The URL can be used to link to this page

Home My WebLink About2005-038 . 1 2 3 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A 4 PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS WITH RESPECT TO THE SALE OF THE CITY OF SAN BERNARDINO'S 5 VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND 6 DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH RESOLUTION NO. 2005-38 7 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE 8 CITY OF SAN BERNARDINO AS FOLLOWS: 9 10 WHEREAS, certain public agencies within the State of California (the 11 "State") are entitled to receive certain payments payable by the State to each such 12 local agency on or before August 15,2006, in connection with vehicle license fees 13 pursuant to Section 10754.11 of the California Revenue and Taxation Code ("VLF 14 15 16 Gap Repayments"); WHEREAS, the City of San Bernardino (the "Seller") is entitled to and has t 7 determined to sell all right, title and interest of the Seller in and to the "VLF 18 Receivable" as defined in Section 6585(i) of the California Government Code (the 19 20 21 22 "VLF Receivable"), namely, the right to payment of monies due or to become due to the Seller out of funds payable in connection with vehicle license fees to a local agency pursuant to Section 10754.11 of the California Revenue and Taxation Code; 23 WHEREAS, the California Statewide Communities Development Authority, a 24 California joint exercise of powers authority organizing and existing under the laws 25 of the State (the "Authority"), has been authorized pursuant to Section 6588 (w) of 26 the California Government Code to purchase the VLF Receivable; 27 28 , , , 2005-38 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE 1 FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS 2 WITH RESPECT TO THE SALE OF THE CITY OF SAN BERNARDINO'S VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND 3 DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN 4 CONNECTION THEREWITH 5 6 WHEREAS, the Authority desires to purchase the VLF Receivable and the Seller desires to sell the VLF Receivable pursuant to a purchase and sale agreement 7 8 by and between the Seller and the Authority in the form presented to the Mayor and 9 Common Council (the "Sale Agreement") for the purposes set forth herein; 10 11 12 13 14 15 16 17 WHEREAS, in order to finance the purchase price of the VLF Receivable from the Seller and the purchase price of other VLF Receivables from other local agencies, the Authority will issue its taxable and tax-exempt notes (the "Notes") pursuant to Section 6590 of the California Government Code and an Indenture (the "Indenture"), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the "Trustee"), which Notes will be payable solely from the proceeds of the VLF Receivable and such other VLF Receivables; 18 WHEREAS, the Seller acknowledges that the Authority will grant a security 19 interest in the VLF Receivable to the Trustee and any credit enhancer to secure 20 payment of the Notes; and 21 WHEREAS, a portion of the proceeds of the Notes will be used by the 22 23 Authority to, among other things, pay the purchase price of the VLF Receivable; 24 WHEREAS, the Seller will use the proceeds received from the sale of the 25 VLF Receivable for any lawful purpose as permitted under the applicable laws of the 26 State; 27 28 2 T 2005-38 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE 1 FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS 2 WITH RESPECT TO THE SALE OF THE CITY OF SAN BERNARDINO'S VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND 3 DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN 4 CONNECTION THEREWITH 5 6 NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS: Section 1. All of the recitals set forth above are true and correct, and the 7 8 Mayor and Council of the City of San Bernardino hereby so finds and determines. Section 2. The Seller hereby authorizes the sale of the VLF Receivable to the 9 10 Authority for a price no less than the Minimum Purchase Price set forth in Appendix 11 A. The form of Sale Agreement presented to the Mayor and Council is hereby 12 approved. An Authorized Officer as (set forth in Appendix A) is hereby authorized 13 and directed to execute and deliver the Sale Agreement on behalf of the Seller, which 14 15 shall be in substantially the form presented to this meeting with such changes therein, 16 deletions therefrom and additions thereto, as such Authorized Officer shall approve, 17 18 19 20 which approval shall be conclusively evidenced by the execution and delivery of the Sale Agreement. Section 3. Any Authorized Officer is hereby authorized and directed to send, or to cause to be sent, an irrevocable written instruction to the State Controller 21 notifying the State of the sale ofthe VLF Receivable and instructing the disbursement 22 23 pursuant to Section 6588.5 (c) of California Government Code of the VLF 24 Receivable to the Trustee, on behalf of the Authority. 25 26 appropriate, are hereby authorized and directed, jointly and severally, to do any and 27 Section 4. The Authorized Officers and such other Seller officers, as all things and to execute and deliver any and all documents, including but not limited 28 3 --------- s I 2005-38 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE 1 FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS 2 WITH RESPECT TO THE SALE OF THE CITY OF SAN BERNARDINO'S VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND 3 DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN 4 CONNECTION THEREWITH 5 to one or more tax certificates, if required, appropriate escrow instructions relating to 6 the delivery into escrow of executed documents prior to the closing of the Notes, and 7 8 such other documents mentioned in the Sale Agreement or the Indenture, which any 9 of them may deem necessary or desirable in order to implement the Sale Agreement 10 and otherwise to carry out, give effect to and comply with the terms and intent of this 11 Resolution; and all such actions heretofore taken by such officers are hereby ratified, 12 13 confirmed and approved. Section 5. All consents, approvals, notices, orders, requests and other actions 14 permitted or required by any of the documents authorized by this Resolution, whether 15 16 before or after the sale of the VLF Receivable or the issuance of the Notes, including 17 18 19 20 without limitation any of the foregoing that may be necessary or desirable in connection with any default under or amendment of such documents, may be given or taken by an Authorized Officer without further authorization by the Mayor and Common Council, and each Authorized Officer is hereby authorized and directed to 21 give any such consent, approval, notice, order or request, to execute any necessary or 22 23 appropriate documents or amendments, and to take any such action that such 24 Authorized Officer may deem necessary or desirable to further the purposes of this 25 Resolution. 26 Section 6. The Mayor and Common Council acknowledge that, upon 27 execution and delivery of the Sale Agreement, the Seller is contractually obligated to 28 4 ~.u 2005-38 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE 1 FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS 2 WITH RESPECT TO THE SALE OF THE CITY OF SAN BERNARDINO'S VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND 3 DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH 4 5 sell the VLF Receivable to the Authority pursuant to the Sale Agreement and the 6 Seller shall not have any option to revoke its approval of the Sale Agreement or to 7 8 determine not to perform its obligations thereunder. 9 Section 7. The authorization to execute the above referenced agreement is 10 rescinded if the parties to the agreement fail to execute it within sixty (60) days ofthe 11 adoption of this resolution. 12 13 14 15 1//11 11111 11111 5 1 2 3 4 5 6 7 .. 2005-38 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A PURCHASE AND SALE AGREEMENT AND RELATED DOCUMENTS WITH RESPECT TO THE SALE OF THE CITY OF SAN BERNARDINO'S VEHICLE LICENSE FEE RECEIVABLE FROM THE STATE; AND DIRECTING AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH I HEREBY CERTIFY that the foregoing resolution was duly adopted by the Mayor and Common Council of the City of San Bernardino at a 8 joint regular meeting thereof, held on the 7th day of February ,2005, by 9 the following vote to-wit: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Council Members: AYES ESTRADA ~ LONGVILLE --L- MCGINNIS x - DERRY ----X...- KELLEY --*-- JOHNSON ~ MCCAMMACK --L- NAYS ABSTAIN ABSENT r2.-A .1.1} ,h.~ ~~ approved t' /1rJl The foregoing resolution is hereby ,2005 day of February Judi Valles, Mayor City of San Bernardino Approved as to Form and legal content: JAMES F. PENMAN, City Attorney B~4'.. }Pf~ 6 CITY OF SAN BERNARDINO, CALIFORNIA, as Seller and CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, as Purchaser PURCHASE AND SALE AGREEMENT Dated March 2, 2005 Taxable OOCSSFI :795397.1 TABLE OF CONTENTS Page 1. DEFINITIONS AND INTERPRETATION ...................................................................... 1 2. AGREEMENT TO SELL AND PURCHASE; CONDITIONS PRECEDENT ................ 2 3. CONVEYANCE OF VLFRECEIVABLEAND PAYMENT OF FINAL PURCHASE PRICE ..........................................................................................................3 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................... 3 5. REPRESENTATIONS AND WARRANTIES OF THE SELLER................................... 3 6. COVENANTS OF THE SELLER..................................................................................... 5 7. NOTICES OF BREACH ...................................................................................................7 8. LIABILITY OF SELLER; INDEMNIFICATION............................................................ 7 9. LIMITATION ON LIABILITY ........................................................................................ 7 10. THE SELLER'S ACKNOWLEDGMENT........................................................................ 7 11. NOTICES............ ................................. ... ...... ... .............................. ...... .............................. 8 12. AMENDMENTS ............................................................................................................... 8 13. SUCCESSORS AND ASSIGNS ....................................................................................... 8 14. THIRD PARTY RIGHTS..................................................................................................8 15. PARTIAL INVALIDITY ..................................................................................................8 16. COUNTERPARTS ............................................................................................................8 17. ENTIRE AGREEMENT....................................................................................................9 18. GOVERNING LA W........................................................................................................ 10 EXHIBIT A - DEFINITIONS................................................................................................... A-I EXHIBIT B1 - OPINION OF SELLER'S COUNSEL........................................................... B1-1 EXHIBIT B2 - BRINGDOWN OPINION OF SELLER'S COUNSEL............................... B2-1 EXHIBIT C1 - CLERK'S CERTIFICATE............................................................................. C1-1 EXHIBIT C2 - SELLER CERTIFICATE............................................................................... C2-1 EXHIBIT C3 - BILL OF SALE AND BRINGDOWN CERTIFICATE................................ C3-1 EXHIBIT D - IRREVOCABLE INSTRUCTIONS TO CONTROLLER................................D-1 EXHIBIT E - RESERVED ....................................................................................................... E-1 EXHIBIT F - ESCROW INSTRUCTION LETTER.................................................................F-1 Taxable DOCSSFI :795397.1 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT, dated March 2, 2005 (this "Agreement"), is entered into by and between: (1) CITY OF SAN BERNARDINO, a municipal corporation of the State of California (the "Seller"); and (2) CALIFORNIA STATEWIDE COMMUNITillS DEVELOPMENT AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Purchaser"). RECITALS A. The Seller is the owner of the VLF Receivable (as defined below). B. The Seller is willing to sell, and the Purchaser is willing to purchase, the VLF Receivable upon the terms specified in this Agreement. C. The Purchaser will issue its taxable and tax-exempt notes (the "Notes") pursuant to an Indenture (the "Indenture"), between the Purchaser and Wells Fargo Bank, National Association, as tmstee (the "Trustee"), and will use a portion of the proceeds thereof to purchase the VLF Receivable from the Seller. D. The Purchaser will grant a security interest in such VLF Receivable to the Trustee and each Credit Enhancer to secure the Notes. AGREEMENT NOW, THEREFORE, in consideration of the above Recitals and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Definitions and Intemretation. (a) For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Exhibit A attached hereto and which is incorporated by reference herein. (b) The words "hereof," "herein," "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; section and exhibits references contained in this Agreement are references to sections and exhibits in or to this Agreement unless otherwise specified; and the term "including" shall mean "including without limitation." (c) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time may be amended, modified or supplemented and includes (in the Taxable DOCSSF!:795397.! I , . '":'. case of agreements or instruments) references to all attachments and exhibits thereto and instruments incorporated therein; and any references to a Person are also to its permitted successors and assigns. 2. Agreement to Sell and Purchase: Conditions Precedent. (a) The Seller agrees to sell, and the Purchaser agrees to purchase, on the Closing Date, for cash paid by the Purchaser in an amount equal to the amount determined pursuant to Section 3(a) (the "Final Purchase Price"), which shall be not less than $3,000,000.00 (the "Minimum Purchase Price"), all future right, title and interest of the Seller in and to the "VLF Receivable" as defined in Section 6585(i) of the California Government Code (the "VLF Receivable"), namely, the right to payment of moneys due or to become due to the Seller out of funds payable in connection with vehicle license fees to a local agency pursuant to Section 10754.11 of the California Revenue and Taxation Code. The Purchaser shall pay the Final Purchase Price by transferring such Final Purchase Price directly to the Seller. (b) The performance by the Purchaser of its obligations hereunder shall be conditioned upon: (i) Transaction Counsel receiving on or before the date the Notes are sold (the "Pricing Date"), to be held in escrow until the Closing Date and then delivered to the Purchaser on the Closing Date, the following documents duly executed by the Seller or its counsel, as applicable: (1) an opinion of counsel to the Seller dated the Pricing Date in substantially the form attached hereto as Exhibit B I, (2) certificates dated the Pricing Date in substantially the forms attached hereto as Exhibit CI and Exhibit C2, (3) irrevocable instructions to the Controller dated as of the Closing Date in substantially the form attached hereto as Exhibit D, (4) this Agreement, (5) a certified copy of the resolution of the Seller's Common Council approving this Agreement, the transactions contemplated hereby and the documents attached hereto as exhibits, and (6) an escrow instruction letter in substantially the form attached hereto as Exhibit F; (ii) Transaction Counsel receiving on or before the Closing Date, (1) a bringdown opinion of counsel to the Seller dated as of the Closing Date in substantially the form attached hereto as Exhibit B2, and (2) a bill of sale and bringdown certificate of the Seller (the "Bill of Sale") in substantially the form attached hereto as Exhibit C3: provided that the Purchaser may waive in its sole discretion the requirements of Section 2(b )(ii)(l); and (iii) the Purchaser issuing notes in an amount which will be sufficient to pay the Final Purchase Price. (c) The performance by the Seller of its obligations hereunder shall be conditioned solely upon the Purchaser's payment of the Final Purchase Price as set forth in this Agreement and no other act or omission on the part of the Purchaser or any other party shall excuse the Seller from performing its obligations hereunder. Taxable DOCSSFI :795397.1 2 'I' (d) The Final Purchase Price shall be an amount that satisfies the conditions of Section 2 ofthe Resolution referred to in Section 2(b )(i)( 5) above. 3. Convevance ofVLF Receivable and Payment of Final Purchase Price. (a) Upon pricing of the Notes by the Purchaser, the Purchaser will inform the Seller of the Final Purchase Price, which shall be an amount at least equal to the Minimum Purchase Price, and which shall be determined by the Purchaser based on the final interest rates, costs of credit enhancement and issuance and terms of the Notes. Upon pricing of the Notes, the Purchaser shall deliver a certificate to the Seller indicating the Final Purchase Price to be paid to the Seller on the Closing Date. (b) In consideration of the payment and delivery by the Purchaser to the Seller of the Final Purchase Price, the Seller agrees to (a) transfer, grant, bargain, sell, assign, convey, set over and deliver to the Purchaser, absolutely and not as collateral security, without recourse except as expressly provided herein, and the Purchaser agrees to purchase, accept and receive, the VLF Receivable, and (b) assign to the Purchaser, to the extent permitted by law (as to which no representation is made), all present or future rights, if any, of the Seller to enforce or cause the enforcement of payment of the VLF Receivable pursuant to the Act and other applicable law. 4. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Seller that, as of the date hereof, (a) it is duly organized, validly existing and in good standing under the laws of the State of California, (b) it has full power and authority to enter into this Agreement and to perform its obligations hereunder, (c) neither the execution and delivery by the Purchaser of this Agreement, nor the performance by the Purchaser of its obligations hereunder, shall conflict with or result in a breach or default under any of its organizational documents, any law, rule, regulation, judgment, order or decree to which it is subject or any agreement or instrument to which it is a party, and (d) this Agreement, and its execution, delivery and performance hereof have been duly authorized by it, and this Agreement has been duly executed and delivered by it and constitutes its valid and binding obligation enforceable against it in accordance with the terms hereof, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity. 5. Representations and Warranties of the Seller. The Seller hereby represents and warrants to the Purchaser, as of the date hereof, as follows: (a) The Seller is a municipal corporation validly existing under the city charter and constitution of the State of California, with full power and authority to execute and deliver this Agreement and to carry out its terms. (b) The Seller has full power, authority and legal right to sell and assign the VLF Receivable to the Purchaser and has duly authorized such sale and assignment to the Purchaser by all necessary action; and the execution, delivery and performance by the Seller of this Agreement has been duly authorized by the Seller by all necessary action. Taxable DOCSSF\ :795397.\ 3 (c) This Agreement has been, and as of the Closing Date the Bill of Sale will have been, duly executed and delivered by the Seller and, assuming the due authorization, execution and delivery of this Agreement by the Purchaser, constitutes a legal, valid and binding obligation of the Seller enforceable in accordance with its tenns, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity. (d) All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or cornmission having jurisdiction which would constitute a condition precedent to, or the absence of which would adversely affect, the sale by the Seller of the VLF Receivable or the perfonnance by the Seller of its obligations under the Resolution and the Transaction Documents and any other applicable agreements, have been obtained and are in full force and effect. ( e) Insofar as it would materially adversely affect the Seller's ability to enter into, carry out and perfonn its obligations under any or all of the Transaction Documents to which it is a party, or consummate the transactions contemplated by the same, the Seller is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is otherwise subject, and, to the best of the knowledge of the Seller, 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 an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the Seller of the Transaction Documents to which it is a party, and compliance by the Seller with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Seller a breach of or default under any agreement or other instrument to which the Seller is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Seller is subject. (f) To the best of the knowledge of the Seller, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the Seller affecting the existence of the Seller or the titles of its Common Council members or officers to their respective offices, or seeking to restrain or to enjoin the sale of the VLF Receivable or to direct the application of the proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of any of the Transaction Documents or any other applicable agreements or any action of the Seller contemplated by any of said documents, or in any way contesting the powers of the Seller or its authority with respect to the Resolution or the Transaction Documents to which the Seller is a party or any other applicable agreement, or any action on the part of the Seller contemplated by the Transaction Documents, or in any way seeking to enjoin or restrain the Seller from selling the VLF Receivable or which if detennined adversely to the Seller would have an adverse effect upon the Seller's ability to sell the VLF Receivable, nor to the knowledge of the Seller is there any basis therefor. Taxable DOCSSFl :795397.1 4 (g) Prior to the sale of the VLF Receivable to the Purchaser, the Seller was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the Act. From and after the conveyance of the VLF Receivable by the Seller to Purchaser on the Closing Date, the Seller shall have no interest in the VLF Receivable. Except as provided in this Agreement, the Seller has not sold, transferred, assigned, set over or otherwise conveyed any right, title or interest of any kind whatsoever in all or any portion of the VLF Receivable, nor has the Seller created, or to the knowledge of the Seller permitted the creation of, any lien, pledge, security interest or any other encumbrance (a "Lien") thereon. Prior to the sale of the VLF Receivable to the Purchaser, the Seller held title to the VLF Receivable free and clear of any Liens. As of the Closing Date, this