7 of Division 24 of the California Health and Safety Code, on December 1, 1975 by Ordinance No. 1201, of the City Council. The seven members of the City Council also serve as the governing body of the Commission. 'Preliminary, subject to change. Tax Allocation Financing The Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project area. The taxable valuation of a redevelopment project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. Any future decrease in the taxable valuation of properties in the Project Area (as defined below) or in the applicable tax rates will reduce the Tax Revenues (as more particularly described under the caption "SECURITY FOR THE SERIES 2005A BONDS — Tax Revenues"), and correspondingly would have an adverse impact on the ability of the Commission to pay debt service on the Series 2005A Bonds. See "RISK FACTORS" herein. Project Area The City Council adopted the Redevelopment Plan for the Petaluma Community Development Project (the "Redevelopment Project") by Ordinance No. 1725 N.C.S. on July 18, 1988, and amended the redevelopment plan on November 21, 1994 by its adoption of Ordinance No. 1972 N.C.S, on April 3, 2000, by its adoption of Ordinance No. 2100, and on May 17, 2004 by its adoption of Ordinance No. 2183 N.C.S. The area included in the Redevelopment Project (the "Project Area") includes approximately 2,740 acres, a portion of which is outside the City limits. The Project Area extends along both sides of U. S. Highway 101 from a point near the southern City limits to the Old Redwood Highway at the northern end of the City. Portions of major traffic arteries including Petaluma Boulevard North and South, North McDowell Boulevard, East Washington Street and Lakeville Street, are also included within or form the boundary of the Project Area. Existing development includes commercial, industrial and residential uses. The Project Area includes the majority of the business park and industrial uses in Petaluma and five retail centers. Security for the Series 2005A Bonds; Outstanding Additional Bonds The Series 2005A Bonds are special obligations of the Commission payable from Tax Revenues (as defined in the Indenture) and from funds pledged therefor under the Indenture. The Series 2005A Bonds are payable from Tax Revenues on a parity with (i) the Commission's Petaluma Community Development Project Tax Allocation Bonds, Series 2000A (the "Series 2000A Bonds"), which, after the issuance of the Bonds, will be outstanding in the amount of $415,000, (ii) the Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2001A (the "Series 2001A Bonds"), in the outstanding principal amount of $2,975,000, (iii) the Petaluma Community Development Project Tax Allocation Bonds, Series 2003A (the "Series 2003A Bonds"), in the outstanding principal amount of $18,310,000 and (iv) any additional bonds (the "Additional Bonds") which may be issued under the Indenture (collectively, the "Bonds"). In additional to the pledge of Tax Revenues described in the preceding paragraph, the Series 2005A Bonds are further secured by a debt service reserve fund surety bond with respect to the Series 2005A Bonds on deposit in the Reserve Account established under the Indenture. Neither the faith and credit nor the taxing power of the City nor the State of California nor any political subdivision thereof is pledged for the payment of the Bonds, including the Series 2005A Bonds. The Commission has no taxing power. See "SECURITY FOR THE SERIES 2005A BONDS" herein. Bond Insurance Concurrently with issuance of the Bonds, (the "Insurer" or —will issue its insurance policy (the "Policy") for the Series 2005A Bonds. See "BOND INSURANCE" and "APPENDIX G - Specimen Municipal Bond Insurance Policy". Description of the Series 2005A Bonds Dated Date; Payments of Principal and Interest. The Series 2005A Bonds will be dated the date of their delivery. Interest on the Series 2005A Bonds is payable semiannually on each May 1 and November 1, commencing May 1, 2006 by check of the Trustee mailed to the registered Owners thereof. Principal of the Series 2005A Bonds is payable upon surrender at the principal corporate trust office of the Trustee or such other place as the Trustee shall specify. See "THE SERIES 2005A BONDS — Description of the Series 2005A Bonds" herein. Denominations. The Series 2005A Bonds will be issued in denominations of $5,000 or any integral multiple thereof. Optional Redemption. The Series 2005A Bonds maturing on and after May 1, 201, are subject to optional redemption prior to maturity, beginning on May 1, 201_. See "THE SERIES 2005A BONDS — Redemption — Optional Redemption" herein. Mandatory Sinking Account Redemption. The Series 2005A Bonds maturing on May 1, 20 , and May 1, 20, are subject to redemption by the application of mandatory Sinking Account Installments in the amounts and upon the Sinking Account Payment Dates hereby established for each of the Series 2005A Series 2005A Bonds maturing on May 1, 20_, and May 1, 20 . See "THE SERIES 2005A BONDS — Redemption — Mandatory Sinking Account Redemption" herein. Offering and Delivery of the Series 2005A Bonds The Series 2005A Bonds are offered when, as and if issued, subject to approval by Bond Counsel. It is anticipated that the Series 2005A Bonds in book -entry form will be available for delivery in New York, New York on or about September _, 2005. See "APPENDIX C – BOOK ENTRY ONLY SYSTEM". Professionals Involved In the Offering Kelling, Northcross & Nobriga, Oakland, California, is acting as the Commission's financial advisor with respect to the Series 2005A Bonds. The proceedings of the Commission in connection with the issuance of the Series 2005A Bonds are subject to the approval as to their legality of Orrick Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. Jones Hall, A Professional Law Corporation, San Francisco, California, is serving as Underwriter's Counsel. J.P. Morgan Trust Company, National Association, San Francisco, California, will act as the Trustee under the Indenture. The Financial Advisor, Bond Counsel, Underwriter's Counsel and the Trustee will receive compensation from the Commission contingent upon the sale, and issuance and delivery of the Series 2005A Bonds. Continuing Disclosure The Commission has covenanted for the benefit of Owners of the Series 2005A Bonds to provide certain financial information and operating data relating to the Commission (the "Annual Report") by not later than nine months after the end of each fiscal year (which currently would be March 31, based on a fiscal year end of June 30), commencing on March 31, 2006 for the Fiscal Year ending June 30, 2005, and to provide notices of the occurrence of certain enumerated events, if deemed by the Commission to be material. The Annual Report will be filed by the Commission with each Nationally Recognized Municipal Securities Information Repository. The notices of material events will be filed by the Commission with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in APPENDIX F — "Form of Continuing Disclosure Certificate". These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2 -12(b)(5) (the "Rule"). The Commission has never failed to comply in all material respects with any previous undertaking with regard to the Rule to provide annual reports or notices of material events. See "CONTINUING DISCLOSURE" herein. Summaries of Documents Following in this Official Statement are descriptions of the Series 2005A Bonds, the Indenture, the Commission and the City. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each such document and, with respect to certain rights and remedies, to laws and principles of equity relating to or affecting creditors' rights generally. Terms not defined herein shall have the meanings set forth in the Indenture. Definitions of certain terms used herein are set forth in APPENDIX D - "SUMMARY OF THE INDENTURE — CERTAIN DEFINED TERMS". Copies of the Indenture are available for inspection during business hours at the corporate trust office of the Trustee. See APPENDIX D - "SUMMARY OF THE INDENTURE". Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements". Such statements are generally identifiable by the terminology used such as "plan," "expect;' "estimate," "project," "budget" or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption "PETALUMA COMMUNITY DEVELOPMENT PROJECT' and "ESTIMATED DEBT SERVICE COVERAGE". THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE AGENCY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. Other information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to and information concerning the Series 2005A Bonds are available at the offices of the Commission, 11 English Street, Petaluma, CA 94952-2610; telephone: (707) 778-4352. The Commission may impose a reasonable charge for copying, mailing and handling. PLAN OF FINANCE Refunding of Refunded Series 2000A Bonds The net proceeds of the Series 2005A Bonds, plus certain other available funds of the Commission, will be used by the Commission to refund a portion of the Series 2000A Bonds (the "Refunded Series 2000A Bonds"). The Refunded Series 2000A Bonds are described below: TABLE 1 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Refunded Series 2000A Bonds' Maturity Date CUSIP No. (May 1) Principal Interest 715895 2009 $150,000 5.000% CY2 2010 150,000 5.000 CZ9 2011 160,000 5.000 DA3 2012 165,000 5.100 DB1 2013 175,000 5.125 DC9 2014 190,000 5.250 DD7 2015 635,000 5.400 DE5 2016 670,000 5.500 DF2 2017 710,000 5.500 DGO 2018 750,000 5.600 DI -18 2019 790,000 5.625 DJ4 2020 835,000 5.700 DK1 2021 880,000 5.700 DI -9 2024 2,955,000 5.700 DPO 2030 7.635.000 5.750 DV7 Total $16,850,000 'Preliminary, subject to change The proceeds of the Series 2005A Bonds being applied to the refunding of the Refunded Series 2000A Bonds, together with certain other available moneys, will be deposited in the Refunding Escrow relating to the Series 2000A Bonds (the "2000A Escrow") established pursuant to the Escrow Agreement dated as of September 1, 2005, between the Commission and J.P. Morgan Trust Company, National Association, as escrow agent (the "Escrow Agent'), and invested in direct noncallable United States Treasury obligations maturing on such dates and in such amounts as may be required to make the payments described below. On each May and November 1, through and including May 1, 2008, the Escrow Agent will apply amounts on deposit in the 2000A Escrow to pay scheduled payments of the interest on the Refunded Series 2000A Bonds. On May 1, 2008, the Escrow Agent will apply the remaining amounts on deposit in the 2000A Escrow to redeem the Refunded Series 2000A Bonds set forth above at a redemption price equal to 101 % of the principal amount thereof, plus accrued interest thereon to the date fixed for redemption. Moneys on deposit in the 2000A Escrow are available to be applied only as described above, and are not available for the payment of debt service represented by the Series 2005A Bonds. The sufficiency of the deposits in, and investment earnings on, the 2000A Escrow for the purposes described above will be verified by Causey, Demgen & Moore Inc. See "VERIFICATION OF MATHEMATICAL COMPUTATIONS" herein. Estimated Sources and Uses of Funds The sources and uses of funds relating to the Series 2005A Bonds, are as follows: TABLE 2 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Refunding Tax Allocation Bonds, Series 2005A Estimated Sources and Uses of Funds Sources of Funds Par Amount of Issue [Less/Plus] Net Original Issue [Discount/Premium] Total Sources Uses of Funds Expense Fund tai Underwriter's Discount Refunding Escrow Total Uses (a) Includes estimated printing costs, legal fees, financial advisor's fees, municipal bond insurance and surety bond premiums, and other fees and expenses associated with the issuance of the Series 2005A Bonds. THE SERIES 2005A BONDS Description of the Series 2005A Bonds The Series 2005A Bonds are being issued in the aggregate principal amounts and interest rates as shown on the inside cover of this Official Statement and will be dated their date of delivery. Interest on the Series 2005A Bonds will be payable semiannually on each May 1 and November 1 in each year, commencing May 1, 2006 (each, an "Interest Payment Date") or, if such day is not a Business Day (as defined in the Indenture) the next succeeding Business Day. The principal of the Series 2005A Bonds will be payable on May 1 in each of the years and in the amounts shown on the inside cover hereof. The Series 2005A 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 date of the month next preceding an Interest Payment Date and on or before the following Interest Payment Date, in which event they shall bear interest from such Interest Payment Date; or on or before April 15, 2006, in which event they shall bear interest from their dated date; provided, however, that if, as of the date of registration of any Series 2005A Bond, interest thereon is in default, such Series 2005A Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Pursuant to the Indenture, a Business Day is any day other than a Saturday or a Sunday, or a day on which banks in the city where the principal corporate office of the Trustee is located are required or authorized to close. Form and Registration The Series 2005A Bonds will be issued as one fully registered bond for each maturity and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC'). Individual purchases of Series 2005A Bonds will be made in book -entry form only in the principal amount of $5,000 and integral multiples thereof. Beneficial owners of the Series 2005A Bonds will not receive bond certificates representing their interests in the Series 2005A Bonds purchased, but will receive a credit balance on the books of the nominees of such purchasers. See APPENDIX C -'BOOK-ENTRY ONLY SYSTEM.") Subject to the limitations described in APPENDIX C -'BOOK-ENTRY ONLY SYSTEM," Series 2005A Bonds may be transferred, and any Series 2005A Bond may be exchanged for Series 2005A Bonds of the same maturity of other authorized denominations and/or canceled at the principal corporate trust office of the Trustee in the manner and with the effect set forth in the Indenture. Redemption Optional Redemption of the Series 2005A Bonds. The Series 2005A Bonds maturing on or before May 1, 201 are not subject to call and redemption prior to their stated maturities. The Series 2005A Bonds maturing on or after May 1, 201 are subject to optional redemption prior to their respective maturity dates as a whole or in part on any date, at the option of the Commission, in such order as determined by the Commission, on or after May 1, 201_, at a redemption price equal to the principal amount of the Series 2005A Bonds called for redemption without premium, plus accrued interest thereon to the date of redemption. Mandatory Redemption from Sinking Account Installments. The Series 2005A Bonds maturing on May 1, 20_, and May 1, 20, shall be redeemed (or paid at maturity, as the case may be) by the application of mandatory Sinking Account Installments in the amounts and upon the Sinking Account Payment Dates set forth below for each of the Series 2005A Bonds maturing on May 1, 20_, and May 1, 20, as follows: 20 Term Bond Sinkino Account Mandatory Sinking Account Payment Date Mandatory Sinking (May 1) Account Installments 20 Term Bond Sinkina Account Mandatory Sinking Account Payment Date Mandatory Sinking (May 1) Account Installments Notice of Redemption. Notice of redemption will be mailed by first class mail by the Trustee, not less than 30 nor more than 60 days prior to the redemption date to (i) the respective Owners of Series 2005A Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee, (ii) one or more Information Services designated in writing to the Trustee by the Commission and (iii) the Securities Depositories. Each notice of redemption shall state the date of such notice, the Series 2005A Bonds to be redeemed, the date of issue of such Series 2005A Bonds, the redemption date, the redemption price, the place or places of redemption (including the name and appropriate address or addresses), the CUSP 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 Series 2005A Bonds of such maturity to be redeemed and, in the case of Series 2005A 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 Series 2005A Bonds the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Series 2005A 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 shall cease to accrue, and shall require that such Series 2005A Bonds be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Selection of Series 2005A Bonds for Redemption. Whenever less than the Outstanding Series 2005A Bonds maturing on any one date are called for redemption on at any one time, the Trustee will select the Series 2005A Bonds to be redeemed, from the Outstanding Series 2005A Bonds maturing on such date by lot in any manner which the Trustee deems fair; provided, however, that if less than all the outstanding Term Bonds of any maturity are called for redemption, upon the written direction of the Commission, the Trustee shall specify a reduction in any Sinking Account Installments required to be made with respect to such Term Bonds, which, to the extent practicable, 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; provided, however, that no Series 2005A Bonds shall be purchased by the Trustee with a settlement date more than 75 days prior to the redemption 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. Partial Redemption. Upon surrender of any Series 2005A Bond redeemed in part only, the Commission shall execute (manually or by facsimile) and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Commission, a new Series 2005A Bond or Series 2005A Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Series 2005A Bond surrendered and of the same interest rate and the same maturity. Effect of Redemption. From and after the date fixed for redemption, if notice of redemption shall have been duly mailed and funds available for the payment of such redemption price of the Series 2005A Bonds so called for redemption shall have been duly provided, no interest shall accrue on such Series 2005A Bonds from and after the redemption date specified in such notice. 