Agreement, together with the Bill of Sale, constitutes a valid sale to the Buyer ofthe Seller's right, title and interest in and to the VLF Receivable. (h) The Seller acts solely through its authorized officers or agents. (i) The Seller maintains records and books of account separate from those of the Purchaser. (j) The Seller maintains its respective assets separately from the assets of the Purchaser (including through the maintenance of separate bank accounts); the Seller's funds and assets, and records relating thereto, have not been and are not commingled with those of the Purchaser. (k) The Seller's principal place of business and chief executive office is located at 300 N. D Street, San Bernardino, CA 92418. (I) The Seller has received reasonably equivalent value for the VLF Receivable. (m)The Seller does not act as an agent of the Purchaser in any capacity, but instead presents itself to the public as an entity separate from the Purchaser. (n) The Seller has not guaranteed and shall not guarantee the obligations of the Purchaser, nor shall it hold itself out or permit itself to be held out as having agreed to payor as being liable for the debts of the Purchaser; and the Seller has not received nor shall the Seller accept any credit or financing from any Person who is relying upon the availability of the assets ofthe Purchaser to satisfy the claims of such creditor. (0) All transactions between or among the Seller, on the one hand, and the Purchaser on the other hand (including, without limitation, transactions governed by contracts for services and facilities, such as payroll, purchasing, accounting, legal and personnel services and office space), whether existing on the date hereof or entered into after the date hereof, shall be on terms and conditions (including, without limitation, terms relating to amounts to be paid thereunder) which are believed by each such party thereto to be both fair and reasonable and comparable to those available on an arms-length basis from Persons who are not affiliates. 6. Covenants of the Seller. (a) The Seller shall not take any action or omit to take any action which adversely affect the interests of the Purchaser in the VLF Receivable and in the proceeds thereof. The Taxable DOCSSFI :795397.1 5 Seller shall not take any action or omit to take any action that shall adversely affect the ability of the Purchaser, and any assignee of the Purchaser, to receive payments made under the Act. (b) The Seller shall not take any action or omit to take any action that would impair the validity or effectiveness of the Act, nor, without the prior written consent of the Purchaser or its assignee, amend, modify, terminate, waive or surrender, or agree to any amendment, modification, termination, waiver or surrender of, the terms of the Act, or waive timely performance or observance under the Act, in each case if the effect thereof would be materially adverse to the Purchaser or to the Noteholders or any Credit Enhancer as assignees of the Purchaser. Nothing in this agreement shall impose a duty on the Seller to seek to enforce the Act or to seek enforcement thereof by others, or to prevent others from modifying, terminating, discharging or impairing the validity or effectiveness ofthe Act. (c) Upon request of the Purchaser or its assignee, (i) the Seller shall execute and deliver such further instruments and do such further acts (including being named as a plaintiff in an appropriate proceeding) as may be reasonably necessary or proper to carry out more effectively the purposes and intent of this Agreement, and (ii) the Seller shall take all actions necessary to preserve, maintain and protect the title of the Purchaser to the VLF Receivable, provided that such acts shall not impose any additional cost on the Seller that is not reimbursed. (d) On or before the Closing Date, the Seller shall send (or cause to be sent) an irrevocable instruction to the Controller pursuant to Section 6588.5(c) of California Government Code to cause the Controller to disburse all payments of the VLF Receivable to the Trustee, together with notice of the sale of the VLF Receivable to the Purchaser and the assignment of all or a portion of such assets by the Purchaser to the Trustee. Such notice and instructions shall be in the form of Exhibit D hereto. The Seller shall not take any action to revoke or which would have the effect of revoking, in whole or in part, such instructions to the Controller. The Seller hereby relinquishes and waives any control over the VLF Receivable, any authority to collect the VLF Receivable, and any power to revoke or amend the instructions to the Controller contemplated by this paragraph. The Seller shall not rescind, amend or modify the instruction described in the first sentence of this paragraph. The Seller shall cooperate with the Purchaser or its assignee in giving instructions to the Controller if the Purchaser or its assignee transfers the VLF Receivable. In the event that the Seller receives any proceeds of the VLF Receivable, the Seller shall hold the same in trust for the benefit ofthe Purchaser and the Trustee and each Credit Enhancer, as assignees of the Purchaser, and shall promptly remit the same to the Trustee. (e) The Seller hereby covenants and agrees that it will not at any time institute against the Purchaser, or join in instituting against the Purchaser, any bankruptcy, reorganization, arrangement, insolvency, liquidation, or similar proceeding under any United States or state bankruptcy or similar law. (f) The financial statements and books and records of the Seller prepared after the Closing Date shall reflect the separate existence of the Purchaser. (g) The Seller shall treat the sale of the VLF Receivable as a sale for regulatory and accounting purposes. Taxable DOCSSFl :795397.1 6 (h) From and after the date of this Agreement, the Seller shall not sell, transfer, assign, set over or otherwise convey any right, title or interest of any kind whatsoever in all or any portion of the VLF Receivable, nor shall the Seller create, or to the knowledge of the Seller permit the creation of, any Lien thereon. 7. Notices of Breach. (a) Upon discovery by the Seller or the Purchaser that the Seller has breached any of its covenants or that any of the representations or warranties of the Seller or the Purchaser are materially false or misleading, in a manner that materially and adversely affects the value of the VLF Receivable, the discovering party shall give prompt written notice thereof to the other party and to the Trustee, as assignee of the Purchaser, who shall, pursuant to the Indenture, promptly thereafter notify each Credit Enhancer and the Rating Agencies. (b) The Seller shall not be liable to the Purchaser, the Trustee, the Noteholders, or any Credit Enhancer for any loss, cost or expense resulting solely from the failure of the Trustee, any Credit Enhancer or the Purchaser to promptly notify the Seller upon the discovery by an authorized officer of the Trustee, any Credit Enhancer or the Purchaser of a breach of any covenant or any materially false or misleading representation or warranty contained herein. 8. Liabilitv of Seller: Indemnification. The Seller shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Seller under this Agreement. The Seller shall indemnify, defend and hold harmless the Purchaser, the Trustee and each Credit Enhancer, as assignees of the Purchaser, and their respective officers, directors, employees and agents from and against any and all costs, expenses, losses, claims, damages and liabilities to the extent that such cost, expense, loss, claim, damage or liability arose out of, or was imposed upon any such Person by the Seller's breach of any of its covenants contained herein or any materially false or misleading representation or warranty of the Seller contained herein. Notwithstanding anything to the contrary herein, the Seller shall have no liability for the payment of the principal of or interest on the Notes issued by the Purchaser. 9. Limitation on Liability. (a) The Seller and any officer or employee or agent of the Seller may rely in good faith on the advice of counselor on any document of any kind, prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Seller shall not be under any obligation to appear in, prosecute or defend any legal action regarding the Act that is umelated to its specific obligations under this Agreement. (b) No officer or employee of the Seller shall have any liability for the representations, warranties, covenants, agreements or other obligations of the Seller hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Seller. 10. The Seller's Acknowledgment. The Seller hereby agrees and acknowledges that the Purchaser intends to assign and grant a security interest in all or a portion of (a) its rights hereunder and (b) the VLF Receivable, to the Trustee and each Credit Enhancer pursuant to the Indenture. The Seller further agrees and acknowledges that the Trustee, the Noteholders, and Taxable DOCSSFI :795397.1 7 each Credit Enhancer have relied and shall continue to rely upon each of the foregoing representations, warranties and covenants, and further agrees that such Persons are entitled so to rely thereon. Each of the above representations, warranties and covenants shall survive any assignment and grant of a security interest in all or a portion of this Agreement or the VLF Receivable to the Trustee and each Credit Enhancer and shall continue in full force and effect, notwithstanding any subsequent termination of this Agreement and the other transaction documents. The above representations, warranties and covenants shall inure to the benefit of the Trustee and each Credit Enhancer. II. Notices. All demands upon or, notices and communications to, the Seller, the Purchaser, the Trustee or the Rating Agencies under this Agreement shall be in writing, personally delivered or mailed by certified mail, return receipt requested, to such party at the appropriate notice address, and shall be deemed to have been duly given upon receipt. 12. Amendments. This Agreement may be amended by the Seller and the Purchaser, with (a) the consent of the Trustee, (b) the consent of each Credit Enhancer, and (c) a Rating Agency Confirmation, but without the consent of any of the Noteholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. Promptly after the execution of any such amendment, the Purchaser shall furnish written notification of the substance of such amendment to the Trustee and to the Rating Agencies. 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Seller, the Purchaser and their respective successors and permitted assigns. The Seller may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Purchaser. Except as specified herein, the Purchaser may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Seller. 14. Third Partv Rights. The Trustee and each Credit Enhancer are express and intended third party beneficiaries under this Agreement. Nothing expressed in or to be implied from this Agreement is intended to give, or shall be construed to give, any Person, other than the parties hereto, the Trustee and each Credit Enhancer, and their permitted successors and assigns hereunder, any benefit or legal or equitable right, remedy or claim under or by virtue of this Agreement or under or by virtue of any provision herein. 15. Partial Invaliditv. If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of this Agreement nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 16. Counterparts. This Agreement may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. Taxable DOCSSFI :795397.1 8 17. Entire Agreement. This Agreement sets forth the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes any and all oral or written agreements or understandings between the parties as to the subject matter hereof. Taxable DOCSSFI,795397.\ 9 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Purchase and Sale Agreement to be duly executed as of the date first written above. CITY OF SAN BERNA 0, as Seller By: CALIFO TATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, as Purchaser By: Member Taxable DOCSSFI :795397.1 10 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Purchase and Sale Agreement to be duly executed as of the date first written above. CITY OF SAN BERNARDINO, as Seller By: Authorized Officer CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, as Purchaser ~ .A.~ &1~ r /~ _...~_ Member By: Taxable DOCSSFl :795397.1 10 EXHIBIT A DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not otherwise defined herein shall have the meanings set forth below. "Act" means Section 10754.11 of the California Revenue and Taxation Code. "Bill of Sale" has the meaning give to that term in Section 2(b )(ii) hereof. "Credit Enhancer" means any municipal bond insurance company, bank or other financial institution or organization which is performing in all material respects its obligations under any Credit Support Instrument for some or all of the Notes. "Credit Support Instrument" means a policy of insurance, a letter of credit, a stand-by purchase agreement, revolving credit agreement or other credit arrangement pursuant to which a Credit Enhancer provides credit or liquidity support with respect to the payment of interest, principal or the purchase price of the Notes. "Closing Date" means the date the Notes are issued. "Controller" means the Controller of the State. "Final Purchase Price" has the meaning ascribed thereto in Section 2. "Minimum Purchase Price" has the meaning ascribed thereto in Section 2. "Noteholder" means, with respect to any Note, the person in whose name such Note is registered. "Oustanding" has the meaning given to that term in the Indenture. "Pricing Date" means the date the Notes are sold. "Rating Agency" means any nationally recognized rating agency then providing or maintaining a rating on the Notes at the request of the Purchaser. "Rating Agency Confirmation" means written confirmation from each Rating Agency that any proposed action will not, in and of itself, cause the Rating Agency to lower, suspend or withdraw the rating then assigned by such Rating Agency to any Outstanding Notes. "Resolution" means the resolution adopted by the Common Council approving the sale of the VLF Receivable. "State" means the State of California. "Transaction Counsel" means Orrick, Herrington & Sutcliffe LLP. Taxable DOCSSFI :795397.1 A-I "Transaction Documents" mean this Agreement, the Bill of Sale, the Indenture, and the Notes. Taxable DOCSSFU95397.1 A-2 T EXHIBIT 81 OPINION OF COUNSEL to CITY OF SAN BERNARDINO March 2, 2005 California Statewide Communities Development Authority Sacramento, California Wells Fargo Bank, National Association Los Angeles, California Re: Sale ofVLF Receivable Ladies & Gentlemen: This Office acted as counsel for the City of San Bernardino (the "Seller") in connection with the adoption of that certain resolution (the "Resolution") of the Common Council of the Seller (the "Governing Body") pursuant to which the Seller authorized the sale to the California Statewide Communities Development Authority (the "Purchaser") of the Seller's "VLF Receivable", as defined in and pursuant to the Purchase and Sale Agreement dated March 2, 2005 (the "Sale Agreement") between the Seller and the Purchaser. In connection with these transactions, the Seller has issued certain Irrevocable Instructions For Disbursement of the Seller's VLF Receivable to the Controller of the State of California (the "Disbursement Instructions" and collectively with the Sale Agreement, the "Transaction Documents"). Unless the context otherwise requires, capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in the Sale Agreement. I have examined and am familiar with those documents relating to the existence, organization, and operation of the Seller, the Resolution, the Transaction Documents and such certified proceedings, certifications of officers of the Seller and others, and such other agreements, instruments and documents, and have satisfied myself as to such other matters, as I deem necessary in order to render the following opinions. Based upon the foregoing, I am of the opinion that: I. The Seller is a municipal corporation of the State of California, duly organized and validly existing pursuant to city charter and the Constitution of the State of California. Taxable DOCSSFl:795397.1 BI-I 2. The Seller has full power and authority to adopt the Resolution and to execute and deliver tre Transaction Documents. 3. The Seller has duly authorized and executed the Transaction Documents and, assuming delivery, each Transaction Document will be legal, valid, and binding against the Seller, and enforceable against the Seller in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or laws relating to or affecting creditors' rights, and the application of equitable principles and the exercise of judicial discretion in appropriate areas. 4. The Resolution was duly adopted at a meeting of the Governing Body which was called and held pursuant to law with all public notice required by law and at which a quorum was present and acting when the Resolution was adopted. 5. The Resolution is in full force and effect and has not been amended, modified, supplemented or rescinded. 6. To the best of my knowledge, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the Seller affecting the existence of the Seller or the titles of its Governing Body members or officers to their respective offices, or seeking to restrain or to enjoin the sale of the VLF Receivable or to direct the application of the proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of the Resolution, the Transaction Documents or any other applicable agreements or any action of the Seller contemplated by any of said documents, or in any way contesting the powers of the Seller or its authority with respect to the Resolution or the Transaction Documents or any other applicable agreement, or any action on the part of the Seller contemplated by any of said documents, or in any way seeking to enjoin or restrain the Seller from selling the VLF Receivable or which if determined adversely to the Seller would have a material and adverse effect upon the Seller's ability to sell the VLF Receivable, nor to my knowledge is there any basis therefor. 7. Insofar as it would materially adversely affect the Seller's ability to enter into, carry out and perform its obligations under any or all of the foregoing agreements, or consummate the transactions contemplated by the same, the Seller is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is otherwise subject, and, to the best of my knowledge, 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 an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the Seller of the Transaction Documents, and compliance with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Seller a breach of or default under any agreement or other instrument to which the Seller is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Seller is subject. Taxable llOCSSF\:795397.1 BI-2 ~ 8. Prior to the sale of the VLF Receivable to the Purchaser, the Seller was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the Act. From and after the conveyance of the VLF Receivable by the Seller to Purchaser on the Closing Date, the Seller shall have no interest in the VLF Receivable. Except as provided in the Sale Agreement, the Seller has not sold, transferred, assigned, set over or otherwise conveyed any right, title or interest of any kind whatsoever in all or any portion of the Seller's VLF Receivable, nor has the Seller created, or to my knowledge permitted the creation of, any Lien thereon. Prior to the sale of the VLF Receivable to the Purchaser, the Seller held title to the VLF Receivable free and clear of any Liens. 9. To the best of my knowledge, all approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the sale by the Seller of the VLF Receivable or the performance by the Seller of its obligations under the Resolution and the Transaction Documents and any other applicable agreements, have been obtained and are in full force and effect. 10. The Disbursement Instructions are irrevocable by the Seller, and comply with the requirements of Section 6588.5(c) of the California Government Code. Each Credit Enhancer, the underwriters of the Notes and Transaction Counsel may rely upon this legal opinion as if it were addressed to them. Very truly yours, .~~ Seller's Counsel James F. Penman, City Attorney Taxable DOCSSFl:795397.! BI-3 II" r EXHIBIT B2 OPINION OF COUNSEL to CITY OF SAN BERNARDINO March 17, 2005 California Statewide Communities Development Authority Sacramento, California Wells Fargo Bank, National Association Los Angeles, California Re: Sale ofVLF Receivable (Bringdown Ooinion) Ladies & Gentlemen: Pursuant to that certain Purchase and Sale Agreement dated March 2, 2005 (the "Sale Agreement") between the City of San Bernardino (the "Seller") and the California Statewide Communities Development Authority (the "Purchaser"), this Office delivered an opinion (the "Opinion") dated the Pricing Date (as defined in the Sale Agreement) as counsel for the Seller in connection with the sale of the SeBer's VLF Receivable (as defined in the Sale Agreement), the execution of documents related thereto and certain other related matters. 1 confirm that you may continue to rely upon the Opinion as if it were dated as of the date hereof. Each Credit Enhancer, the underwriters of the Notes and Transaction Counsel may rely upon this legal opinion as if it were addressed to them. This letter is delivered to you pursuant to Section 2(b )(ii)(I) of the Sale Agreement. Very truly yours, By: Taxable DOCSSF\ :795397.\ B2-1 . EXHIBIT CI CLERK'S CERTIFICATE CERTIFICATE OF THE CITY CLERK OF CITY OF SAN BERNARDINO, CALIFORNIA Dated: March 2, 2005 The undersigned City Clerk of the City of San Bernardino, California, do hereby certify that the foregoing is a full, true and correct copy of Resolution No. 2005- 38 duly adopted at a regular meeting of the Common Council of said Seller duly and regularly and legally held at the regular meeting place thereof on the 7th day of February , 2005, of which meeting all of the members of said Common Council had due notice and at which all members thereof were present, and that at said meeting said resolution was adopted by the following vote: l\YES: Estrada, Longville, McGinnis, Derry, Kelley, Johnson, McCammack NOES: MSENT: None MSTl\IN: I do hereby further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office and that said resolution is a full, true and correct copy of the original resolution adopted at said meeting and entered in said minutes and that said resolution has not been amended, modified or rescinded since the date of its adoption and the same is now in full force and effect. I do hereby further certify that an agenda of said meeting was posted at least 72 hours before said meeting at a location in the City of San Bernardino, California freely accessible to members of the public, and a brief general description of said resolution appeared on said agenda. WITNESS my hand as of the day and year first above written. By:a~h.