10 DEBT SERVICE SCHEDULE The following schedule sets forth the annual payments of the principal of and interest on the Series 2005A Bonds. Date Ma 1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total TABLE 3 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Refunding Tax Allocation Bonds, Series 2005A Debt Service Principal Interest Amount Total 11 SECURITY FOR THE SERIES 2005A BONDS Tax Allocation Financing The Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. Allocation of Taxes As provided in the redevelopment plan for the Redevelopment Project, as amended, (the 'Redevelopment Plan"), and pursuant to Article 6 of Chapter 6 of the Law (commencing with Section 33670 of the California Health and Safety Code) and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Project Area each year by or for the benefit of the State of California and any city, county, city and county, district or other public corporation (herein collectively referred to as "taxing agencies") for each fiscal year beginning after the effective date of the ordinance approving the Redevelopment Plan, are divided as follows: 1. To Taxino Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance approving the Redevelopment Plan, shall be allocated to, and when collected shall be paid into the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid (for the purpose of allocating taxes levied by or for any taxing agency or agencies which did not Include the territory of the Project Area on the effective date of such ordinance but to which such territory is annexed or otherwise included after such effective date, the assessment roll of the County of Sonoma (the "County') last equalized on the effective date of said ordinance shall be used in determining the assessed valuation of the taxable property in the Project Area on said effective date) (the "Base Year Amount'); 2. To the Commission: That portion of said levied taxes each year in excess of the amounts provided for in (1) above exclusive of amounts payable pursuant to the Pass -Through Agreements (see below), net of property tax administration costs charged by the County pursuant to SB 2557 together with subventions or other amounts reimbursed by the State of California in respect of property tax exemptions with respect to the Project Area and net of any portion of the taxes payable to taxing entities pursuant to Health and Safety Code Section 33676 (generally consisting of the 2%, or such lesser inflationary amount, annual adjustment as applied to the Base Year Amount), shall be allocated to, and when collected, shall be paid into a special fund of the Commission to 12 pay the principal of and interest on bonds, 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, the Redevelopment Project. 3. For Voter-Aooroved Indebtedness: That portion of the taxes identified in paragraph (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 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, shall be allocated to, and when collected shall be paid into, the fund of the taxing agency. 4. To Taxina Agencies: Amounts payable by the Commission under agreements entered into pursuant to Section 33401 of the Law (the "Tax Sharing Agreements") are excluded from Tax Revenues, as are amounts, if any, subject to statutory pass-through payments. The Commission is authorized to make pledges of the portion of taxes mentioned in paragraph 2 above as to specific advances, loans and indebtedness as appropriate in carrying out the Redevelopment Project. See "PETALUMA COMMUNITY DEVELOPMENT PROJECT — Historic Tax Revenues" and "-Estimated Debt Service Coverage." Tax Revenues Pledge of Tax Revenues. The Bonds, including the Series 2005A Bonds, are secured by and payable from an irrevocable pledge of, and charge and lien upon, "Tax Revenues." The Indenture defines "Tax Revenues" to mean, for each fiscal 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 (excluding (a) the amount of such taxes required by the Law to be deposited in the low and moderate income housing fund and used for certain housing purposes, provided, however, that such amount shall not be excluded if and to the extent that the Commission makes such amount available as Tax Revenues, (b) amounts payable to Affected Taxing Entities pursuant to the Redevelopment Plan or pursuant to agreements with any Affected Taxing Agencies pursuant to Section 33401 of the Law, to the extent such payments are not subordinated to the Commission's obligation to pay debt service on the Bands and (c) amounts, if any, received by the Commission pursuant to Section 16111 of the Government Code), as provided in the Redevelopment Plan. See "APPENDIX D — SUMMARY OF THE INDENTURE — PLEDGE OF TAX REVENUES" and % ESTABLISHMENT OF FUNDS AND ACCOUNTS." See also - Low and Moderate Income Housing" below and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS—Tax Sharing Agreement" The Commission has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate, could reduce the amount of Tax Revenues that would otherwise be available to pay the principal of, and interest on, the Bonds. Likewise, changes in the methodology by which property is assessed or broadened property tax exemptions could have a similar effect. Additionally, the Redevelopment Plan contains limits as to the number of dollars of taxes that may be divided and allocated to the 13 Agency. See 'RISK FACTORS," "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS" and 'PETALUMA COMMUNITY DEVELOPMENT PROJECT' herein. THE BONDS, INCLUDING THE SERIES 2005A BONDS, ARE NOT A DEBT OF THE CITY OF PETALUMA, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE CITY NOR THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE COMMISSION) IS LIABLE THEREFOR. THE COMMISSION HAS NO TAXING POWER. THE BONDS, INCLUDING THE SERIES 2005A BONDS, ARE PAYABLE EXCLUSIVELY FROM THE TAX REVENUES AND OTHER FUNDS AS PROVIDED IN THE INDENTURE. THE BONDS, INCLUDING THE SERIES 2005A BONDS, ARE PAYABLE SOLELY FROM TAX REVENUES ALLOCATED AND PAID TO THE COMMISSION WITH RESPECT TO THE PROJECT AREA. THE BONDS, INCLUDING THE SERIES 2005A BONDS, DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION. Affected Taxing Entities. Seven of the school districts receiving taxes from the Project Area have passed resolutions pursuant to Health and Safety Code Section 33676 which provides for allocation to the school district of (i) any increases in the rate of tax imposed for the benefit of the school district which levy occurs after the tax year in which the ordinance adopting the Redevelopment Plan becomes effective; and (it) any increases in the assessed value of the taxable property in the Project Area as the assessed value is established by the assessment roll last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan pursuant to Health and Safety Code Section 33670(a), which are, or would otherwise be, calculated annually pursuant to Revenue and Tax Code Section 110.1(0. The Commission has a tax sharing agreement with Sonoma County and the Sonoma County Library comprised of two components. Pursuant to that agreement, (1) the County receives a payment which is treated as a Section 33676 inflationary allocation, and (2) commencing Fiscal Year 1993-94 through the termination of the Redevelopment Plan, 96% of that portion of the taxes which would have been allocated to the County and the Library for their own use if the Redevelopment Plan had not been adopted shall be paid to the County and the Library when collected. Reserve Account The Bonds, including the Series 2005A Bonds, are additionally secured by the Reserve Account established pursuant to the Indenture. Under the Indenture, the Commission is obligated to maintain in the Reserve Account an amount equal to the Reserve Account Requirement. The "Reserve Account Requirement' with respect to the Bonds means, as of any calculation date, an amount equal to the lesser of (i) ten percent (10%) of the proceeds (within the meaning of Section 148 of the Code) of that portion of each Series of Bonds Outstanding with respect to which Annual Debt Service is calculated, (ii)125% of Average Annual Debt Service or (iii) Maximum Annual Debt Service. The portion of the Reserve Account Requirement attributable to the Series 2005A Bonds is $ In connection with the issuance of the Series 2005A Bonds, the Commission will deposit the Series 2005 Reserve Surety, which meets requirements of the Indenture in the Reserve Account, and such deposit will cause the amount in the Reserve Account to equal the Reserve Account Requirement as of the date of issuance of the Series 2005A Bonds. The Indenture 14 requires the amount on deposit in the Reserve Account to be at all times equal to at least the Reserve Account Requirement, as defined in the Indenture. [The Series 2005A Reserve Surety will only be available to pay debt service on the Series 2005A Bonds. No other amounts currently on deposit in the Reserve Account will be available to pay debt service on the Series 2005A Bonds.] In the event that the Commission fails to deposit with the Trustee the full amount required to be deposited in connection with the payment of the principal of, redemption price, if any, and interest on the Bonds, including the Series 2005A Bonds, the Trustee will withdraw from the Reserve Account and transfer to the Interest Account, the Principal Account or the Sinking Account, in such order, the difference between the amount required to be deposited under the Indenture and the amount actually deposited by the Commission. In the event that the amount on deposit in the Reserve Account on any Interest Payment Date is less than the Reserve Account Requirement, the Trustee will transfer amounts on deposit in the Special Fund to the Reserve Account to restore the balance in the Reserve Account to the Reserve Account Requirement. Amounts on deposit in the Reserve Account will not be secured or applied in any way to the payment of any obligations other than the Bonds, including the Series 2005A Bonds. All or any portion of the Reserve Account Requirement for the Bonds, including the Series 2005A Bonds, may be satisfied by the provision of a policy of insurance, a surety bond, a letter of credit or other comparable credit facility or a combination thereof, which, together with moneys on deposit in the Reserve Account, provide an aggregate amount equal to the Reserve Account Requirement; provided that the provider of any such policy of insurance, surety bond letter of credit or other comparable credit facility must be rated in one of the two highest rating categories by Moody's or Standard & Poor's at the time of delivery of such credit facility, and, if such provider is then rated by A.M. Best & Company, must be rated in the highest rating category by A.M. Best & Company. Series 2005A Reserve Surety [to be updated as appropriate] (the "Insurer") has delivered a commitment to issue a reserve fund surety bond (the "Series 2005A Reserve Surety") for the Series 2005A Bonds on the date of issuance thereof. The Series 2005A Reserve Surety will provide that upon notice from the Trustee to the Insurer to the effect that insufficient amounts are on deposit in the Special Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the Series 2005A Bonds, the Insurer will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the Series 2005A Bonds or the available amount of the Series 2005A Reserve Surety, whichever is less. Upon the later of., (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Series 2005A Reserve Surety, duly executed by the Trustee; or (ii) the payment date of the Series 2005A Bonds as specified in the Demand for Payment presented by the Trustee to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Series 2005A Reserve Surety is the initial face amount of the Series 2005A Reserve Surety less the amount of any previous deposits by the Insurer with the Trustee which have not been reimbursed by the Commission. The Commission and the Insurer have entered into a Agreement dated September _, 2005 (the 15 "Agreement"). Pursuant to the Agreement, the Commission is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Trustee under the Series 2005A Reserve Surety. Such reimbursement shall be made only after all required deposits to the Special Fund have been made. Under the terms of the Agreement, the Trustee is required to reimburse the Insurer, with interest, until the face amount of the Series 2005A Reserve Surety is reinstated before any Tax Revenues in the Special Fund are paid to the Commission. No optional redemption of Series 2005A Bonds may be made until the Insurer's Series 2005A Reserve Surety is reinstated. The Series 2005A Reserve Surety will be held by the Trustee in the Reserve Account and is provided as an alternative to the Commission depositing funds equal to the Reserve Account Requirement for outstanding Series 2005A Bonds. The Series 2005A Reserve Surety will be issued in the face amount equal to Maximum Annual Debt Service for the Series 2005A Bonds and the premium therefor will be fully paid by the Commission at the time of delivery of the Series 2005A Bonds. Issuance of Additional Bonds In addition to the Series 2005A Bonds, the Series 2003A Bonds, the Series 2001A Bonds and the Series 2000A Bonds (which, after the delivery of the Series 2005A Bonds, will be outstanding in the total cumulative amount of $ ), the Commission may issue at any time Additional Bonds (or other forms of indebtedness) payable from and secured by a lien and charge upon Tax Revenues equal to and on a parity with outstanding Bonds and other bonds previously issued under the Indenture, subject to specific conditions precedent to the issuance and delivery of such Additional Bonds as set forth in the Indenture. See APPENDIX D — "SUMMARY OF THE INDENTURE." The Redevelopment Plan currently contains a limit of $80,000,000 with respect to the amount of tax allocation bonds that may be outstanding at any time[, although the Commission is considering increasing such limit in connection with a fiscal merger of the Redevelopment Project with the Commission's Central Business District Redevelopment Project. See "PETALUMA COMMUNITY DEVELOPMENT PROJECT — Plan Limits." One of the specific conditions precedent to the issuance of Additional Bonds is that the Tax Revenues based upon the assessed valuation 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 are in an amount equal to at least one hundred twenty-five percent (125%) of the Maximum Annual Debt Service on all Bonds outstanding under the Indenture and such Additional Bonds and any unsubordinated loans, advances or indebtedness payable from Tax Revenues pursuant to the Law. For the purpose of the issuance of Additional Bonds, Tax Revenues shall be deemed to be increased by any additional assessed valuation of taxable property as to which construction has been completed or is in place, as of the date of, and as may be shown by, a Consultant's Report. In the event such Additional Bonds are to be issued solely for the purpose of refunding and retiring any Outstanding Bonds issued under the Indenture, interest and principal payments on such Outstanding Bonds to be so refunded and retired from the proceeds of such Additional Bonds being issued is excluded from the foregoing computation of Maximum Annual Debt 16 Service. Nothing in the Indenture limits the issuance of any tax allocation bonds of the Commission payable from the Tax Revenues and secured by a lien and charge on the Tax Revenues if, after the issuance and delivery of such tax allocation bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding. The Commission has covenanted in the Indenture with the owners of all of the Bonds that it will not enter into any obligation or make any expenditure payable from taxes allocated to the Commission under the Law the payment with respect to which, together with payments theretofore made or to be made with respect to other obligations (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 Law and the Redevelopment Plan. Issuance of Subordinate Debt The Commission could issue or incur loans, advances and indebtedness which are either (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues or (b) secured by a pledge of or lien upon the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues under the Indenture for the security of the Bonds ("Subordinate Debt), without limitation as to amount, provided that the aggregate amount of principal of and interest on the Bonds and all Subordinate Debt following the issuance or incurrence of such Subordinate Debt will not exceed the maximum amount of Tax Revenues permitted under the Law and the Redevelopment Plan to be allocated and paid to the Commission following the issuance or incurrence of such Subordinate Debt. Events of Default and Acceleration of Maturities Under the Indenture, if an Event of Default occurs, the Trustee may, and upon the written request of the owners of at least 25% in aggregate principal amount of the Bonds at the time Outstanding, shall, declare the principal and accrued interest on all Outstanding Bonds to be due and payable immediately. In such event, principal of and interest on Bonds will be paid in accordance with the Indenture and no redemption premium will be paid with respect to principal of Bonds paid prior to the stated maturities thereof. See APPENDIX D - "SUMMARY OF THE INDENTURE—DEFAULTS AND REMEDIES' herein. Low and Moderate Income Housing Chapter 1337, Statutes of 1976, added Sections 33334.2 and 33334.3 to the Law requiring redevelopment agencies to set aside 20 percent of all tax increment revenues allocated and paid to redevelopment agencies from redevelopment project areas adopted after December 31, 1976 in a low and moderate income housing fund to be expended for authorized low and moderate income housing purposes (the "Housing Set -Aside Payments'). In 1985, AB265 extended this requirement to pre -1976 projects. The Commission has annually made the required Housing Set -Aside Payments. Amounts on deposit in the low and moderate income housing fund may also be applied to pay debt service on bonds, loans or advances of redevelopment agencies to provide financing for such low and moderate income housing purposes. Since none of the proceeds of the outstanding Bonds were used to provide financing for low or moderate income housing, the Housing Set -Aside Payments are not available to pay debt service on the Bonds. 