~ City Clerk of the City of San Bernardino, California Taxable DOCSSFl :795397.1 Cl-l EXHIBIT C2 SELLER CERTIFICATE SELLER CERTIFICATE Dated: March 2, 2005 We, the undersigned officers of the City of San Bernardino (the "Seller"), State of California, holding the respective offices herein below set opposite our signatures, do hereby certify that on the date hereof the following documents (the "Transaction Documents") were officially executed and delivered by the Authorized Officer or Officers whose names appear on the executed copies thereof, to wit: Document 1. Purchase and Sale Agreement, dated March 2, 2005 (the "Sale Agreement"), between the Seller and the California Statewide Communities Development Authority (the "Purchaser") 2. Irrevocable Instructions For Disbursement of Seller's VLF Receivable to the Controller of the State of California dated the Closing Date Capitalized terms used herein and not defined herein shall have the meaning given such terms in the Sale Agreement. We further certify as follows: I. At the time of signing the Transaction Documents and the other documents and opinions related thereto, we held said offices, respectively, and we now hold the same. 2. The representations and warranties contained in the Transaction Documents are true and correct as of the date hereof in all material respects. 3. The Common Council duly adopted its resolution (the "Resolution") approving the sale of the Seller's VLF Receivable at a meeting of the Common Council which was duly called and held pursuant to law with all public notice required by law and at which a quorum was present and acting when the Resolution was adopted, and such Resolution is in full force and effect and has not been amended, modified, supplemented or rescinded. 4. To the best knowledge of the undersigned, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened, in any way against the Seller affecting the existence of the Seller or the titles of its Common Council members or officers to their respective offices, or seeking to restrain or to enjoin the sale of the Seller's VLF Receivable or to direct the application thereof of the Taxable DOCSSFI,795397.\ C2-1 proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of the Resolution, the Transaction Documents, the Indenture, the Notes, or any other applicable agreements or any action of the Seller contemplated by any of said documents, or in any way contesting the powers of the Seller or its authority with respect to the Resolution or the Transaction Documents or any other applicable agreement, or any action on the part of the SeHer contemplated by any of said documents, or which if determined adversely to the SeHer would have a material and adverse effect upon the SeHer's ability to seH the SeHer's VLF Receivable, nor to our knowledge is there any basis therefor. 5. Insofar as it would materially adversely affect the SeHer's ability to enter into, carry out and perform its obligations under any or aH of the Transaction Documents, or consummate the transactions contemplated by the same, the Seller is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is otherwise subject, and, to the best of our knowledge, 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 an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the SeHer of the Transaction Documents, and compliance by the SeHer with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the SeHer a breach of or default under any agreement or other instrument to which the SeHer is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the SeHer is subject. 6. Prior to the sale of the VLF Receivable to the Purchaser, the SeHer was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the Act. From and after the conveyance of the VLF Receivable by the Seller to Purchaser on the Closing Date, the SeHer shaH have no interest in the VLF Receivable. Except as provided in the Sale Agreement, the Seller has not sold, transferred, assigned, set over or otherwise conveyed any right, title or interest of any kind whatsoever in aH or any portion of the Seller's VLF Receivable, nor has the SeHer created, or to our knowledge permitted the creation of, any Lien thereon. Prior to the sale of the VLF Receivable to the Purchaser, the Seller held title to the VLF Receivable free and clear of any Liens. 7. AH approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to or the absence of which would materiaHy adversely affect, the sale by the SeHer of the SeHer's VLF Receivable or the performance by the SeHer of its obligations under the Resolution and the Transaction Documents and any other applicable agreements, have been obtained and are in fuH force and effect. Taxable DOCSSFI :795397.1 C2-2 Dated as of the date first above written. Name. Official Title Judith Valles, Mayor Fred Wilson, City Administrator Barbara Pachon, Finance Director I HEREBY CERTIFY that the signatures of the officers named above are genume. Dated as of the date first above written. By: :JrJfYld;uv~) ~~ City Clerk of the City of San Bernar ino, - 0 California Taxable DQCSSFI:795397.1 C2-3 . EXHIBIT C3 BILL OF SALE AND BRINGDOWN CERTIFICATE BILL OF SALE AND BRINGDOWN CERTIFICATE In consideration of the payment and delivery by the California Statewide Communities Development Authority ~he "Purchaser") to the undersigned (the "Seller") of $3,036,558.98 (the "Final Purchase Price"), and pursuant to terms and conditions of the Purchase and Sale Agreement (the "Sale Agreement"), dated March 2, 2005, between the Seller and the Purchaser, the Seller does hereby (a) transfer, grant, bargain, sell, assign, convey, set over and deliver to the Purchaser, absolutely and not as collateral security, without recourse except as expressly provided in the Sale Agreement, the VLF Receivable as defined in the Sale Agreement (the "VLF Receivable"), and (b) assign to the Purchaser, to the extent permitted by law (as to which no representation is made), all present or future rights, if any, of the Seller to enforce or cause the enforcement of payment ofthe VLF Receivable pursuant to the Act (as defined in the Sale Agreement) and other applicable law. The Seller hereby acknowledges receipt of the Final Purchase Price. The Seller hereby certifies that the representations and warranties of the Seller set forth in the Certificate of the City Clerk dated March 2, 2005, the Seller Certificate dated March 2,2005, and in the Transaction Documents (as such terms are defined in the Sale Agreement) are true and correct in all material respects as of the date hereof (except for such representations and warranties made as of a specified date, which are true and correct as of such date). Dated: March 17, 2005 T ax.ble DOCSSFI :795397.1 C3.j I , EXHIBIT D IRREVOCABLE INSTRUCTIONS TO CONTROLLER IRREVOCABLE INSTRUCTIONS FOR DISBURSEMENT OF VLF RECEIVABLE OF CITY OF SAN BERNARDINO March 17, 2005 Office of the Controller State of California P.O. Box 942850 Sacramento, California 94250-5872 Re: Notice of Sale of VLF Receivable by the City of San Bernardino and Wiring Instructions Information Form Dear Sir or Madam: Pursuant to Section 6588.5(c) of the California Government Code, City of San Bernardino (the "Seller") hereby notifies you of the sale by the Seller, effective as of the date of these instructions written above, of all right, title and interest of the Seller in and to the "VLF Receivable" as defined in Section 6585(i) of the California Government Code (the "VLF Receivable"), namely, the right to payment of moneys due or to become due to the Seller out of funds payable in connection with vehicle license fees to a local agency pursuant to Section I 0754.11 of the California Revenue and Taxation Code. By resolution, the Seller's Common Council authorized the sale of the VLF Receivable to the California Statewide Communities Development Authority (the "Purchaser") pursuant to a Purchase and Sale Agreement, dated March 2, 2005 and a Bill of Sale, dated March 17, 2005. The VLF Receivable has been pledged and assigned by the Purchaser pursuant to an Indenture, dated March 2,2005 (the "Indenture") between the Purchaser and Wells Fargo Bank, National Association, as Trustee (the "Trustee"). The Seller hereby irrevocably requests and directs that, commencing as of the date of these instructions written above, all payments of the VLF Receivable (and documentation related thereto) be made directly to Wells Fargo Bank, National Association, as Trustee, in accordance with the wire instructions and bank routing information set forth below. Please note that the sale of the VLF Receivable by the Seller is irrevocable and that (i) the Seller has no power to revoke or amend these instructions at any time, (ii) the Purchaser shall have the power to revoke or amend these instructions only if there are no notes of the Purchaser outstanding under the Indenture and the Indenture has been discharged, and (iii) so long as the Indenture has not been discharged, these instructions cannot be revoked or amended by the Purchaser without the consent of the Trustee. Taxable DOCSSFl:795397.1 D-I Bank Name: Bank ABA Routing #: Bank Account #: Bank Account Name: Further Credit To: Bank Address: Bank Telephone #: Bank Contact Person: Wells Fargo N.A. 121000248 0001038377 Corporate Trust Clearing CSCDA VLF #16914200 Wells Fargo Bank 707 Wilshire Blvd., 17 Floor Los Angeles, CA 90017 (213) 614-3353 Robert Schneider Please do not hesitate to call the undersigned if you have any questions regarding this transaction. Thank you for your assistance in this matter. Taxable DOCSSF1:795397.1 Very truly yours, CITY OF SAN RNARDlNO D-2 I_m~ '1'," EXHIBIT E RESERVED Taxable DOCSSFI :795397.1 E-l EXHIBIT F ESCROW INSTRUCTION LETTER PARTICIPATION AGREEMENT AND ESCROW INSTRUCTION LETTER March 2, 2005 California Statewide Communities Development Authority 11 00 K Street Sacramento, CA 95814 Re: VLF Receivable Financing Dear Sir or Madam: The City of San Bernardino (the "Seller") hereby notifies you of its agreement to participate in the California Statewide Communities Development Authority VLF Receivable Financing. By adoption of a resolution (the "Resolution") authorizing the sale of its VLF Receivable, the Seller's Common Council has agreed to sell to the California Statewide Communities Development Authority, for a purchase price that meets the conditions set forth in the Resolution, all of its right, title and interest in the VLF Receivable. Enclosed herewith are the following documents which have been duly approved and executed by the Seller and which are to be held in escrow by Orrick, Herrington & Sutcliffe LLP, as transaction counsel ("Transaction Counsel"), as instructed below: I. certified copy of the Resolution, together with a certificate of the City Clerk, dated March 2, 2005; 2. the Seller Certificate, dated March 2, 2005; 3. the Opinion of Seller's Counsel, dated March 2, 2005; 4. the Purchase and Sale Agreement, dated March 2, 2005; and 5. the Irrevocable Instructions to the Controller, undated. The foregoing documents are to be held in escrow by Transaction Counsel and shall be delivered only upon payment to the Seller on or before April 29, 2005, of the Final Purchase Price (as defined in the Purchase and Sale Agreement) that meets the conditions of the Resolution. Upon such payment, Transaction Counsel is hereby authorized to fill in the closing date on the Irrevocable Instructions to the Controller. Taxable OOCSSFI :795397.1 F-l If the Final Purchase Price meeting the conditions of the Resolution is not paid to the Seller on or before April 29, 2005, this agreement shall terminate and Transaction Counsel shall return all of the enclosed documents to the Seller. Very truly yours, CITY OF SAN BERNARDINO By: Enclosures cc: Orrick, Herrington & Sutcliffe LLP Taxable DOCSSFI :795397.1 F-2 L o ORRICK, HERRINGTON & SUTCLIFFE llP THE ORRICK BUILDING 405 HOWARD STREET SAN FRANCISCO, CA 94105-2669 tel 415-773-5700 fox 415-773.5759 ORRICK WWW.ORRICK.COM April 5, 2005 Re: California Statewide Communities Development Authority Vehicle License