17 The following information for use in this Official Statement Insurer's policy. The Policy [To Come] BONDINSURANCE has been furnished by (the "Insurer') Reference is made to Appendix G for a specimen of the LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS Property Tax Limitations - Article XIIIA California voters, on June 6, 1978, approved an amendment (commonly known as both Proposition 13 and the Jarvis -Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation on real property for the purpose of taxation in that it defines the full cash value of property 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" The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. The amendment further limits the amount of any ad valorem tax on real property to 1 percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in June 1986 by initiative which exempts any bonded indebtedness approved by two-thirds of the votes cast by voters for the acquisition or improvement of real property from the 1 percent limitation. In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms "purchased" and "change of ownership,' for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. This amendment to Article XIIIA should have little impact on local property tax revenues within the Project Area because there is not substantial residential use within the Project Area. Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence's assessed value to the new residence. Pursuant to Proposition 60, the Legislature enacted legislation permitting counties to implement the provisions of Proposition 60. As a result, there may be a reduction of property tax revenues. 18 Challenges to Article XIIIA There have been many challenges to Article XIIIA of the California Constitution. On December 22, 1978, the California Supreme Court upheld Proposition 13 over challenges on several state and federal constitutional grounds (Amedor Valley Joint Union School District v. State Board of Equalization.) The Court reserved certain constitutional issues and the validity of legislation implementing the amendment for future determination in proper cases. The United States Supreme Court also considered Article XIIIA in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. Implementing Legislation Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters priorto July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA. The apportionment of property taxes in fiscal years after Fiscal Year 1978-79 has been revised pursuant to Statutes of 1979, Chapter 282 which provides relief funds from State moneys beginning in Fiscal Year 1978-79 and is designed to provide a permanent system for sharing State taxes and budget surplus funds with local agencies. Under Chapter 282, cities and counties receive about one-third more of the remaining property tax revenues collected under Proposition 13 instead of direct State aid. School districts receive a correspondingly reduced amount of property taxes, but receive compensation directly from the State and are given additional relief. Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% maximum annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs (except for certain utility property assessed by the State Board of Equalization which is allocated by a different method). Property Tax Collection Procedures Classifications. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured". Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against the unsecured property, but may become a lien on certain other property owned by the taxpayer. Teeter Plan and Tax Delinquencies. The Board of Supervisors of the County, adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds 19 (the "Teeter Plan"), as provided for in Section 4701 at seq. of the State Revenue and Taxation Code, "to accomplish a simplification of the tax -levying and tax apportioning process and an increased flexibility in the use of available cash resources." This alternative method is used for distribution of the ad valorem property tax revenues. Pursuant to the Teeter Plan, the County establishes a tax losses reserve fund and a tax resources account and each entity levying property taxes in the County may draw on the amount of uncollected taxes and assessments credited to its fund, in the same manner as if the amount credited had been collected. The County is responsible for determining the amount of the tax levy on each parcel in the taxing entity, which will be entered onto the secured real property tax roll. Upon completion of the secured real property tax roll, the County's Auditor -Controller determines the total amount of taxes and assessments actually extended on the roll for each fund for which a tax levy has been included, and apportions 100 percent of the tax and assessment levies to that fund's credit. Such moneys may thereafter be drawn against by the taxing agency in the same manner as if the amount credited had been collected. The County determines which moneys in the County treasury (including those credited to the tax losses reserve fund) shall be available to be drawn on to the extent of the amount of uncollected taxes credited to each fund for which a levy has been included. When amounts are received on the secured tax roll for the current year, or for redemption of tax -defaulted property, Teeter Plan moneys are distributed to the apportioned tax resources accounts. The tax losses reserve fund is used exclusively to cover losses occurring in the amount of tax liens as a result of sales of tax -defaulted property. Moneys in this fund are derived from several sources. While amounts collected as costs are distributed to the County's general fund, delinquent penalty collections are distributed to the tax losses reserve fund. When tax -defaulted property is sold, the taxes and assessments which constitute the amount required to redeem the property are prorated between apportioned (Teeter) levies and unapportioned (or non -Teeter) levies. Amounts apportioned to the funds at the time of the levy are distributed to the apportioned tax resources accounts. The pro rata share of redemption penalties or interest collected on amounts levied but not apportioned to funds at the time of the levy is distributed to the respective funds. The balance of redemption penalties or interest together with delinquency penalties is apportioned to the tax losses reserve fund. If the tax losses reserve fund exceeds four percent of the total taxes and assessments levied for that year, the amounts coming in after it reaches four percent are credited to the County's general fund. If the secured tax delinquency rate stays below three percent for three consecutive fiscal years, when the amount In the tax losses reserve fund reaches that three percent mark, the amounts received thereafter are credited to the County's general fund. The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors shall receive a petition for its discontinuance joined in by resolutions adopted by two-thirds of the participating taxing agencies in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. The County has never received a petition from any taxing agencies to discontinue the Teeter Plan. In addition, the Board of Supervisors could terminate the Teeter Plan as to the taxing agencies within the Project Area if the delinquency rate for all ad valorem property taxes levied within the Project Area in any year exceeds three percent. The Board of Supervisors may, by resolution adopted not later than July 15 of the fiscal year for which it is to apply after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds three percent of the total of all taxes and assessments levied on the secured rolls for that agency. In the event that the Teeter Plan were terminated, the amount of the levy of ad valorem property taxes in the Project Area would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District. So long as the Teeter Plan remains in effect, the Commission's receipt of revenues with respect to the levy of ad valorem property taxes will not be dependent upon actual collections of the ad valorem property taxes by the County. Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing agency has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (1) a civil action against the taxpayer; (2) fling 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 record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of the personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes which are delinquent. Current tax payment practices by the County provide for payment to the Commission of tax increment revenues in December of each fiscal year in an amount approximately equal to 50% of the anticipated tax increment revenue for the fiscal year, and in April of each fiscal year in an amount approximately equal to the remaining 50% of the anticipated tax increment revenue for the fiscal year. A final reconciliation is made near the end of or after the close of the fiscal year to incorporate all adjustments to previously reported current year taxable values. Penalties. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1 % per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10% penalty also applies to the delinquent taxes on property on the unsecured roll, and further, an additional penalty of 1 % per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The current practice of the County under the Teeter Plan is to pay to the Commission 100% of the gross tax increment revenue payable annually to the Commission and to collect any penalties or delinquencies to offset such gross payment. There can be no assurances that the County will continue such practice in the future. 21 Delinquencies. The valuation of property is determined as January 1 each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due August 15 and become delinquent on the succeeding March 31. The current practice of the County under the Teeter Plan is to pay to the Commission 100% of the gross tax increment revenue payable annually to the Commission and to retain any penalties or delinquencies collected to offset such gross payment. There can be no assurances that the County will continue such practice in the future. Supplemental Assessments. A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues may increase. Tax Collection Fees. SB 2557 (Chapter 466, Statutes of 1990) authorizes county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation specifically includes redevelopment agencies among the entities which are subject to a property tax administration charge. For 2004-05, the Project Area's share of the County tax collection fees was $179,007. The County's tax collection fee is deducted from tax increment prior to a determination of Tax Revenues which are pledged to payment of debt service on the Bonds. Appropriations Limitations - Article XIIIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. The principal effect of Article XIIIB is to limit the annual appropriations of the State and any city, county, school district, agency or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. Effective November 30, 1980, the California Legislature has added Section 33678 to the Law which provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by such of proceeds of taxes levied by or on behalf of the agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State of California, including Section 33678 of the Law. 22 Articles XIIIC and XIIID of the California Constitution On November 5, 1996, California voters approved Proposition 218—Voter Approval for Local Government Taxes – Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property -related fees and charges. Tax Revenues securing the Bonds are derived from property taxes which are outside the scope of taxes, assessments and property -related fees and charges which were limited by Proposition 218. Proposition 87 On November 8, 1988, the voters of the State approved Proposition 87, which amended Article XVI, Section 16 of the California Constitution to provide that property tax revenue attributable to the imposition of taxes on property within a redevelopment project area for the purpose of paying debt service on bonded indebtedness issued by a taxing entity (not the Commission) and approved by the voters of the taxing entity after January 1, 1989, will be allocated solely to the payment of such indebtedness and not to redevelopment agencies. Because this provision is not retroactive, such bonded indebtedness approved prior to January 1, 1989 will continue to provide tax overrides to the Commission so long as such indebtedness remains outstanding. Unitary Property AB 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with fiscal year 1988-89, assessed value derived from State -assessed unitary property (consisting mostly of operational property owned by utility companies) is to be allocated county -wide as follows: (a) each tax rate area will receive that same amount from each assessed utility received in the previous fiscal year unless the applicable county -wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro -rata basis; (b) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro -rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State -assessed property is changed from March 1 to January 1. AB 454 (Statutes of 1987, Chapter 921) further modifies chapter 1457 regarding the distribution of tax revenues derived from property assessed by the State Board of Equalization. Chapter 921 provides for the consolidation of all State -assessed property, except for regulated railroad property, into a single tax rate area in each county. Chapter 921 further provides for a new method of establishing tax rates on State -assessed property and distribution of property tax revenue derived from State -assessed property to taxing jurisdictions within each county in accordance with a new formula. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is sited. Chapters 1457 and 921 provide redevelopment agencies with their appropriate share of revenue generated from the property assessed by the State Board of Equalization. The Commission has not received any Tax Revenues from such State -assessed property since Fiscal Year 1998-99 for the Project Area. 23 Future Initiatives and Changes in Law Articles XIIIA, XIIIB, XIIIC and XIIID were each adopted as measures that qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting Commission revenues or the Commission's ability to expend revenues. There can be no assurance that the Legislature will not enact legislation that will amend the Law or other laws or the Constitution of the State resulting in a reduction of revenues, as consequently have an adverse effect on the Commission's ability to pay debt service on the Bonds. Assembly Bill 1290 — Redevelopment Time Limits In 1993, the State legislature passed Assembly Bill ("AB") 1290, which, among other things, required redevelopment agencies to adopt time limits in each redevelopment plan specifying: 1) the last date to incur debt for a redevelopment project; 2) the last date to undertake redevelopment activity within a project area; and 3) the last date to collect tax increment revenue from a project area or to repay debt. AB 1290 also sets forth the maximum time limits an agency could adopt and allowed agencies to adopt these specific plan amendments by ordinance of the legislative body of the Commission, rather than the statutory plan amendment process. Pursuant to AB 1290, which took effect January 1, 1994, the Petaluma City Council adopted ordinances amending the Redevelopment Plan to impose the limits required by AB 1290. See "PETALUMA COMMUNITY DEVELOPMENT PROJECT— Plan Limits" herein. The Commission is considering eliminating the July 18, 2008 last date to incur indebtedness. See "Senate Bill 211" and "Tax Sharing Statutes" and "PETALUMA COMMUNITY DEVELOPMENT PROJECT — Plan Limits." Senate Bill 211 The California Legislature has previously enacted SB 211, Chapter 741, Statutes 2001, effective January 1, 2002 ("SB 211"). SB 211 provides, among other things, that the limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994, may be deleted by ordinance of the legislative body. However, such deletion will trigger statutory tax sharing with respect to the Redevelopment Project with those taxing entities that do not have tax sharing agreements (such as the Tax Sharing Agreements described below). Tax sharing will be calculated based on the increase in assessed valuation after the year in which the limitation would otherwise have become effective. See "Tax Sharing Statutes" below. SB 211 also authorizes the amendment of a redevelopment plan adopted prior to January 1, 1994, in order to extend for not more than 10 years the effectiveness of the redevelopment plan and the time to receive tax increment revenues and to pay indebtedness. Any such extension must meet certain specified requirements, including the requirement that the redevelopment agency establish the existence of both physical and economic blight within a specified geographical area of the redevelopment project and that any additional tax increment revenues received by the redevelopment agency because of the extension be used solely within the designated blighted area. SB 211 authorizes any affected taxing entity, the Department of 24 Finance, or the Department of Housing and Community Development to request the Attorney General to participate in the proceedings to effect such extensions. It also would authorize the Attorney General to bring a civil action to challenge the validity of the proposed extensions. SB 211 also prescribes additional requirements that a redevelopment agency would have to meet upon extending the time limit on the effectiveness of a redevelopment plan, including requiring an increased percentage of new and substantially rehabilitated dwelling units to be available at affordable housing cost to persons and families of low or moderate income prior to the termination of the effectiveness of the plan. Tax Sharing Statutes Certain provisions were added to the Redevelopment Law by the adoption of AB 1290 in 1994. If new territory should be added to the Project Area, or certain other amendments are made to the Redevelopment Plan, under Section 33607.5 of the Law, any affected taxing entity would share in the tax increment revenues generated by such added area pursuant to a statutory formula ("Statutory Tax Sharing'). In addition, pursuant to Section 33333.6(a)(2) of the Law, if the Commission deletes the time limit to incur indebtedness with