Fee (vLF) Receivable Financing Program APR - 8 2005 To: Participating Local Agency In connection with the successful closing on March 17, 2005, of the California Statewide Communities Development Authority ("CSCDA") Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005A, 2005B, and 2005C, enclosed for your records please find the following: . Official Statement; . a CD-ROM of the transcript relating to the Notes; and . executed documents signed by your local agency (including the Sale Resolution, CSCDA membership Resolution (if applicable), Purchase and Sale Agreement, Irrevocable Instructions to the Controller, Tax Certificate (if applicable) and closing certificates and opinions). If you have any questions regarding this transaction or the documents enclosed herewith, please do not hesitate to call Michael Eng, Project Manager, at (415) 773-5454, Patricia Wyler, Project Manager, at (415) 773-5912, David Stevens, Esq. at (415) 773-5503, Daniel Deaton, Esq. at (213) 612-2321, Justin Cooper, Esq. at (415) 773-5908, or John Knox, Esq. at (415) 773-5626. We very much appreciate having had the opportunity to be of service to your agency. Very Truly Yours, John H. Knox DOCSSFl :809438.2 ---~-"',,- --~..,. -~- NEW ISSUE - BOOK.ENTRY ONL Y RATINGS: See "RATINGS" herein. In the opinion of Orrick. Herrington & Sutcliffe LLP. Special 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 Tax-Exempt Notes is excludedfrom gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code ") and is exempt .from State of California personal income taxes. In the further opinion of Special Counsel, interest on the Tax.Exempt Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. although Special Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Special Counsel is ofthefurther opinion that interest on the Taxable Notes is exempt.from State of California personal income taxes. Special Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of. or the accrual or receipt of interest on. the Tax-Exempt Notes. A complete copy of the opinion of Special Counsel is setforth in Appendix D hereto. See "TAX MATTERS" herein. f~\ \~/ $454,580,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY REVENUE ANTICIPATION NOTES (VEHICLE LICENSE FEE PROGRAM) CALIFORNIA COMMUNITIES $150,730,000 $147,140,000 567,865,000 569,600,000 519,245,000 SERIES 2005A-1 (TAXABLE) SERIES 2ooSA-2 (TAXABLE) SERIES 2oo5B-I(TAX-EXEMPT) SERIES 2005B-2(TAX-EXEMPT) SERIES 200Se (TAX-EXEMPn 4.00-;. Priced to Yield 3.96-;. 4.00./0 Price 100.000 4.00-;0 Priced to Yield 2.59% 4.00-;. Priced to Yield 2.62% 3.50-;0 Priced to Yield 2.65% euslP No. 130911031 eUSIP No. 130911049 CUSIPNo.130911056 eusIP No. 130911064 CUSIP No. 1309110072 Dated: Date of Delivery Due: November 15, 2006 The $454,580,000 aggregate principal amount of California Statewide Communities Development Authority'Revenue Anticipation Notes (Vehicle License Fee Program), consisting of$150,730,000 Series 2005A-I (Taxable) (the "Series 2005A-I Notes''), $147,140,000 Series 2005A-2 (Taxable) (the "Series 2005A-2 Notes" and together with the Series 2005A-I Notes, the "Series 2005A Notes''), $67,865,000 Series 2005B-I (Tax-Exempt) (the "Series 2005B-1 Notes''), $69,600,000 Series 2005B-2 (Tax-Exempt) (the "Series 2005B-2 Notes" and together with the Series 2005B-I Notes, the "Series 2005B Notes'') and $19,245,000 Series 2005C (Tax-Exempt) (the "Series 2005C Notes" and, together with the Series 2005A Notes and the Series 20058 Notes, the "Notes") are being issued pursuant to Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title I of the Government Code of the State of California (the "Act") and an Indenture, dated as of March 1,2005 (the "Indenture"), by and between the California Statewide Communities Development Authority (the "Authority") and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Series 2005A Notes are also referred to herein as the "Taxable Notes" and the Series 2005B Notes and the Series 2005C Notes are collectively referred to herein as the "Tax-Exempt Notes." 146 local agencies within the State ofCalifomia (the "Participants" and each, a "Participant") entitled to receive certain payments payable by the State of California (the "State") to each such local agency on or before August 15,2006, in connection with vehicle license fees pursuant to Section 10754.11 of the California Revenue and Taxation Code (as defined in Section 6585(i) ofthe California Government Code, for each such local agency, its "VLF Receivable" and collectively, the "VLF Receivables"), will sell the entire amount of their respective VLF Receivables to the Authority pursuant to separate Purchase and Sale Agreements, each dated March 2,2005 (the "Purchase Agreements"), by and between the Authority and each respective Participant. The proceeds of the Notes will be used by the Authority to (i) purchase the VLF Receivables of the Participants pursuant to the Purchase Agreements, (ii) fund interest on the Notes through their maturity, (iii) pay trustee and other amounts expected to be payable under the Indenture through maturity of the Notes and (iv) pay costs of issuance incurred in connection with the Notes. The Notes will be issued in fully registered fonn and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trost Company, New York, New York ("DTC"), which will act as securities depository for the Notes. Individual purchases will be made in book-entry fonn in denominations of$5,000 or any mtegral multiple of $5,000 in excess thereof. Purchasers of the Notes will not receive physical delivery of certificates representing their ownership interest in the Notes. See Appendix B--"BOOK ENTRY ONLY SYSTEM" attached hereto. Principal of and interest on the Notes will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of interests in the Notes. The Notes shall bear interest from their dated date through their maturity. Interest on the Notes is payable on May 15 and November 15 commencing on May 15, 2005 at the rates per annum set forth above. The Notes mature, subject to prior special mandatory redemption of the Series 2005C Notes, on November 15, 2006. The Series 200SA Notes and the Series 200SB Notes are nm subject to redemption prior to their maturity as desc:ribed herein. The Series 200Se Notes are subject to special mandatory redemption prior to their maturity as desc:ribed herein. See "THE NOTES" herein. The scheduled payment of principal of and interest on the Series 2005A-I Notes and the Series 2005B-1 Notes (the "FSA Notes") when due will be guaranteed under an insurance policy (the "FSA Insurance Policy") to be issued concurrently with the delivery ofthe FSA Notes by FINANCIAL SECURITY ASSURANCE INC. ("FSA"). See "FSA INSURANCE" and Appendix E~"SPECIMEN FSA MUNICIPAL BOND INSURANCE POLICY" attached hereto. The scheduled payment of principal of and interest on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2OO5C Notes (the "XLCA Notes") when due will be guaranteed under an insurance policy (the "XLCA Insurance Policy" and together with the FSA Insurance Policy, the "Insurance Policies") to be issued concurrently with the delivery of the XLCA Notes by XL CAPITAL ASSURANCE INe. ("XLCA" and together with FSA, the "Insurers"). See "XLCA INSURANCE" and Appendix F-"SPECIMEN XLCA INSURANCE POLICY" attached hereto. .. FSA. xtbCAPITAL ASSURANCE' The Notes are secured by a pledge under the Indenture of all ofthe Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture pennitting the application thereof for the purposes and on the tenns and conditions set forth therein, as described herein. Revenues are comprised primarily ofamOlUlts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. Section 10754.11 of the California Revenue and Taxation Code (the '~VLF Law") provides that the Controller (the "Controller") of the State shall transfer the Gap Amount (as herein defined) from the State General Fund to the Gap Repayment Fund created in the State Treasury (the "Gap Repayment Fund'') on or before August 15,2006 and shall allocate a portion of the Gap Amount to each PartiCIpant as its respective VLF Receivable. The Controller has determined the amount of the VLF receivable for each local agency in the State and based on such detennination, the aggregate amount ofthe VLF Receivables of the Participants is $454,586,805.88. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES-General" herein. Payment ofthe VLF Receivables by the State depends upon various factors and no assurance can be made by the Authority that the State will transfer all or a portion of the amounts required under the VLF Law to pay the VLF Receivables or that the provisions of the VLF Law are enforceable against the State. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES," "STATE OF CALIFORNIA FINANCIAL INFORMATION" and "RISK FACTORS-Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition lA" herein. The obligation of the Insurers to pay under the Insurance Policies does not depend on the enforceability of the provisions of the VLF Law or the actual payment by the State of the VLF Receivables. See "FSA INSURANCE" and "XLCA INSURANCE" herein. The Notes are special obligations of the Authority and principal thereof and interest thereon are payable by the Authority solely from Revenues, including payments of the VLF Receivables, and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subjett only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, as described herein. THE NOTES SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF THE NOTES, OR THE REDEMPTION PRICE OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PURCHASE AGREEMENTS AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY OR ANY PARTICIPANT, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES. THE ISSUANCE OF THE NOTES SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. THE PARTICIPANTS HAVE NO LIABILITY FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES IS(iUED BY THE AUTHORITY. This cover page contains information for quick reference only. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Notes are offered when, as and if issued, subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel. Certain legal matters will be passed upon for the Authority by its disclosure counsel, Sidley Austin Brown & Wood LLP and for the Underwriters by their counsel, Nixon Peabody LLP. It is anticipated that the Notes will be available for delivery through the facilities ofDTC in New York, New York on or about March 17,2005. Citigroup E. }. De La Rosa & Co., Inc. Dated: March 2, 2005 I' o "I' ORRICK April 5, 2005 Re: California Statewide Communities Development Authority Vehicle License Fee (VLF) Receivable Financim! Prol!\"am APR - 8 2005 To: Participating Local Agency In connection with the successful closing on March 17, 2005, of the California Statewide Communities Development Authority ("CSCDA") Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005A, 2005B, and 2005C, enclosed for your records please find the following: Official Statement; ( I3vp k. ) '51 \010":> ) a CD-ROM of the transcript relating to the Notes; and ( Lb"lI- _,~ ho~. . executed documents signed by your local agency (including the Sale Resolution, CSCDA membership Resolution (if applicable)i!Purchase and Sale Agreement, Irrevocable Instructions to the Controller, Tax <;~~te ~f.app1icable) and closing certIficates and opInIOns). ( ,b.<t-) . . If you have any questions regarding this transaction or the documents enclosed herewith, please do not h~sitate to call Michael Eng, Project Manager, at (415) 773-5454, Patricia Wyler, Project Manager, at (415) 773-5912, David Stevens, Esq. at (415) 773-5503, Daniel Deaton, Esq. at (213) 612-2321, Justin Cooper, Esq. at (415) 773-5908, or John Knox, Esq. at (415) 773-5626. We very much appreciate having had the opportunity to be of service to your agency. Very Truly Yours, John H. Knox DOCSSFl :809438.2 NEW IS~UE-BOOK-ENTRYONLY RATINGS: See "RATINGS" herein. In the opinion of Orrick. Herrington & Sutcliffe LLP, Special 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 Tax-Exempt Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code ") and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, interest on the Tax~Exempt Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Special Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Special Counsel is of the fUrther opinion that interest on the Taxable Notes is exempt from State of California personal income taxes. Special Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition oj. or the accrual or receipt of interest on, the Tax-Exempt Notes. A complete copy of the opinion of Special Counsel is setforth in Appendix D hereto. See "TAX MA1TERS" herein. /.-'-..~...\ ;C. \ -' $454,580,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY REVENUE ANTICIPATION NOTES (VEHICLE LICENSE FEE PROGRAM) CALIFORNIA COMMUNITIES 5150,730,000 5147,140,000 567,865,000 $69,600,000 519,245,000 SERIES 2oo5A-1 (TAXABLE) SERIES 2005A-2 (TAXABLE) SERIES 2005B-I(TAX-EXEMPT) SERIES 20058-2 (TAX-EXEMPT) SERIES 2OO5C (TAX-EXEMPT) 4.00% Priced to Yield 3.96% 4.000/. Price 100.000 4.00% Priced 10 Yield 2.590/. 4.00% Priced 10 Yield 2.620/. 3.s0~" Priced to Yield 2.650;' CUSIP No. 130911031 CDSIP No. 130911049 CUSIP No. 130911D56 CUSIP No. 1309111>64 CUSfP No. 1309110072 Dated: Date of Delivery Due: November 15, 2006 The $454,580,000 aggregate principal amount of California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program), consisting of$150,730,000 Series 2005A-l (Taxable) (the "Series 2005A-I Notes"), $147,140,000 Series 2005A-2 (Taxable) (the "Series 2005A-2 Notes" and together with the Series 2005A-l Notes, the "Series 2005A Notes"), $67,865,000 Series 20058-1 (Tax-Exempt) (the "Series 20058-1 Notes''), $69,600,000 Series 20058-2 (Tax-Exempt) (the "Series 20058-2 Notes" and together with the Series 20058-1 Notes, the "Series 2005B Notes'') and $19,245,000 Series 2005C (Tax-Exempt) (the "Series 2OO5C Notes" and, together with the Series 2005A Notes and the Series 2005B Notes, the "Notes'') are being issued pursuant to Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act'') and an Indenture, dated as of March I, 2005 (the "Indenture"), by and between the California Statewide Communities Development Authority (the "Authority'') and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Series 2005A Notes are also referred to herein as the "Taxable Notes" and the Series 20058 Notes and the Series 2005C Notes are collectively referred to herein as the ''Tax-Exempt Notes." 146 local agencies within the State of California (the "Participants" and each, a "Participant") entitled to receive certain payments payable by the State of Cali fomi a (the "State") to each such local agency on or before August 15,2006, in connection with vehicle license fees pursuant to Section 10754.11 ofthe California Revenue and Taxation Code (as defined in Section 6585(i) of the California Government Code, for each such local agency, its "VLF Receivable" and collectively, the "VLF Receivables"), will sell the entire amount of their respective VLF Receivables to the Authority pursuant to separate Purchase and Sale Agreements, each dated March 2, 2005 (the "Purchase Agreements"), by and between the Authority and each respective Participant. The proceeds of the Notes will be used by the Authority to (i) purchase the VLF Receivables of the Participants pursuant to the Purchase Agreements, (ii) fund interest on the Notes through their maturity, (iii) pay trustee and other amounts expected to be payable under the Indenture through maturity of the Notes and (iv) pay costs of issuance incurred in connection with the Notes. The Notes will be issued in fully registered fonn and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York., New York ("DTC''), which will act as securities depository for the Notes. Individual purchases will be made in book-entry form in denominations of$5,000 or any integral multiple of$5,OOO in excess thereof. Purchasers of the Notes will not receive physical delivery of certificates representing their ownership interest in the Notes. See Appendix B-"BOOK ENTRY ONLY SYSTEM" attached hereto. Principal of and interest on the Notes will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of interests in the Notes. The Notes shall bear interest from their dated date through their maturity. Interest on the Notes is payable on May 15 and November 15 commencing on May 15, 2005 at the rates per annum set forth above. The Notes mature, subject to prior special mandatory redemption of the Series 2005C Notes, on November 15, 2006. The Series 2005A Notes and the Series 20058 Notes are D21 subject to redemption prior to their maturity as described herein. The Series 2005e Notes are subject to special mandatory redemption prior to their maturity as described herein. See "THE NOTES" herein. The scheduled payment of principal of and interest on the Series 2005A-l Notes and the Series 20058.1 Notes (the "FSA Notes") when due will be guaranteed under an insurance policy (the "FSA Insurance Policy") to be issued concurrently with the delivery ofthe FSA Notes by FINANCIAL SECURITY ASSURANCE INC. ("FSA"). See "FSA INSURANCE" and Appendix E-"SPECIMEN FSA MUNICIPAL 80ND INSURANCE POLlCY" attached hereto. The scheduled payment of principal of and interest on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes (the "XLCA Notes'') when due will be guaranteed under an insurance policy (the "XLCA Insurance Policy" and together with the FSA Insurance Policy, the "Insurance Policies") to be issued concurrently with the delivery of the XLCA Notes by XL CAPlT AL ASSURANCE INC. ("XLCA" and together with FSA, the "Insurers"). See "XLCA INSURANCE" and Appendix F-"SPECIMEN XLCA INSURANCE POLICY" attached hereto. rFSA. )X4bCAPITAL ASSURANCE. The Notes are secured by a pledge under the Indenture ofaB of the Revenues and any other amounts (including proceeds ofthe sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture pennitting the application thereof for the purposes and on the tenns and conditions set forth therein, as described herein. Revenues are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. Section 10754.11 of the California Revenue and Taxation Code (the "VLF Law") provides that the Controller (the "Controller") of the State shall transfer the Gap Amount (as herein defined) from the State General Fund to the Gap Repayment Fund created in the State Treasury (the "Gap Repayment Fund'') on or before August 15, 2006 and shall allocate a portion of the Gap Amount to each Participant as its respective VLF Receivable. The Controller has detennined the amount of the VLF receivable for each local agency in the State and based on such determination, the aggregate amount of the VLF Receivables ofthe Participants is $454,586,805.88. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTEs-General" herein. Payment of the VLF Receivables by the State depends upon various factors and no assurance can be made by the Authority that the State will transfer all or a portion of the amounts required under the VLF Law to pay the VLF Receivables or that the provisions of the VLF Law are enforceable against the State. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES," "STATE OF CALIFORNIA FINANCIAL INFORMATION" and "RISK FACTORS-Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition IA" herein. The obligation of the Insurers to pay under the Insurance Policies does not depend on the enforceability of the provisions ofthe VLF Law or the actual payment by the State ofthe VLF Receivables. See "FSA INSURANCE" and "XLCA INSURANCE" herein. The Notes are special obligations of the Authority and principal thereof and interest thereon are payable by the Authority solely from Revenues, including payments of the VLF Receivables, and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, as described herein. THE NOTES SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF THE NOTES, OR THE REDEMPTION PRICE OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PURCHASE AGREEMENTS AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF,INCLUDlNG THE AUTHORITY OR ANY PARTlCIPANT,IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES. THE ISSUANCE OF THE NOTES SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. THE PARTICIPANTS HAVE NO LIABILITY FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES ISSUED BY THE AUTHORITY. This cover page contains information for quick reference only. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Notes are offered when, as and if issued, subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel. Certain legal matters will be passed upon for the Authority by its disclosure counsel, Sidley Austin Brown & Wood LLP and for the Underwriters by their counsel, Nixon Peabody LLP. It is anticipated that the Notes will be available for delivery through the facilities ofDTC in New York, New York on or about March 17,2005. Citigroup E. J. De La Rosa & Co., Inc. Dated: March 2, 2005 r- CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY REVENUE ANTICIPATION NOTES (VEHICLE LICENSE FEE PROGRAM) CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY COMMISSION Chris K. McKenzie, Chairman Jim Keene, Vice Chairman Daniel Harrison, Secretary Norma Lanuners, Member Steve Keil, Member Paul Hahn, Member Ken Nishimoto, Member SPECIAL SERVICES Orrick, Herrington & Sutcliffe LLP Special Counsel Sidley Austin Brown & Wood LLP Disclosure Counsel Wells Fargo Bank, National Association Trustee (THIS PAGE INTENTIONALLY LEFT BLANK) No dealer, broker, salesperson or other person has been authorized by the Authority to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the Notes by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Notes. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation offacts. The information set forth in this Official Statement has been obtained from the Authority and other sources that are believed by the Authority to be reliable. 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 will under any circumstances create any implication that there has been no change in the affairs of the Authority, the State or any of the Participants since the date hereof. All summaries of the Notes, the Indenture, the Purchase Agreements, the Investment Agreement and other documents summarized herein, are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. This Official Statement is submitted in connection with the execution and delivery of the Notes referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. Other than with respect to information concerning Financial Security Assurance Inc. ("FSA") contained under "FSA INSURANCE" and Appendix E-"SPECIMEN FSA MUNICIPAL BOND INSURANCE POLICY" herein, none of the information in this Official Statement has been supplied or verified by FSA and FSA makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the FSA Notes; or (iii) the tax exempt status of the interest on the FSA Notes that are Tax-Exempt Notes. Other than with respect to information concerning XL Capital Assurance Inc. ("XLCA") contained under "XLCA INSURANCE," "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES-Investment of Amounts in Capitalized Interest Accounts," Appendix F-"SPEClMEN XLCA INSURANCE POLICY" and Appendix G-"SPEClMEN XLCA INVESTMENT AGREEMENT INSURANCE POLICY" herein, none of the information in this Official Statement has been supplied or verified by XLCA and XLCA makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the XLCA Notes; or (iii) the tax exempt status of the interest on the XLCA Notes that are Tax-Exempt Notes. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE NOTES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAYBE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. TABLE OF CONTENTS Page INTRODUCTION ........................................................................................................................................ I General .................................................................................................................... .............. .......... I Changes from Preliminary Official Statement.................................................................................2 The Notes ......................................................................................................................................... 2 FSA Insurance.............................. ................................................. ........................... ........................ 2 XLCA Insurance ..............................................................................................................................2 Security and Sources of Payment for the Notes............................................................................... 2 Limited Obligation........................................................................................................................... 3 The Authority............................... ................................. ................ ........................................... ........ 4 The State of Cali fomi a Financial Information.................................................................................4 Continuing Disclosure.............. ............................................... ....................... ................................. 4 Forward-Looking Statements........................................................................................................... 5 ESTIMATED APPLICATION OF FUNDS.................................................................................................5 THE NOTES ................................................................................................................................................. 6 General ............................................. ...................................... .......... ........ ..... ....... ........................... 6 Book-Entry..................................................................... ....................................................... ........... 6 Redemption ...................................................................................................................................... 6 FSA INSURANCE ....................................................................................................................................... 7 FSA Insurance Policy ...................................................................................................................... 7 Financial Security Assurance Inc.....................................................................................................8 XLCA INSURANCE....................................................................................................................................8 XLCA Insurance Policy ................................................................................................................... 8 General ............................................... ........................................... .................................................. 9 Reinsurance...... .......................... ................ ......... ...... ............ ........ ........ .......... ............ ...... ............... 9 Financial Strength and Financial Enhancement Ratings ofXLCA ...............................................10 Capitalization of XLCA................................................................................................................. 10 Regulation of XLCA...................................................................................................................... 10 SECURITY AND SOURCES OF PAYMENT FOR THE NOTES........................................................... II Pledge of Revenues............................... ........ ............... ............ ....................... ..... ............. ............. II Investment of Amounts in Capitalized Interest Accounts.............................................................. 12 VLF Receivables............................................................................................................................ 15 State Covenant Not to Impair; Compliance with Proposition IA.................................................. 17 Limited Obligation......................................................................................................................... 17 STATE OF CALIFORNIA FINANCIAL INFORMATION .....................................................................18 THE AUTHORITY .................................................................................................................................... 19 RISK FACTORS ........................................................................................................................................ 19 Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition IA .................................................................................................................. 19 Limited Obligations of the Authority ............................................................................................ 21 TABLE OF CONTENTS (continued) Page State of Cali fomi a Financial Infonnation ......................................................................................21 Effect of Bankruptcy of the Participants or the Authority ............................................................. 21 Limited Remedies ..........................................................................................................................22 Loss of Tax-Exemption.......................................................... ........................................................ 22 TAX MATTERS.........................................................................................................................................23 CERTAIN LEGAL MATTERS..................................................................................................................25 NO LITIGATION ....................................................................................................................................... 25 RATINGS ...................................................................................................................................................25 UNDERWRITING .....................................................................................................................................25 CONTINUING DISCLOSURE .................................................................................................................. 26 ADDITIONAL INFORMATION ...............................................................................................................26 APPENDIX A- SUMMARY OF CERTAIN PRINCIPAL DOCUMENTS...........................................A_I APPENDIX B - BOOK-ENTRY ONLY SYSTEM ................................................................................B-I APPENDIX C - FORM OF CONTINUING DISCLOSURE AGREEMENT......................................... C-I APPENDIX D - PROPOSED FORM OF SPECIAL COUNSEL OPINION ..........................................D-I APPENDIX E - SPECIMEN FSA MUNICIPAL BOND INSURANCE POLICy................................. E-I APPENDIX F - SPECIMEN XLCA INSURANCE POLICy................................................................. F-I APPENDIX G - SPECIMEN XLCA INVESTMENT AGREEMENT INSURANCE POLICY ............G-I ii $454,580,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY REVENUE ANTICIPATION NOTES (VEHICLE LICENSE FEE PROGRAM) Sl~O.7J.O,OOO SUIES 20IM_) (TAXABLE) ".ftO%Prk"'IO\'ldd3.%~. CUSJPNo.13ll9l1D31 5147,140.100 Sl:RlES 1~A_2 (TAXABLE) 4.00"4PrI<<108.800 CUSJPNo,I)(l9I1D49 S67.86~.OOO SERIES 200!1IJ..I (TAX-EXEMPT) 4.00~.PrkedIO"kld2..W"/. CUSIPNo.1309I1M6 $69.600.000 SERIES ZOO!'i8-1 (TAX-EXEMPT) 4.00~.Prkedt..\'leld2.62% CUSIPNo.13t911D64 $19,245,010 SERIES 2005C (TAX_EXEMPT) 3h~O%PrleedIClYI,ld2.6!Ii% CUSIPNo.I)(l911D7Z INTRODUCTION General This introduction contains only a brief summary of certain of the terms of the Notes being offered and a brief description of the entire Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of, provisions of the Constitution and laws of the State of California and any documents referred to in this Official Statement do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. All capitalized terms used in this Official Statement and not otherwise defined herein shall have the meanings set forth in the Indenture. See Appendix A- "SUMMARY OF CERTAIN PRINCIPAL DOCUMENTS" attached hereto. This Official Statement, including the cover page and attached appendices (the "Official Statement"), provides certain information concerning the issuance of the $454,580,000 aggregate principal amount of California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program), consisting of $150,730,000 Series 2005A-I (Taxable) (the "Series 2005A-I Notes"), $147,140,000 Series 2005A-2 (Taxable) (the "Series 2005A-2 Notes" and together with the Series 2005A-I Notes, the "Series 2005A Notes"), $67,865,000 Series 2005B-I (Tax- Exempt) (the "Series 2005B-I Notes"), $69,600,000 Series 2005B-2 (Tax-Exempt) (the "Series 2005B-2 Notes" and together with the Series 2005B-I Notes, the "Series 2005B Notes") and $19,245,000 Series 2005C (Tax-Exempt) (the "Series 2005C Notes" and, together with the Series 2005A Notes and the Series 2005B Notes, the "Notes"). The Series 2005A Notes are also referred to herein as the "Taxable Notes" and the Series 2005B Notes and the Series 2005C Notes are collectively referred to herein as the "Tax-Exempt Notes." The Notes are being issued pursuant to Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title I of the Government Code of the State of California (the "Act") and an Indenture, dated as of March I, 2005 (the "Indenture"), by and between the California Statewide Communities Development Authority (the "Authority") and Wells Fargo Bank, National Association, as tmstee (the "Trustee"). 146 local agencies within the State of California (the "Participants" and each, a "Participant") entitled to receive certain payments payable by the State of California (the "State") to each such local agency on or before August 15, 2006, in connection with vehicle license fees pursuant to Section 10754.11 of the California Revenue and Taxation Code (as defined in Section 6585(i) of the California Government Code, for each such local agency, its "VLF Receivable" and collectively, the "VLF Receivables"), will sell the entire amount of their respective VLF Receivables to the Authority pursuant to separate Purchase and Sale Agreements, each dated March 2, 2005 (the "Purchase Agreements"), by and between the Authority and each respective Participant. The proceeds of the Notes will be used by the Authority to (i) purchase the VLF Receivables of the Participants pursuant to the Purchase Agreements, (ii) fund interest on the Notes through their maturity, (iii) pay tmstee and other amounts expected to be payable under the Indenture through maturity of the Notes and (iv) pay costs of issuance incurred in connection with the Notes. Changes from Preliminary Official Statement This Official Statement contains a change to the date of delivery of the Notes