respect to the Redevelopment Project (as amended by SB211) or increases the total amount of Tax Revenues to be allocated to the project area or increases the duration of the Redevelopment Plan and the period for receipt of Tax Revenues, Statutory Tax Sharing will also be required under Section 33607.7 of the Law with all affected taxing agencies not already a party to a tax sharing agreement, once the original limitations have been reached. In general, the amounts to be paid pursuant to Statutory Tax Sharing are as follows: (a) commencing in the first fiscal year after the limitation has been reached, an amount equal to 25% of tax increment revenues generated by the incremental increase of the current year assessed valuation over the assessed valuation in the fiscal year that the limitation had been reached, after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted; (b) in addition to amounts payable as described in (a) above, commencing in the 11th fiscal year after the limitation has been reached, an amount equal to 21% of tax increment revenues generated by the incremental increase of the current year assessed valuation over the assessed valuation in the preceding (10th) fiscal year that the limitation had been reached, after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted; and (c) in addition to amounts payable as described in (a) and (b) above, commencing in the 31st fiscal year after the limitation has been reached, an amount equal to 14% of tax increment revenues generated by the incremental increase of the current year assessed valuation over the assessed valuation in the preceding (30th) fiscal year that the limitation had been reached, after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted. (d) The City may elect to receive a portion of the tax increment generated in (a) above, after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted. 25 (e) The Commission may subordinate the amount required to be paid to an affected taxing entity to any indebtedness after receiving the consent of the taxing entity. With respect to a taxing entity that is a party to a negotiated tax sharing agreement, payments would continue pursuant to the Tax Sharing Agreement after the original limitations in the Redevelopment Plan were passed. If the Commission utilizes the provisions of SB 211 to eliminate the August 17, 2008 last date to incur indebtedness with respect to the Redevelopment Project, the Commission would become subject to Statutory Tax Sharing, commencing Fiscal Year 2009-10. See "Senate Bill 211" above. Statement of Indebtedness Under the Law, the Commission must file with the County Auditor a statement of indebtedness for the Project Area by October 1, each year. As described below, the statement of indebtedness controls the amount of tax increment revenue that will be paid to the Commission in each fiscal year. Each statement of indebtedness is fled on a form prescribed by the State Controller and specifies, among other things: (a) the total amount of principal and interest payable on all loans, advances or indebtedness (including the Bonds, Parity Bonds and all Additional Bonds) (the "Debt"), both over the life of the Debt and for the current fiscal year, and (b) the amount of .'available revenue" as of the end of the previous fiscal year. "Available revenue" is calculated by subtracting the total payments on Debt during the previous fiscal year from the total revenues (both tax increment revenue and other revenues) received during the previous fiscal year, plus any carry forward from the prior fiscal year. Available revenue includes amounts held by the Commission and irrevocably pledged to the payment of Debt, but does not include amounts in the Low and Moderate Income Housing Fund. The County Auditor may only pay tax increment revenue to the Commission in any fiscal year to the extent that the total remaining principal and interest on all Debt exceeds the amount of available revenues as shown on the statement of indebtedness. The statement of indebtedness constitutes prima facie evidence of the debt of the Commission; however, the County Auditor may dispute the statement of indebtedness in certain cases. Section 33675 provides for certain time limits controlling any dispute of the statement of indebtedness, and allows for Superior Court determination of such dispute in the event it cannot be resolved by the Commission and the County Auditor. Any such action may only challenge the amount of the Debt as shown on the statement, and not the validity of any Debt or related contract or the expenditures related thereto. No challenge can be made to payments to a trustee in connection with a bond issue or payments to a public agency in connection with payments by that public agency with respect to a lease or bond issue. The Commission's October 1, 2004 Statement of Indebtedness included outstanding obligations sufficient to collect all of the tax increment currently generated in the Project Area for Fiscal Year 2004-05. The Commission expects that its future Statement of Indebtedness will also include outstanding obligations sufficient to collect all of the tax increment generated in the Project Area during the applicable fiscal year. 26 Tax Sharing Agreements Seven of the school districts receiving taxes from the Project Area have passed resolutions pursuant to Health and Safety Code Section 33676 which provides for allocation to the school district of (i) any increases in the rate of tax imposed for the benefit of the school district which levy occurs after the tax year in which the ordinance adopting the Redevelopment Plan becomes effective; and (ii) any increases in the assessed value of the taxable property in the Project Area as the assessed value is established by the assessment roll last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan pursuant to Health and Safety Code Section 33670(a), which are, or would otherwise be, calculated annually pursuant to Revenue and Tax Code Section 110.1(Q. The Petaluma Community Development Commission has a tax sharing agreement with Sonoma County and the Sonoma County Library comprised of two components. Pursuant to that agreement, (1) the County receives a payment which is treated as a Section 33676 inflationary allocation, and (2) commencing Fiscal Year 1993-94 through the termination of the Redevelopment Plan, 96% of that portion of the taxes which would have been allocated to the County and the Library for their own use if the Redevelopment Plan had not been adopted shall be paid to the County and the Library when collected. Low and Moderate Income Housing Fund Chapter 1337, Statutes of 1976, added Sections 33334.2 and 33334.3 to the Law requiring redevelopment agencies to set aside 20 percent of all tax increment revenues allocated and paid to redevelopment agencies from redevelopment project areas adopted after December 31, 1976 in a low and moderate income housing fund to be expended for authorized low and moderate income housing purposes (the "Housing Set -Aside Payments"). In 1985, AB265 extended this requirement to pre -1976 projects. The Commission has annually made the required Housing Set -Aside Payments. Amounts on deposit in the low and moderate income housing fund may also be applied to pay debt service on bonds, loans or advances of redevelopment agencies to provide financing for such low and moderate income housing purposes. Since none of the proceeds of the outstanding Bonds were used to provide financing for low or moderate income housing, the Housing Set -Aside Payments are not available to pay debt service on the Bonds RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Series 2005A Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Series 2005A Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. Reduction in Taxable Value — Economic Factors, Property Damage and Appeals of Assessed Value Tax Revenues allocated to the Commission are determined by the amount of incremental taxable value in the Project Area and the current rate or rates at which property in 27 the Project Area is taxed. The taxable value of property is based upon 100% of full cash value as defined by State law, which amount is not always equal to the fair market value of the taxable property. The County Assessor's taxable valuation does not purport to be based on market value of the taxable property. See "PROPERTY TAXES: LEGISLATION, LIMITATIONS AND PRACTICES — Property Tax Limitations — Article XIIIA" herein. The reduction of taxable values of property in the Project Area caused by economic factors beyond the Commission's control, such as a relocation out of a Project Area by one or more major property owners, the discovery of hazardous substances on one or more properties within the Project Area or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the Tax Revenues securing the Series 2005A Bonds. Such reduction of Tax Revenues could have an adverse effect on the Commission's ability to make timely payments of principal of and interest on the Series 2005A Bonds. Pursuant to California law, the County Assessor may determine that the then current market values require a general reduction in taxable value or a property owner may apply for a reduction of the property taxable values of such owner's property by filing with the County Assessor, a written application in the form prescribed by the State Board of Equalization with the appropriate county assessment appeals board. A reduction in property taxable values within the Project Area and the refund of taxes which may arise out of successful appeals by property owners will reduce the amount of Tax Revenues available for payment of the Series 2005A Bands. See "PETALUMA COMMUNITY DEVELOPMENT PROJECT — Major Property Owners and Appeals" for a description of the major property taxpayers within the Project Area and any outstanding appeals on these properties. High Concentration of Unsecured Value; Cisco Systems Approximately 30.5% of the total assessed valuation of the Project Area for Fiscal Year 2005-06 is attributable to property on the unsecured roll. Property on the unsecured roll generally consists of personal property, fixtures, tenant improvements and other possessory interests not included in the secured tax roll. The assessed valuation of property on the unsecured tax roll is subject to wider fluctuation than property on the secured roll since property on the unsecured roll is generally movable. For example, as shown on Table 6 under the caption "PETALUMA COMMUNITY DEVELOPMENT PROJECT", the assessed value of property on the unsecured roll in the Project Area decreased by approximately .70% in Fiscal Year 2005-06, after increasing by approximately 11.3% in Fiscal Year 2004-05 and by approximately 14.7% in Fiscal Year 2003-04. The Commission is unable to predict whether future declines in the assessed value of property on the unsecured tax roll will occur and the extent of any such declines. Cisco Systems, Inc. ("Cisco") is the largest property taxpayer in the Project Area, with approximately $243 million in assessed value as of June 30, 2005. See Table 9 under the caption "PETALUMA COMMUNITY DEVELOPMENT PROJECT — Major Property Owners and Appeals" below. However, over 95% of Cisco's assessed property value in the Project Area is comprised of unsecured property. Cisco's operations in the Project Area are largely R&D/engineering, with approximately 40% to 50% of Cisco's total building square footage in the Project Area being laboratory space containing very advanced equipment. This equipment comprises approximately [90%] of Cisco's unsecured property in the Project Area. Cisco has been accumulating laboratory equipment in the Project Area over the past six to seven years. Most of the equipment is internally manufactured and, although they are often used for longer 28 periods, Cisco assigns such assets an accounting lifespan of 12 months. Some of the equipment in the Project Area is test equipment manufactured by other companies; these assets are depreciated over 30 months, but frequently continue to be used for five to six years. Cisco does not consider its Petaluma location to be "mission critical," meaning that current projects do not have to continue to operate out of the Project Area. It is likely, however, that Cisco will remain in Petaluma for a number of reasons: current projects are resource-driven in that they depend on a very specialized and highly skilled local labor force; the high cost of transferring existing labs makes relocation extremely costly; Cisco has a dearth of laboratory space relative to office space, and is therefore unlikely to close existing labs; and Cisco has expressed its commitment to the area by purchasing some of the buildings it uses and/or has used in the past. The information in the preceding two paragraphs regarding Cisco have been obtained from sources that the Commission believes are reliable, but the Commission is not able to guarantee its accuracy. Reduction in Inflationary Rate Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2% limitation five times: in Fiscal Year 1983-84, 1%; in Fiscal Year 1995-96, 1.19%; in Fiscal Year 1996-97, 1.11%; in Fiscal Year 1999-00, 1.85%; and in Fiscal Year 2004-05, 1.867%. The Commission is unable to predict if any adjustments to the full cash value base of real property within the Project Area, whether an increase or a reduction, will be realized in the future. Levy and Collection The Commission has no independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Revenues, and accordingly, could have an adverse impact on the ability of the Commission to pay debt service on the Series 2005A Bonds. Likewise, although not currently a factor, delinquencies in the payment of property taxes could have an adverse effect on the Commission's ability to make timely debt service payments. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS — Property Tax Collection Procedures — Teeter Plan and Tax Delinquencies" herein. See "PETALUMA COMMUNITY DEVELOPMENT PROJECT— Historic Tax Revenues' herein for the historical amounts of gross tax increment revenues received by the Commission. 29 State Budget In connection with its approval of the budget for the 1992-93, 1993-94 and 1994-95 fiscal years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency's tax increment, net of amounts due to other taxing agencies, to school districts for such fiscal years for deposit in the Education Revenue Augmentation Fund ("ERAF"). The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. Faced with a projected State budget gap for Fiscal Year 2002-03, the State Legislature adopted as urgency legislation AB 1768, which required redevelopment agencies to pay into ERAF in Fiscal Year 2002-03 an aggregate amount of $75 million, of which the Commission paid $250,173. AB 1768 became effective on September 30, 2002 and required the payment into ERAF in Fiscal Year 2002-03 only. AB 1768 provided that one-half of the Commission's ERAF obligation is calculated based on the gross tax increment received by the Commission and the other one-half of the Commission's ERAF obligation is calculated based on net tax increment revenues (after any pass-through payments to other taxing entities). The Commission made the required payment into ERAF. Faced with a continuing State budget gap, the State Legislature in 2003 adopted SB 1045 which again required redevelopment agencies to make ERAF transfers in Fiscal Year 2003-04, based on a statewide aggregate transfer by redevelopment agencies of $135 million. SB 1045 required the Commission to transfer $512,641 million to ERAF in fiscal year 2003-04 and to make this transfer payment by May 10, 2004. The Commission timely made the required ERAF payment. The Governor's budget for Fiscal Year 2004-05 as implemented by SB 1096 (Chapter 211, Stats. 2005) and the Governor's budget for Fiscal Year 2005-2006 as implemented by SB 77 (Chapter 38) again included a transfer by redevelopment agencies to the applicable ERAFs. However, the aggregate amount of ERAF transfers by redevelopment agencies increased from $135 million (in Fiscal Year 2003-04) to $250 million in each of the Fiscal Years 2004-05 and 2005-06. The Commission was required to transfer approximately $928,640.95 to ERAF in Fiscal Year 2004-05 (with $918,640.95 being paid from Tax Revenues generated from the Project Area and the remaining $10,000 being paid from tax increment revenue generated from the Central Business District Project Area) and will be required to transfer a similar amount to ERAF in Fiscal Year 2005-06. SB 1096 provides that required transfers to ERAF are subordinate to payment an bonds secured by tax increment revenues. Accordingly, such transfers to ERAF are subordinate to payments on the Bonds. The Commission cannot predict whether the State Legislature will, in future fiscal years, adopt legislation requiring other shifts of redevelopment tax increment revenues to the State and/or to schools, whether by the ERAF mechanism or by other arrangement.. Should such legislation be enacted, Tax Revenues available for payment of the Bonds may, in the future, be substantially reduced and the Commission's ability to pay debt service on the Bonds may be impaired. Seismic Considerations The City, like much of California, is subject to seismic activity that could result in substantial damage to property located in the Project Area, and could lead to successful 30 appeals of assessed values of such property. Such a reduction could result in a decrease in Tax Revenues collected by the Commission. There are several major active fault zones transecting Sonoma County that could cause "strong ground motion" within the Project Area. The closest major fault is the Rodgers Creek fault, which is approximately 4.5 miles northeast of the City. If there were to be an occurrence of severe seismic activity in the Project Area, there could be a reduction in the amount of Tax Revenues available to pay the principal of and interest on the Series 2005A Bonds when due. Flood Risk The Petaluma River Basin is situated in Sonoma and Marin Counties on the northwestern shore of San Pablo Bay. The Petaluma River and its tributaries drain an area of about 146 square miles, of which 113 square miles (77%) are in Sonoma County and 33 square miles (23%) are in Marin County. The basin is pear-shaped and has a length of about 19 miles, oriented in a northwest -southeast direction, and a maximum width of about 13 miles. The City of Petaluma is located near the center of the basin. The Petaluma River, from its source at the confluence of Liberty Creek and Willow Brook in the northwest portion of the basin, flows generally in a southeasterly direction through the middle of the basin for about 18 miles, passing through Petaluma, and emptying into San Pablo Bay. Several locations along the Petaluma River have historically experienced flooding during extreme weather events. These areas include the Payran Reach, the Denman Reach and the Willow Brook Reach. The City has implemented many projects to mitigate the potential of these events. The most recent project is the widening of the Petaluma River Channel, which is being constructed in coordination with the US Army Corps of Engineers. Completion is anticipated in late 2005, although the project has been subject to delay in the past, and the Commission is not able to predict when the project will be completed. If extensive flooding in the Project Area should occur, property damage could occur resulting in a reduction in taxable value in the Project Area and therefore reducing the amount of Tax Revenues available to pay debt service on the Series 2005A Bonds. See "PETALUMA COMMUNITY DEVELOPMENT PROJECT — Project Area Description" herein. Hazardous Substances An additional environmental condition that may result in the reduction in the taxable value of property would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the Project Area. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to take remediation measures with respect to a hazardous substance condition on property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the Project Area be affected by a hazardous substance, could be to reduce the marketability and value of the property. Bankruptcy and Foreclosure The enforceability of the rights and remedies of the owners of the Series 2005A 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 31 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 2005A Bands 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. In addition, although bankruptcy proceedings would not cause ad valorem property taxes to become extinguished, bankruptcy of a property owner in the Project Area could result in a delay in prosecuting superior court foreclosure proceedings of delinquent property and, in the absence of the Teeter Plan, could result in a delay in the receipt by the Commission of Tax Revenues. Such a delay would increase the possibility of a delay or default in payment of the principal of and interest on the Series 2005A Bonds. Secondary Market There can be no guarantee that there will be a secondary market for the Series 2005A Bonds, or, if a secondary market exists, that such Series 2005A 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. Loss of Tax Exemption; Risk of Tax Audit As discussed under the caption "TAX MATTERS" herein, interest on the Series 2005A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Series 2005A 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 2005A Bonds are not subject to special redemption or any increase in interest rate and may remain outstanding until maturity. In December 1999, as a part of a larger reorganization of the Internal Revenue Service (the "IRS"), the IRS commenced operation of its Tax Exempt and Government Entities Division (the "TE/GE Division"), as the successor to its Employee Plans and Exempt Organizations division. The new TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations (which would include the issuance of securities such as the Series 2005A Bonds) is expected to increase significantly under the new TE/GE Division. There is no assurance that if an IRS examination of the Series 2005A Bonds was undertaken that it would not adversely affect the market value of the Series 2005A Bonds. (See "TAX MATTERS.") The Commission is not currently the subject of any ongoing audit nor has it been notified by the IRS regarding the possibility of any such audit. 32 THE PETALUMA COMMUNITY DEVELOPMENT COMMISSION Commission and Management The Petaluma Community Development Commission was activated in 1975, by ordinance of the City Council adopted pursuant to Part 1.7 of Division 24 of the California Health and Safety Code. The seven members of the City Council serve as the governing body of the Commission, and exercise all rights, powers, duties and privileges of the Commission. The members of the governing body of the Commission are as follows: Member Term Expires David Glass, Chairperson and Mayor 12/31/2006 Michael Harris, Vice Chairperson and Vice Mayor 12/31/2006 Keith Canevaro, Commission and Council Member 12/31/2006 Michael Healy, Commission and Council Member 12/31/2006 Karen Nau, Commission and Council Member 12/31/2008 Michael O'Brien, Commission and Council Member 12/31/2008 Pamela Torliatt, Commission and Council Member 12/31/2008 Administration The City Manager serves as Executive Director of the Commission, the City Clerk serves as the Secretary of the Commission, the Administrative Services Director of the City serves as Treasurer of the Commission, and the City Attorney serves as Commission Counsel. Day to day operations of the Commission are managed by the Economic and Redevelopment Director of the City. The Commission has an arrangement with the City for financial assistance and services, facilities and personnel support. As moneys become available, the Commission reimburses the City for all such services performed in amounts equal to a portion of the gross salary and employee fringe benefits for certain City employees utilized by the Commission plus other miscellaneous operating and equipment costs. The Redevelopment Law requires redevelopment agencies to have an independent financial audit conducted each year. The financial audit is also required to include an opinion of the Commission's compliance with laws, regulations and administrative requirements governing activities of the Commission. The firm of Caporicci & Larson, Oakland California, prepared a financial statement for the Commission for the fiscal year ending June 30, 2004, which is included in Appendix A. The firm's examination was made in accordance with generally accepted auditing standards. The Commission has not requested nor did the Commission obtain permission from Caporicci & Larson, to include the audited financial statements as an appendix to this Official Statement. Accordingly, Caporicci & Larson has not performed any post -audit review of the financial condition or operations of the Commission. 33 Powers The Commission exercises all of the powers authorized under the Constitution and laws of the State of California, including the California Community Redevelopment Law (Part 1, Division 24, Commencing with Section 33000 of the Health and Safety Code) (the "Law"). The Commission is charged with the goal of eliminating blight within the redevelopment project areas through the process of redevelopment. Generally, this process culminates when the Commission disposes of land for development by the private sector. Before this can be accomplished, the Commission must complete the process of acquiring and assembling the necessary sites, relocating residents and businesses, demolishing the deteriorated improvements, grading and preparing the sites for purchase by developers and providing for ancillary offsite improvements. All powers of the Commission are vested in its seven members. The Commission exercises all of the governmental functions authorized under the Law in carrying out projects and has sufficient 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 expend 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 of California may be carried out pursuant to the Law. Section 33020 of the 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. 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 area 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. Housing Authority Powers The Commission also exercises all powers of the Housing Authority of the City of Petaluma under Part 2 of Division 4 of the California Health and Safety Cade relating to the activities of housing authorities. 34 PETALUMA COMMUNITY DEVELOPMENT PROJECT Background Under the Law a city council may adopt, by ordinance, a redevelopment plan for a redevelopment project. A redevelopment plan is a legal document, the content of which is largely prescribed in the Law, rather than a "plan" in the customary sense of the word. The City Council first adopted the Petaluma Community Development Project ('Redevelopment Project") Redevelopment Plan by Ordinance No. 1725 N.C.S on July 18, 1988, and amended the Plan on November 21, 1994 by its adoption of Ordinance No. 1972, on April 17, 2001, by Ordinance No. 2100 N.C.S and on May 17, 2004 by Ordinance No. 2183 N.C.S. The overall objective of the Redevelopment Plan is to eliminate blighted conditions in the Project Area by undertaking all appropriate projects pursuant to the Redevelopment Law. The goals and objectives of the Redevelopment Plan are to stimulate and provide new private investment opportunities by revitalizing property characterized by deterioration, blight or functional obsolescence; to encourage continued investment in the Project Area and to improve employment opportunities, and economic stability and productivity; to improve the visual image of the Project Area; to increase public revenues; to achieve a coordinated pattern of land uses with adequate public improvements including, but not limited to, streets, utilities and flood control improvements; to preserve and enhance conditions in existing residential neighborhoods; and to encourage the development of commercial uses along major thoroughfares in accordance with applicable land use policies and zoning regulations. Plan Limits The following table outlines limits contained in the Redevelopment Plan TABLE 4 PETALUMA COMMUNITY DEVELOMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Summary of Redevelopment Plan Limits Plan Limit Time Limit for Debt Issuance 7/18/2008(@) Time Limit for Plan Effectiveness 7/18/2029(a) Time Limit for Receipt of Tax Increment 7/18/2039(a) Maximum Tax Increment Collections $800,000,000 Maximum Principal Amount of Bonds Outstanding $80,000,000 Time Limit for Non Residential Eminent Domain 7/18/2000 (a) If Commission complies with certain requirements, time limit may be eliminated by ordinance. Source: The Commission. Cumulative tax increment received by the Commission through June 30, 2005, was $p1.868.910 for the Petaluma Community Development Project. Tax increment received by the Commission for Fiscal Year 2004-05 was $.11.869.868. To ensure that the cumulative tax 35 Deleted: 81,476,186 ---------------- -- --- - - Deleted: 11,477,144 increment collections received by the Commission are sufficient to pay outstanding debt service on the Bonds, the Commission has covenanted that it will not accept Tax Revenues greater than annual debt service on the Bonds, in any year, if such acceptance will cause the amount remaining under any then -applicable tax increment limit in the Redevelopment Plan to fall below remaining cumulative annual debt service on the Bonds, except for the purpose of depositing such Tax Revenues in escrow for the payment of interest on and principal of and redemption premiums, if any, on the Bonds. Assessed values would need to grow at an average annual rate of approximately 6.8% for the Project Area to reach its tax increment cap by May 1, 2030 (which is the last maturity date of the Series 2005A Bonds), and by 5.4% for the Project Area to reach its tax increment cap by May 1, 2033 (which is the last maturity date for the Series 2003A Bonds and the last maturity date for any of the Bonds currently outstanding). The Commission, in the Indenture, has covenanted that it will not accept Tax Revenues greater than Annual Debt Service, in any year, if such acceptance will cause the amount remaining under any then - applicable tax increment limit in the Redevelopment Plan to fall below remaining cumulative Annual Debt Service, except for the purpose of depositing such revenues in escrow for the payment of interest on and principal of and redemption premiums, if any, on the Bonds. The Commission is considering amending the Redevelopment Plan to eliminate the July 18, 2008 last date to incur indebtedness. If the Commission adapts such an amendment, Statutory Tax Sharing will commence in Fiscal Year 2009-10 with those taxing entities with which the Commission has not entered a Tax Sharing Agreement. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS — Senate Bill 211" and % Tax Sharing Statutes." Additionally, the Commission is also considering a fiscal merger of the Redevelopment Project with its Central Business District Redevelopment Project. In connection with such fiscal merger, the Commission is considering increasing the $80,000,000 limit on outstanding tax allocation bonds. Project Area Description The Petaluma Community Development Project includes approximately 2,740 acres, a portion of which is outside the City limits. The Project Area includes about one-third of the 11.6 square miles in the City. The Project Area extends along both sides of U.S. Highway 101 from a point near the southern City limits to the Old Redwood Highway at the northern end of the City. Existing development includes commercial, industrial and residential uses. Included in the Project Area are several major business parks and industrial uses as well as five major retail centers: Washington Square, Petaluma Plaza North and South, the Petaluma Premium Factory Outlets, and the Petaluma Auto Plaza. The Project Area includes many public and institutional uses. There is a significant amount of vacant and/or underutilized land within the Project Area that provides development potential. tax roll. The table below summarizes land use in the Project Area based on the 2004/05 property 36 TABLE 5 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Secured Assessed Valuation and Parcels by Land Use Historic Tax Revenues Gross tax increment revenues are those amounts derived each year from the levy and collection of taxes on any increase in the taxable valuation of land, improvements and personal property in the Project Area over and above the base assessment roll for such property. Set forth below is a summary of the Project Area's historical taxable valuations and gross tax increment revenues. Gross tax increment revenues as shown in the following table are based upon actual amounts received by the Commission. 37 2004-05 Assessed % of No. of % of Valuation(a) Total Parcels Total Non -Residential: Agricultural $3,319,677 0.32% 13 0.57% Commercial 379,655,627 36.40 335 14.66 Vacant Commercial 5,781,324 0.55 13 0.57 Industrial 244,063,556 23.40 235 10.28 Vacant Industrial 23,905,458 2.29 56 2.45 Recreational 15,619,911 1.50 9 0.39 Government/Social/Institutional 4,282,413 0.41 114 4.99 Miscellaneous 3.918.099 0.38 33 1.44 Subtotal Non -Residential $680,546,065 65.25°/ 808 35.36% Residential: Single Family Residence $172,001,454 16.49% 1,010 44.20% Condominium/Townhouse 32,962,316 3.16 184 6.05 Rural Residential 23,142,097 2.22 85 3.72 Hotel/Motel 30,026,875 2.88 7 0.31 Mobile Home Park 12,373,122 1.19 6 0.26 2-4 Residential Units 27,219,659 2.61 99 4.33 5+ Residential Units/Apartments 50,406,398 4.83 24 1.05 Vacant Residential 14.241.653 1.37 62 2.71 Subtotal Residential $362,373,574 34.75% 1,477 64.64% Total $1,042,919,639 100.00% 2,285 100.00% (a) Local Secured Assessed Valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc., Sonoma County Auditor -Controller. There currently are several potential new developments being planned in the Project Area. The completion of certain of these developments could increase the assessed value of property in the Project Area significantly. However, the Commission is not able to give any assurance that such development will be completed. Historic Tax Revenues Gross tax increment revenues are those amounts derived each year from the levy and collection of taxes on any increase in the taxable valuation of land, improvements and personal property in the Project Area over and above the base assessment roll for such property. Set forth below is a summary of the Project Area's historical taxable valuations and gross tax increment revenues. Gross tax increment revenues as shown in the following table are based upon actual amounts received by the Commission. 37 TABLE 6 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Historical Taxable Valuations and Gross Tax Increment Revenue 2004/05 2005/06181 $1,042,919,639 $1,096,092,290 485,631,210 482,298,965 $1,528,550,849 $1,578,391,255 7.4 $ 331,539,332 1,197,011,517 57 LA69.660 3.3 $ 331,539,332 1,246,841,923 $11,862,530 (a) Gross Tax Increment Revenues for Fiscal Year 2005-06 are projected. (b) Amounts shown are net of Section 33676 Inflationary allocation, but prior to County 582557 administrative fee and pass- through payments to taxing entitles. Source: Sonoma County Auditor -Controller, the Commission, and Seifel Consulting Inc. The following table sets forth the calculation of Tax Revenues from Fiscal Year 2002-03 through Fiscal Year 2005-06 (projected). TABLE 7 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Historical Taxable Valuations and Tax Revenues 2002/03 2003/04 Secured $960,470,083 $986,987,935 Utility - - Unsecured 380,526,015 436,302,595 Total $1,340,996,098 $1,423,290,530 Percentage change vs. 4.6% 6.1 Prior Year me Plus: Other Payment Through the Year Base Year $ 331,539,332 $ 331,539,332 Incremental Assessed 1,009,456,766 1,091,751,198 Value Gross Tax Increment i_9,835,708 $10,783,865 Revenues(h) 511,862,530 Less: County 2004/05 2005/06181 $1,042,919,639 $1,096,092,290 485,631,210 482,298,965 $1,528,550,849 $1,578,391,255 7.4 $ 331,539,332 1,197,011,517 57 LA69.660 3.3 $ 331,539,332 1,246,841,923 $11,862,530 (a) Gross Tax Increment Revenues for Fiscal Year 2005-06 are projected. (b) Amounts shown are net of Section 33676 Inflationary allocation, but prior to County 582557 administrative fee and pass- through payments to taxing entitles. Source: Sonoma County Auditor -Controller, the Commission, and Seifel Consulting Inc. The following table sets forth the calculation of Tax Revenues from Fiscal Year 2002-03 through Fiscal Year 2005-06 (projected). TABLE 7 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Historical Taxable Valuations and Tax Revenues 38 Deleted: 11,477,144 Deleted: _ j Deleted: Deleted: 11,477,144 Deleted: 5,676,364 2002/03 2003/04 2004/05 2005/06• Gross Tax Increment Revenues(O $9,597,512 $10,379,605 $11,393,312 $11,862,530 Plus: Bond Override Revenue 70,710 76,466 83,832 n/a Plus: Supplemental Revenues 151,246 286,536 028.101 me Plus: Other Payment Through the Year 16,240 41,258 fi4 623 n/a Total Tax Increment Revenue $9,835,708 :10,783,865 ,;I1369868 511,862,530 Less: County Collection Fee 182,062 180,932 198,491 212,190 Less: Pass -Through Payments 2,788,567 3,027,743 3,326,345 3,462,245 Less Housing Set Aside 1,967,142 2,156,773 2,295,429 2,372,506 Total Tax Revenues $4,897,938 $5,418,418 $G.049 604 $5,815,589 'Projected Bond overnde revenues and ainolcmcnial and other oavments nm ant¢ipalad but have not hcen nroi cled (a) Amounts shown are net or Section 33676 Inflationary allocation, but prior to County SB2557 administrative fee and pass- through payments to lazing entitles. Source: Sonoma County Auditor-Contraller, the Commission, and Seifel Consulting Inc. 38 Deleted: 11,477,144 Deleted: _ j Deleted: Deleted: 11,477,144 Deleted: 5,676,364 Secured Tax Charges and Delinquencies The following table shows the six years' history of the property tax levies and year-end delinquencies within the Project Area. Information for Fiscal Years 2003-04 and 2004-05 is not currently available. TABLE 8 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Secured Tax Charges And Delinquencies Amount Delinquent Percent Delinquent Fiscal Year Secured Tax Chame (June 30) (June 30 1998-99 (a) $6,666,707.78 $59,377.00 0.89% 1999-00 (a) 7,011,384.98 71,219.09 1.02 2000-01 (a) 7,793,158.72 192,592.58 2.47 2001-02 (b) 10,956,730.12 145,215.68 1.33 2002-03 (b) 11,990,075.00 102,092.74 0.85 (a) 1 % General Fund levy collected by the county within the project area (b) All taxes collected by the county within the project area. Source: California Municipal Statistics, Inc., Sonoma County Auditor -Controller Major Property Owners and Appeals Within the Project Area, the following 20 entities are the largest secured and unsecured taxpayers. Based on Fiscal Year 2004-05 taxable assessed valuations, these top 20 taxpayers represent approximately 43.7% of the total Project Area taxable assessed valuation. TABLE 9 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT AREA Twenty Largest Secured and Unsecured Property Taxpayers Preliminary Fiscal Year 2005-06(a) Percent of Total 2004-05 Assessed Value 15.496 3.9% 2.1% 1.996 1.7% 1.% 1.55% IA% 1.496 1.3 1.3965. 1.396 1.396 1.196 1.196 0.8% 0.0% 0.096 $1,575,304,465 43]% (a) Top Twenty Taxpayermfmm Imnis based the Sonoma County Assessor's Roll as of the end of FY 2004-05. The total assessed valuation from themil at this kms ddlers slightly from the Auditor Caddied Values for FY2005-06 dlslnbuted by the Sonoma County Auddor-Controller's Office used in Table 6. The data is labeled Preliminary FY 2005-06 because secured property values have already been adjusted upward by 2 percent (statutory maximum annual increase) from final FY 2004-05 values (b) Redwood Business Park Is affiliated with Basin Street Properties, which Is also affiliated with Redwood Technology Center and Mc -Dowell CaMends Campus. The total assessed value of these four entities Is $73,506,340 secured and $60,730 unsecured. (c) Lok Group of Companies includes property owned by Lok Petaluma Marine Hotel Co. LLC and Lok Redwood Empire Properties Inc. Source: Sonoma County Auddor-Controller, the Commission and Sedel Consulting Inc. With respect to the twenty largest property taxpayers in the Project Area, there are 40 appeals pending with a total potential reduction of approximately $63,611,540 of secured value (46% of the value of the property subject to the appeal and 5.8% of the total value of the secured roll) and $16,009,237 million of unsecured value (60.1% of the value of the property subject to appeal and 3.3% of the total value of the unsecured roll). From Fiscal Year 2002-03 through Fiscal Year 2004-05, resolved assessment appeals have reduced the Value of the property subject to the appeal by 2.76% (0.8% of the total value of the secured and unsecured rolls), for a total reduction of $12,473,928 over these three fiscal years. 40 Total Assessed No. of Primary Fromm, Owner Secured Unsecured Valuation Parcels Land Use Cisco Systems Inc. $7,710,447 $235,212,150 5 242,922,597 9 0(Gce/R8D Redwood Business Park (I.Vtu 59,785,867 59,705,657 19 Multiple Tellabs Inc. - 33,066,790 33.066.790 2 Industrial Chelsea GCA Really Porinershlp 29,943,264 - 29,943,284 7 Retail, Vacant Industrial Lok Group of Compamesn' 27,459,404 - 27,459,404 4 Lodging Savoy Corporation 26,044,234 - 26,844.234 22 OfOcellodustnal TCP Petaluma 25,012,568 - 25,012,510 1 OtBce Alcatel USA Sourcing LP 23,586.100 23,586,100 1 Offica/R&D Minnesota Mining 8 Manufacturing Co. 22,365,143 22,365,843 1 Industrial Syms Properties LP 21,554,843 21,554,843 2 Retail RNM Lakeville LP 21.051,830 21,051,830 2 Industrial BNP Penbas Leasmg Corporation 21.011.632 21.011,632 4 Office Regency Petaluma LLC 20,312,280 - 20,312,280 3 Commercial Vintage Gold Senior Apartments LP 19,833,028 - 19,833,026 1 Multi -Family Residential North Be, Construction Inc. 18,740,202 - 18,740,202 2 Industrial Manna Office Park Associates 18,072,400 - 18,072,400 5 Office, Vacant Intlustnal Fecal Properties 17,400,527 - 17,400,527 2 Retail Clover Stomelta Farms Inc. 2,248.063 12,713,629 14,961,692 8 Agricultural Bayliss Apartments LTD 12,957,376 12,967,376 2 Olficelind.reml Main, N.I aft - 12,270,340 12,271 1 Industrial TOTAL $351.302.216 $478.779,824 $1,575,384,465 96 Total for Top 20 Property Taxpayers $ 351,302,216 $ 337,868,641 $ 689,170,857 Percent Oisinbukon of Secured and Unsecured Value 51.096 49.0% 1000% Total Valummn lar PCD S 1.096,604.641 $ 470,779,824 S 1,575,384,465 Percent of Total Secured or Unsecured Roll Value 32.0% 70.6% Percents Total Roll Value 22.3% 21A% 43.7% Percent of Total 2004-05 Assessed Value 15.496 3.9% 2.1% 1.996 1.7% 1.% 1.55% IA% 1.496 1.3 1.3965. 1.396 1.396 1.196 1.196 0.8% 0.0% 0.096 $1,575,304,465 43]% (a) Top Twenty Taxpayermfmm Imnis based the Sonoma County Assessor's Roll as of the end of FY 2004-05. The total assessed valuation from themil at this kms ddlers slightly from the Auditor Caddied Values for FY2005-06 dlslnbuted by the Sonoma County Auddor-Controller's Office used in Table 6. The data is labeled Preliminary FY 2005-06 because secured property values have already been adjusted upward by 2 percent (statutory maximum annual increase) from final FY 2004-05 values (b) Redwood Business Park Is affiliated with Basin Street Properties, which Is also affiliated with Redwood Technology Center and Mc -Dowell CaMends Campus. The total assessed value of these four entities Is $73,506,340 secured and $60,730 unsecured. (c) Lok Group of Companies includes property owned by Lok Petaluma Marine Hotel Co. LLC and Lok Redwood Empire Properties Inc. Source: Sonoma County Auddor-Controller, the Commission and Sedel Consulting Inc. With respect to the twenty largest property taxpayers in the Project Area, there are 40 appeals pending with a total potential reduction of approximately $63,611,540 of secured value (46% of the value of the property subject to the appeal and 5.8% of the total value of the secured roll) and $16,009,237 million of unsecured value (60.1% of the value of the property subject to appeal and 3.3% of the total value of the unsecured roll). From Fiscal Year 2002-03 through Fiscal Year 2004-05, resolved assessment appeals have reduced the Value of the property subject to the appeal by 2.76% (0.8% of the total value of the secured and unsecured rolls), for a total reduction of $12,473,928 over these three fiscal years. 40 Tax Sharing Agreements Seven of the school districts receiving taxes from the Project Area have passed resolutions pursuant to Health and Safety Code Section 33676 which provides for allocation to the school district of (i) any increases in the rate of tax imposed for the benefit of the school district which levy occurs after the tax year in which the ordinance adopting the Redevelopment Plan becomes effective; and (ii) any increases in the assessed value of the taxable property in the Project Area as the assessed value is established by the assessment roll last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan pursuant to Health and Safety Code Section 33670(a), which are, or would otherwise be, calculated annually pursuant to Revenue and Tax Code Section 110.1(f). The Petaluma Community Development Commission has a tax sharing agreement with Sonoma County and the Sonoma County Library comprised of two components. Pursuant to that agreement, (1) the County receives a payment which is treated as a Section 33676 inflationary allocation, and (2) commencing Fiscal Year 1993-94 through the termination of the Redevelopment Plan, 96% of that portion of the taxes which would have been allocated to the County and the Library for their own use if the Redevelopment Plan had not been adopted shall be paid to the County and the Library when collected. Other Project Area Indebtedness In 1988, the Commission entered into a Disposition and Development Agreement with an auto dealer (the "Benson DDA") in implementation of the Commission's development of an auto mall (the "Auto Mall"). The Benson DDA provided, among other things, that the Commission would pay the write-down value of the Auto Mall sites being developed by the auto dealer ("Benson') by executing a promissory note (the "Benson Promissory Note") pursuant to which the Commission would pay amounts advanced annually by the City to the Commission pursuant to a Loan Agreement between the Commission and the City (the "City Loan Agreement"). The Commission's principal payments under the Benson Promissory Note are scheduled to aggregate $2,526,305, the annual interest rate is 8% per annum and the payment period is defined as a period of 14 years following execution of the Benson DDA. The amounts to be advanced by the City under the City Loan Agreement and, then, to be used by the Commission to make payments on the Benson Promissory Note are to be measured by City sales tax revenues generated by the Benson Auto Mall sites. The Commission is using tax increment revenues from the Project Area to make payments to Benson and all payments that are due under the Benson DDA were current as of the end of June. The Commission has not entered into any arrangement with Benson or any other entity that constitutes a pledge of or creates a lien on or security interest in the tax increment revenues from the Project Area. All principal on the Benson Promissory Note had been repaid as of July 1, 2003. The amount of interest currently remaining payable is approximately $805,681. However, Benson has indicated to the Commission that he no longer wants to receive the interest, and has declined to accept a check for a portion of it. Because no formal documentation has been executed terminating the Commission's obligation to pay this interest, the unpaid interest is still be carried on the Commission's financial statements as an obligation of the Commission. In 1991, the Benson DDA was amended (the "Benson DDA Amendment") to create an additional Commission indebtedness with respect to the Auto Mall development. The 41 Commission, Benson and the City undertook to finance off-site improvements required for the development of the Benson Auto Mall sites by the issuance by the City of $1,400,000 of Special Assessment District 19 Bonds (the "Special Assessment Bonds"). The Special Assessment Bonds bear annual interest rates ranging from 5.6% to 7.75% and have a final maturity of September 2, 2011. Pursuant to the Benson DDA Amendment, the Commission has agreed to pay and is now paying all of the debt service on the Special Assessment Bonds. The Commission is using tax increment revenues from the Project Area to pay the debt service on the Special Assessment Bonds. However, the Commission has not entered into any arrangement with Benson or any other entity that constitutes a pledge of or creates a lien on or security interest in the tax increment revenues from the Project Area. In 2001, the Commission entered into an Owner Participation Agreement (the 'OPA") with LOK Petaluma Marina Hotel Company LLC ("LOK") in connection with the development of a four-story, 183 -room Sheraton hotel by LOK at the junction of the Petaluma River and U.S. Highway 101. Under the OPA, the Commission has agreed to provide financial assistance to LOK in the form of an "eligible construction cost loan" and a "tax increment loan" for the development of the hotel and related improvements, subject to certain conditions set forth in the OPA. The Commission has agreed to make the eligible construction cost loan in the amount of $750,000 and the tax increment loan in an amount up to $2,000,000. The Commission has agreed to disburse the tax increment loan over a five-year period after the hotel has opened for business in an amount equal to 66.6% of the transient occupancy tax revenues received by the City and attributable to the hotel project. After the fifth operating year, the Commission will reassess the need for continued tax increment loan assistance. If the Commission determines that such continued assistance is necessary and subject to other conditions, it will disburse tax increment loans in the sixth and seventh operating years equal to 33.3% of the transient occupancy tax revenues received by the City and attributable to the hotel project. To date, the Commission has disbursed $200,000 in tax increment loans under the OPA. Each tax increment loan installment is payable from Tax Revenues, and the Commission's obligation to make each tax increment loan disbursement is subordinate to the Commission's obligation to repay all indebtedness of the Commission outstanding as of the date of the OPA and indebtedness payable from Tax Revenues and sold pursuant to a public or private sale ("TA Debt"). The Commission's obligation to make tax increment loans under the OPA will cease upon the first to occur of the following: (1) tax increment loan proceeds disbursed equals $2,000,000, (2) Project Room Revenues (as defined in the OPA) exceed $7,400,000 for two consecutive operating years, and (3) Gross Project Revenues (as defined in the OPA) exceed $12,000,000 for two consecutive operating years. Other than the Special Assessment Bonds and the tax increment loan under the OPA described above, the Commission currently has no outstanding loans, advances or indebtedness issued or incurred with respect to the Redevelopment Project and payable from taxes allocated to the Project Area. The Commission's 2000 Series B Petaluma Central Business District Tax Allocation Bonds are payable from taxes allocated to the Central Business District Project Area. Estimated Debt Service Coverage As set forth above in Table 7 above, the amount of Tax Revenues projected to be available in Fiscal Year 2005-06 (assuming a 1 % tax rate) is $5,815,589. These projections and 42 the Tax Revenues projections included in Table 10 below were calculated in accordance with the practices of the Fiscal Consultant as described in the section "FISCAL CONSULTANT" below. The projections are based on the statutory maximum of 2% growth per year in the secured roll, no growth in the unsecured roll, and a 1% tax rate. The following are all the relevant data and assumptions used to project growth in assessed value and tax increment: -Assessed Value figures are based on unaudited figures provided by Sonoma County in August 2005, which are expected to be finalized in October, 2005. 2005/06 Secured Assessed Value: $1,096,092,290 2005/06 State Board Assessed Value: $0 2005/06 Unsecured Assessed Value: $482,298,965 2005/06 Total Assessed Value: $1,578,391,255 2005/06 Unitary Payments (Estimated): $13,259 -Growth Assumptions. Annual Inflation Adjustment on Secured Assessed Value: 2.0% Annual Growth from Reassessments on Secured Assessed Value: 0.0% New Development Assessments: 0.0% Total Annual Growth in Secured Assessed Value: 2.0% Annual Growth in Unsecured Assessed Value: 0.0% Annual Growth in Unitary Payments: 0.0% -Tax Increment Generation. Basic Property Tax Rate: 1.0% Effective Bond Override Rate for FY 2005/06: 0.0% County Property Tax Administration Fee: 1.7% Tax Increment for Housing Programs as Percent of Tax Increment less 2% Inflation Allocation: 20.0% -Sponsoring Community. City's Share of Unadjusted Levy Within Project Area: 13.24% -Historical Information. Base Year Assessed Value: $331,539,332 The projections also do not include the statutory tax sharing that would occur, starting in Fiscal Year 2009-10, if certain amendments to the Redevelopment Plan are adopted. See "Plan Limits" above. 43 TABLE 10 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Projected Tax Revenues(') (a) Additional subordinated debt (Assessment District X19 and Benson promissory note) has not been deducted for purposes of bond sizing. (b) Includes 2% Inflation allocation. (c) Does not Include any existing debt services and the Commission's Fiscal Year 2005-06 ERAF obligation to the Slate. Also does not include statutory pass through payments that would be mggered in Fiscal Year 2009-10 by the plan amendments and fiscal merger that Is comely proposed. Source: The Commission and Selfei Consulting Inc. 44 Less Gross 2% County County Administratlo Fiscal Tax Inflation n Pass -Through Housing Tax Year Incrementl°l Allocation Fee Pavmi Set -Aside Revenues 2005/06 512,481,778 $619,248 5212,190 3,462,245 2,372,506 5,815,588 2006/07 12,700,997 662,542 215,917 3,511,596 2,407,691 5,903,248 2007/08 12,924,599 706,702 219,718 3,561,938 2,443,579 5,992,661 2008/09 13,152,674 751,745 223,595 3,613,285 2,460,186 6,083,863 2009110 13,385,311 797,690 227,550 3,665,659 2,517,524 6,176,887 2010111 13,622,600 844,553 231,584 3,719,080 2,555,609 6,271,773 2011/12 13,864,635 692,353 235,699 3,773,569 2,594,456 6,368,557 2012/13 14,111,510 941,110 239,896 3,829,148 2,634,080 6,467,276 2013/14 14,363,323 990,842 244,176 3,885,839 2,674,496 6,567,969 2014/15 14,620,173 1,041,569 248,543 3.943,664 2,715,721 6,670,676 2015/16 14,882,159 1,093,308 252,997 4,002,645 2,757,770 6,775.439 2016/17 15,149,385 1,146,083 257,540 4,062,806 2,600,660 6,882,296 2017/18 15,421,956 1,199,913 262,173 4,124,170 2,644,409 6,991,291 2018/19 15,699,976 1,254,821 266,900 4,186,761 2,889,031 7,102,464 2019/20 15,983,560 1,310,827 271,721 4,250,604 2,934,547 7,215,862 2020/21 16,272,814 1,367,952 276,638 4,315,724 2,960,972 7,331,528 2021122 16,567,853 1,426,219 281,654 4,382,147 3,028,327 7,449,508 2022123 16,868,793 1,485,653 288,769 4,449,897 3,076.628 7,569,846 2023/24 17,175,752 1,546,275 291,988 4,519,003 3,125,895 7,692,591 2024/25 17,488,850 1,608,110 297,310 4,589,491 3,176,148 7,817,790 2025/26 17,808,210 1,671,182 302,740 4,661,389 3,227,406 7,945,494 2026/27 18,133,957 1,735,515 308,277 4,734,724 3,279,688 8,075,752 2027/28 18,466,219 1,801,134 313,926 4,809,527 3,333,017 8,208,615 2028/29 18,805,126 1,868,065 319,687 4,885,826 3,387,412 8,344,136 2029/30 19,150,812 1,936,335 325,564 4,963,651 3,442,895 8,482,367 2030/31 19,503,411 2,005,971 331,558 5,043,031 3,499,488 8,623,363 2031/32 19,863,062 2,077,000 337,672 5,124,000 3,557,212 8,767,177 2032133 20,229,906 2,149,448 343,908 5,206,588 3,616,092 8,913,870 2033134 20,604,OB7 2,223,345 350,269 5,290,829 3,676,14B 9,063,496 2034135 20,985,752 2,298,721 356,758 5,376,754 3,737,406 9,216,113 2035/36 21,375,050 2,375,604 363,376 5,464,397 3,799,889 9,371,784 2036/37 21,772,134 2,454,024 370,126 5,553,793 3,863,622 9,530,568 2037/38 22,177,159 2,534,014 377,012 5,644,977 3,928,629 9,692,528 2038/39 22,590,285 2,615,603 384,035 5,737,985 3,994,936 9,857,726 (a) Additional subordinated debt (Assessment District X19 and Benson promissory note) has not been deducted for purposes of bond sizing. (b) Includes 2% Inflation allocation. (c) Does not Include any existing debt services and the Commission's Fiscal Year 2005-06 ERAF obligation to the Slate. Also does not include statutory pass through payments that would be mggered in Fiscal Year 2009-10 by the plan amendments and fiscal merger that Is comely proposed. Source: The Commission and Selfei Consulting Inc. 44 Table 11 below sets forth Estimated Debt Service Coverage for the Series 2005A Bonds and the other outstanding Bonds assuming the projected growth in Tax Revenues set forth in Table 10. Based on these assumptions, the projected minimum coverage ratio of Tax Revenues to the Maximum Annual Debt Service on the Bonds, including the Series 2005A Bonds, is to 1, as shown below. Assuming no growth in Tax Revenues above the Fiscal Year 2005-06 estimate of $5,815,000, the projected minimum coverage ratio of Tax Revenues to the Maximum Annual Debt Service on the Bonds, would be to 1. TABLE 11 PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT Tax Allocation Bonds Estimated Debt Service Coverage Year Ending Estimated Tax June 30 Revenues 2005/06 $5,815,588 2006/07 5,903,248 2007/08 5,992,661 2008/09 6,083,863 2009/10 6,176,887 2010/11 6,271,773 2011/12 6,368,557 2012/13 6,467,276 2013114 6,567,969 2014/15 6,670,676 2015/16 6,775,439 2016/17 6,882,296 2017/18 6,991,291 2018/19 7,102,464 2019/20 7,215,862 2020/21 7,331,528 2021/22 7,449,508 2022/23 7,569,846 2023/24 7,692,591 2024/25 7,817,790 2025/26 7,945,494 2026/27 8,075,752 2027/28 8,208,615 2028/29 8,344,136 2029/30 8,482,367 2030/31 8,623,363 2031/32 8,767,177 2032133 8,913,870 Debt Service 2000A"', 2001A Debt and Service Debt Service 2003A Bonds 2005A Bonds Total Coverage (a) Includes debt service on only the Series 2000A Bends not being refunded through the Issuance of the Sense 2005A Bonds. LITIGATION There is no litigation pending or, to the Commission's knowledge, threatened in any way to restrain or enjoin the issuance, execution or delivery of the Series 2005A Bonds, to contest the validity of the Series 2005A Bonds, the Indenture, or any proceedings of the Commission with respect thereto. In the opinion of the Commission and its counsel, there are no lawsuits or 45 claims pending against the Commission which will materially affect the Commission's finances so as to impair the ability to pay principal of and interest on the Series 2005A Bonds when due. RATINGS Moody's Investors Services Inc. has assigned its municipal bond rating of "Aaa" to the Series 2005A Bonds with the understanding that upon delivery of such Series 2005A Bonds a policy insuring the payment when due of the principal of and interest on the Series 2005A Bonds will be issued by the Insurer. An explanation of the significance of such rating may be obtained only from the rating agency furnishing the same. The Commission furnished to such rating agency certain information and materials. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by it. There is no assurance that the rating mentioned above will continue for any given period of time or that the rating may not be lowered or withdrawn entirely by such rating agency, if in its judgment circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2005A Bonds. In addition, Moody's has assigned underlying ratings (without regard to the Municipal Bond Insurance Policy) of "_", to the Series 2005A Bonds. CONTINUING DISCLOSURE The Commission has covenanted for the benefit of holders and beneficial owners of the Series 2005A Bonds to provide certain financial information and operating data relating to the Commission but not later than nine months following the end of the Commission's fiscal year (which, based on a fiscal year ending June 30, currently would be March 31), commencing with the report for the 2004-05 Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Commission with each Nationally Recognized Municipal Securities Information Repository and with the appropriate State information depository, if any. The notices of material events will be filed by the Commission with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any.) The specific nature of the information to be contained in the Annual Report or the notices of material events is described in APPENDIX F — "FORM OF CONTINUING DISCLOSURE CERTIFICATE" The covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5) (the "Rule"). The Commission has never failed to comply in all material respects with any previous undertaking with regard to the Rule to provide annual reports or notices of material events. LEGAL MATTERS The validity of the Series 2005A Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in APPENDIX E hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the Commission by the City Attorney, as counsel for the Commission, and for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California. 46 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP ("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 2005A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1966 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2005A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is 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 2005A Bonds is less than the amount to be paid at maturity of such Series 2005A Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2005A 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 2005A 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 2005A Bonds is the first price at which a substantial amount of such maturity of the Series 2005A 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 2005A Bonds accrues daily over the term to maturity of such Series 2005A 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 2005A Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2005A Bonds. Beneficial Owners of the Series 2005A Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2005A Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2005A Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2005A Bonds is sold to the public. Series 2005A 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 Bands should consult their own lax 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 2005A Bonds. The Commission has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on 47 the Series 2005A 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 2005A Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2005A 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 2005A Bonds may adversely affect the value of, or the tax status of interest on, the Series 2005A Bonds. Certain 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, defeasance of the Series 2005A 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 2005A 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 2005A Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Series 2005A 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 2005A 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 Cade may also affect the market price for, or marketability of, the Series 2005A Bands. Prospective purchasers of the Series 2005A 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 2005A 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 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 Commission has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Series 2005A Bonds ends with the issuance of the Series 2005A Bands, and, unless separately engaged, Bond Counsel is not obligated to defend the Commission or the Beneficial Owners regarding the tax-exempt status of the Series 2005A Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than 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 - 48 exempt bonds is difficult, obtaining an independent review of IRS positions with which the Commission legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2005A 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 2005A Bonds, and may cause the Commission or the Beneficial Owners to incur significant expense. UNDERWRITING The Series 2005A Bonds are being purchased by Banc of America Securities LLC (the "Underwriter") at a purchase price of $ (which represents the aggregate principal amount of the Series 2005A Bonds, [plus/less original issue premium/discount] less an underwriter's discount of $ ). The purchase agreement relating to the Series 2005A Bonds provides that the Underwriter will purchase all of the Series 2005A Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement. The Underwriter may offer and sell Series 2005A Bonds to certain dealers and others at prices lower than the offering price stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriter. FINANCIAL ADVISOR The Commission has entered into an agreement with Kelling, Northcross & Nobriga, a Division of Zions First National Bank (the "Financial Advisor') whereunder the Financial Advisor provides financial advisory services to the Commission with respect to preparation and sale of the Series 2005A Bonds. The Financial Advisor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the Commission, with respect to accuracy and completeness of disclosure of such information, and the Financial Advisor makes no guaranty, warranty or other representation respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement. FISCAL CONSULTANT The Commission has engaged Seifel Consulting Inc. (the "Fiscal Consultant") to provide information and projections related to assessed values and tax increment revenues in the Project Area. Information from the Fiscal Consultant appearing in the Official Statement is based on the best information made available to Seifel Consulting Inc. by the City of Petaluma, the Commission and the County of Sonoma; the Fiscal Consultant cannot warrant the accuracy of any data provided in the Official Statement. The projections in the Official Statement are based upon the Fiscal Consultant's understanding of the general assessment and apportionment practices of Sonoma County. These practices are subject to policy changes, legislative changes and the individual appraiser's judgment. While the Fiscal Consultant believes its estimates are reasonable, taxable values resulting from actual appraisals and adjustments are likely to vary from the amounts assumed in the projections. The tax increment projections are intended only as estimates based on the best available information at the present time. Actual tax increments may be higher or lower than indicated in the model. The tax increment projections in this Official Statement are not intended to predict future growth but rather to provide a reasonable estimate, on an average annualized basis, of potential tax increment growth resulting from the increase in assessed value. 49 VERIFICATION Of MATHEMATICAL COMPUTATIONS Causey, Demgen & Moore Inc., Denver, Colorado, will verify, from the information Provided to them, the mathematical accuracy as of the date of the delivery of the Series 2005A Bonds of (i) the computations contained in the provided schedules to determine that the anticipated receipts from the escrow securities and cash deposits listed in the schedules to be held in the 2000A Escrow will be sufficient to pay, when due, the interest on the Refunded Series 2000A Bonds through their respective dates of redemption, and to redeem (as described under the caption "PLAN OF FINANCE — Refunding of Refunded Series 2000A Bonds') the Refunded 2000A Bonds on May 1, 2008, at a redemption price equal to 101% of the principal amount of the Refunded Series 2000A Bonds, and (ii) the computations of yield on the escrow securities on deposit in the 2000A Escrow and the Series 2005A Bonds contained in the schedules used by Bond Counsel in its determination that the interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes. Causey, Demgen & Moore Inc., Denver, Colorado, will express no opinion on the assumptions provided to them, nor as to the exclusion of interest on the Series 2005A Bonds from the gross income of the owners thereof for federal income tax purposes. ADDITIONAL INFORMATION This Official Statement is submitted only in connection with the sale of the Series 2005A Bonds and may not be reproduced or used in whole or in part for any other purpose. All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the Commission. The information contained herein should not be construed as representing all conditions affecting the Commission or the Series 2005A Bonds. 50 The execution and delivery of this Official Statement has been duly authorized by the Commission. PETALUMA COMMUNITY DEVELOPMENT COMMISSION Executive Director 51 APPENDIX A AUDITED GENERAL PURPOSE FINANCIAL STATEMENTS OF THE PETALUMA COMMUNITY DEVELOPMENT COMMISSION FOR FISCAL YEAR ENDED JUNE 30, 2004 A-1 APPENDIX B CITY OF PETALUMA GENERAL INFORMATION The following information concerning the City and surrounding areas is included only for the purpose of supplying general information regarding the City. The Bonds are not a debt of the City, the State or any of its political subdivisions and neither the City, the State, nor any of its political subdivisions is liable therefor. See "SECURITY FOR THE SERIES 2005A BONDS" herein. Location and Organization The City is located in Sonoma County, approximately 40 miles north of the City of San Francisco. Situated along Highway 101, Petaluma part of the San Francisco Bay metropolitan area and the entrance to California's renowned wine grape growing region. Incorporated in 1858, its first charter was granted by the State in 1947, and it continues to operate as a charter city. Municipal operations are conducted under the Council -Manager form of government. The seven Council Members are elected at large for four-year, staggered terms. The Mayor presides over all Council meetings. The City manager is responsible for the operation of all municipal functions. Population The historic population estimates of the City, the County and the State as of January 1 of the past five years are shown in the following table. Source: California State Department of Finance, Demographic Research Unit B-1 CITY OF PETALUMA Population (as of January 1) Year Petaluma City Sonoma County State of California 2001 55,300 464,300 34,367,000 2002 55,700 468,600 35,000,000 2003 55,600 469,500 35,612,000 2004 55,900 472,700 36,144,000 2005 56,632 478,440 36,810,358 Source: California State Department of Finance, Demographic Research Unit B-1 Employment The City's major employers are set forth below. CITY OF PETALUMA Largest Private Employers (As of December 2004) Company Product/Service Employees Cisco System Inc. Telecommunications Equipment and Services 1,000 Advanced Fibre Communication Fibre Optics 680 Alcatel USA Inc. Fibre Optic Access Equipment 500 Petaluma Valley Hospital Medical & Surgical Hospital 350 Calix Network Inc. Telecommunication Services 280 Clover-Stornetta Fans Milk Processing 220 Legacy Marketing Group Life Insurance and Annuity Marketing 215 Labcon North America Manufacturer of Pipe Head Tips, Centrifuge Tubes and Holders 200 Source: 2004 Harris InloSource B-2 The table below shows average annual employment by industry group in the County from 2000 through 2004. COUNTY OF SONOMA Civilian Labor Force, Employment and Unemployment, Unemployment by Industry (Annual Averages) Civilian Labor Force (1) Employment Unemployment Unemployment Rate Wane and Salary Emolovment 1�1 Agriculture Natural Resources and Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Information Finance and Insurance Real Estate and Rental and Leasing Professional and Business Services Educational and Health Services Leisure and Hospitality Other Services Federal Government State Government Local Government Total, All Industries 2040 2001 2002 2003 2004 254,000 258,400 258,300 255,400 256,800 245,500 249,000 245,200 241,500 244,100 8,500 9,400 13,100 13,900 12,700 3.3% 3.6% 5.1% 5.4% 4.9% 6,900 7,000 6,500 5,900 5,900 400 300 300 300 300 13,100 13,700 13,300 13,000 13,600 30,200 30,400 27,300 25,300 24,300 5,800 6,000 6,000 6,300 6,500 23,700 24,100 24,000 23,800 23,600 4,100 4,000 4,100 3,800 3,900 4,100 4,500 4,200 4,000 4,200 7,200 7,300 7,300 7,300 7,000 3,000 3,100 3,000 3,100 3,000 20,600 20,000 19,000 19,000 19,700 22,000 22,900 23,300 22,700 22,600 17,900 18,700 19,700 19,900 20,200 6,400 6,800 6,700 6,400 6,400 2,100 1,900 1,800 1,800 1,700 5,500 5,600 5,700 5,700 5,600 20,000 20,500 20,800 21,000 22,300 193,000 196,700 192,700 189,100 190,800 (1) Labor force data Is by place of residence; Includes self-employed Indlvlduals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed Individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department. Effective Buying Income "Effective buying income" ("EBI") is a classification developed exclusively by Sales & Marketing Management magazine to distinguish it from other sources reporting income statistics. EBI is defined as "money income" less personal tax and non -tax payments - a number often referred to as "disposable" or "after tax" income. Money income is the aggregate of wages and salaries, net farm and non-farm self employment income, interest, dividends, not rental and royalty income, Social Security and railroad retirement income, other retirement and disability 'income, public assistance income, unemployment compensation, Veterans Administration Payments, alimony and child support, military family allotments, net winnings from gambling and other periodic income. Money income does not include money received from the sale of property (unless the recipient is engaged in the business of selling property); the value of "in-kind" income such as food stamps, public housing subsidies, medical care, employer contributions for persons, etc.; withdrawal of bank deposits; money borrowed; tax B-3 refunds; exchange of money between relatives living in the same household; gifts and lump - sum inheritances, insurance payments, and other types of lump -sum receipts. EBI is computed by deducting from money income all personal income taxes (federal, state and local), personal contributions to social insurance (Social Security and federal retirement payroll deductions), and taxes on owner -occupied non -business real estate. The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 1999 through 2003. Figures are not available for 2004. CITY OF PETALUMA Effective Buying Income Total Effective Median Household Buying Income Effective Year and Area (000's Omitted) Buying Income 1999 Petaluma $ 1,027,571 $47,539 Sonoma County 8,713,893 42,479 California 590,376,663 39,492 United States 4,877,786,658 37,233 2000 Petaluma $ 1,164,892 $54,468 Sonoma County 9,990,942 47,956 California 652,190,282 44,464 United Stales 5,230,824,904 39,129 2001 Petaluma $ 1,277,428 $55,576 Sonoma County 10,096,031 47,908 California 650,521,407 38,365 United States 5,303,481,498 43,532 2002 Petaluma $ 1,280,413 $53,840 Sonoma County 10,167,530 47,085 California 647,879,427 42,484 United States 5,340,662,818 38,035 2003 Petaluma $ 1,274,888 $54,369 Sonoma County 10,340,723 48,008 California 674,721,020 42,924 United States 5,466,880,008 38,201 Source: Sales and Marketing Management, Survey of Buying Power B-4 Commercial Activity A summary of historic taxable sales within the City is shown below. Figures are not available for 2004. Source: State Board of Equalization Construction Activity Building activity for the years 2000 through 2004 in the City is shown in the following table. CITY OF PETALUMA Total Building Permit Valuations ($'s in thousands) CITY OF PETALUMA 2001 2002 Taxable Transactions 2004 Permit Valuation ($'s In thousands) Calendar Years 1999 through 2003 Outlets Taxable Year JUIV 1 Sales 1999 2,037 833,488 2000 2,027 979,770 2001 2,110 939,723 2002 2,141 922,657 2003 2,164 927,744 Source: State Board of Equalization Construction Activity Building activity for the years 2000 through 2004 in the City is shown in the following table. CITY OF PETALUMA Total Building Permit Valuations ($'s in thousands) Source: Construction Industry Research Board, Building Permit Summary B-5 2000 2001 2002 2003 2004 Permit Valuation New Single-family 38,084.0 $15,725.7 $4,409.6 $41,738.3 $18,588.6 New Multi -family 4,361.8 2,959.2 6,553.4 12,613.4 0.0 Res. Alterations/Additions 3.889.9 4.692.7 4.114.2 5,608.4 6.223.5 Total Residential 46,335.7 23,377.6 15,077.2 59,960.0 24,812.2 New Commercial 24,385.1 11,384.7 14,459.6 15,794.9 22,884.8 New Industrial 0.0 7,075.9 0.0 0.0 0.0 New Other 2,727.3 2,751.5 1,297.9 7,000.3 2,288.5 Com. Alterations/Additions 22.790.2 12.762.4 9.712.9 10.829.1 19 836.8 Total Nonresidential 49,902.6 33,974.4 25,470.4 33,624.2 45,010.2 New Dwellino Units Single Family 221 63 16 158 71 Multiple Family 75 34 239 147 0 TOTAL 296 97 255 305 71 Source: Construction Industry Research Board, Building Permit Summary B-5 Transportation A local bus transit system serves the city of Petaluma, as well as Golden Gate Transit, which provides access to the entire Bay Area. There is a municipal airport, and airport express service to the major airports serving Sonoma County, Oakland and San Francisco International airports. There are future plans to expand rail services to the region. B-6 APPENDIX C BOOK ENTRY ONLY SYSTEM Book -Entry Only System The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Series 2005A Bonds, The Series 2005A Bonds will be issued as fully registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). One fully registered Series 2005A Bond will be issued for each maturity of the Series 2005A Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. The following description of the Depository Trust Company ("DTC"), the procedures and record keeping with respect to beneficial ownership interests in the Series 2005A Bonds, payment of principal, interest and other payments on the Series 2005A Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Series 2005A Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Series 2005A Bonds (the "Issuer") nor the trustee or fiscal agent appointed with respect to the Series 2005A Bonds (the "Trustee") take any responsibility for the information contained in this Appendix. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Series 2005A Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Series 2005A Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2005A Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on File with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC and its Participants. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series 2005A Bonds. The Series 2005A Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered security certificate will be issued for each maturity of the Series 2005A Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non -U.S. equity issues, C-1 corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, "NSCC", "GSCC", "MBSCC", and "EMCC", also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Book -Entry Only System. Purchases of the Series 2005A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005A Bonds on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2005A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2005A Bonds, except in the event that use of the book -entry system for the Series 2005A Bonds is discontinued. To facilitate subsequent transfers, all Series 2005A Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series 2005A Bands with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2005A Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2005A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2005A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial C-2 Owners of the Series 2005A Bonds may wish to ascertain that the nominee holding the Series 2005A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2005A Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2005A Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2005A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest evidenced by the Series 2005A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Issuer or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest evidenced by the Series 2005A Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Series 2005A Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Series 2005A Bond certificates will be printed and delivered. Discontinuance of DTC Services. In the event that (a) DTC determines not to continue to act as securities depository for the Series 2005A Bonds, or (b) the Issuer determines that DTC will no longer so act and delivers a written certificate to the Trustee to that effect, then the Issuer will discontinue the Book -Entry Only System with DTC for the Series 2005A Bonds. If the Issuer determines to replace DTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Series 2005A Bond for each maturity of the Series 2005A Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the indenture or fiscal agent agreement executed in connection with the Series 2005A Bonds. If the Issuer fails to identify another qualified securities depository to replace the C-3 incumbent securities depository for the Series 2005A Bonds, then the Series 2005A Bonds will no longer be restricted to being registered in the Series 2005A Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Series 2005A Bands designates. If the Book -Entry Only System is discontinued, the following provisions would also apply: (i) the Series 2005A Bonds will be made available in physical form, (ii) principal of, and redemption premiums, if any, on, the Series 2005A Bonds will be payable upon surrender thereof at the corporate trust office of the Trustee, (iii) interest on the Series 2005A Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of 1,000,000 or more in aggregate principal amount of Series 2005A Bonds received by the Trustee on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Series 2005A Bonds will be transferable and exchangeable as provided in the indenture or fiscal agent agreement executed in connection with the Series 2005A Bonds. C-4 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE D-1 APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE CONTINUING DISCLOSURE CERTIFICATE PETALUMA COMMUNITY DEVELOPMENT COMMISSION PETALUMA COMMUNITY DEVELOPMENT PROJECT REFUNDING TAX ALLOCATION BONDS, SERIES 2005A This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the Petaluma Community Development Commission (the "Commission") in connection with the issuance of the Commission's $ Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A (the "Bonds"). The Bonds are being issued pursuant to an Indenture, dated as of January 1, 1992, as heretofore supplemented and amended and as supplemented by a Fourth Supplemental Indenture, dated as of September 1, 2005, between the Commission and J.P. Morgan Trust Company, National Association (the "Trustee") (as supplemented, the "Indenture"). The Commission covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Commission for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2 -12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certifcate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Commission pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "CPO" means the Internet -based filing system currently located at www.DisclosureUSA.ora, or such other similar fling system approved by the Securities and Exchange Commission. "Dissemination Agent" shall mean the Commission, or any successor Dissemination Agent designated in writing by the Commission and which has fled with the Commission a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Internet at www.sec.gov/consumer/nrmsit.htm. "Official Statement" shall mean the final Official Statement, dated October 8, 2003, relating to the Bonds. F-1 "Participating Underwriter' shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The Commission shall, or shall cause the Dissemination Agent to, not later than nine (9) months after the end of the Commission's fiscal year (which currently would be March 31 each year based on the Commission's fiscal year ending June 30), commencing with the report for the 2004-05 Fiscal Year, provide to each Repository (or, in lieu of providing to each Repository, provide to the CPO) an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate, with a copy provided to the Trustee. Not later than fifteen (15) Business Days prior to said date, the Commission shall provide the Annual Report to the Dissemination Agent (if other than the Commission). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Commission 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 Section 5(c). The Commission shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by the Commission hereunder. (b) If the Commission is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Commission shall, by written direction, cause the Dissemination Agent to provide to (i) each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository (with a copy to the Trustee) a notice, in substantially the form attached as Exhibit A. In lieu of filing the notice with each Repository, the Commission or the Dissemination Agent may file such notice with the CPO. (c) With respect to the Annual Report, the Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (it) if the Dissemination Agent is other than the Commission, file a report with the Commission certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. F-2 Section 4. Content of Annual Reports. The Commission's Annual Report shall contain or incorporate by reference the following: (a) Audited Financial Statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Commission's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be fled in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing (all of the following capitalized terms have the meaning of such terms in the Official Statement): (i) the total amount of assessed valuations of properties within the Project Area for the most recent completed fiscal year, showing the total secured value and the total unsecured value; (ii) the total Tax Revenues allocated to the Commission from the Project Area for the most recent completed fiscal year, including gross tax increment revenues and appropriate deductions for payments under the Tax -Sharing Agreements, deposits into the Commission's Low and Moderate Income Housing Fund, and any other deductions required to be made to compute Tax Revenues; (iii) the ten (10) largest secured taxpayers within the Project Area, indicating taxpayer, assessed valuation, percent of Project Area secured assessed valuation, percentage represented by aggregate assessed value of the top ten secured property taxpayers and to the extent necessary to make the foregoing specifically required information, in light of the circumstances in which they were made, not misleading, information on assessment appeals by such ten largest assesses; and (iv) the percent by which annual Tax Revenues have provided coverage for Maximum Annual Debt Service for the most current completed fiscal year. (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 each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Commission shall clearly identify each such other document so included by reference. F-3 Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, 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: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of creditor liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes. (b) Whenever the Commission obtains knowledge of the occurrence of a Listed Event, the Commission shall as soon as possible determine if such event would be material under applicable Federal securities law. (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 or by written direction cause the Dissemination Agent (if not the Commission) to, promptly file a notice of such occurrence with (i) each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository with a copy to the Trustee, together with written direction to the Trustee whether or not to notify the owners of the Bonds of the filing of such notice. In the absence of any such direction, the Trustee shall not send such notice to the owners of the Bonds. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of the affected Bonds pursuant to the Indenture. In lieu of filing the notice of Listed Event with each Repository in accordance with the preceding paragraph, the Commission or the Dissemination Agent may file such notice of a Listed Event with the CPO. F-4 Section 6. Termination of Reporting Obligation. The Commission's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Commission shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 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 Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Commission. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Commission may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (it) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Commission to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Commission from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or F-5 including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the 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 Certificate, the Commission shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. The Commission and the Trustee have covenanted and agreed in the Indenture to comply with and carry out all of the provisions of this Disclosure Certificate. Notwithstanding any other provision of the Indenture, failure of the Commission or the Trustee to comply with this Disclosure Certificate shall not be considered an Event of Default under the Indenture, provided that the Trustee at the written request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of outstanding Bonds, shall (but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including, without limitation, reasonable fees and expenses of its attorneys) or any holder or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Commission or the Trustee, as the case may be, to comply with its obligations under Section 30.01 of the Indenture. For purposes of this Section, "Beneficial Owner' means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Commission agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the Commission under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Commission, 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. PETALUMA COMMUNITY DEVELOPMENT COMMISSION By: F-6 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: PETALUMA COMMUNITY DEVELOPMENT COMMISSION Name of Issue: $ Petaluma Community Development Commission Petaluma Community Development Project Refunding Tax Allocation Bonds, Series 2005A Date of Issuance: September_, 2005 NOTICE IS HEREBY GIVEN to [(i) each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository] [the CPO and the Municipal Securities Rulemaking Board] that the Commission has not provided an Annual Report with respect to the above-named Bonds as required by Section 30.01 of the Fourth Supplemental Indenture, dated as of September 1, 2005, by and between the Commission and J.P. Morgan Trust Company, National Association, as trustee. The Commission anticipates that the Annual Report will be filed by Dated: cc: Trustee F-7 Petaluma Community Development Commission By Title: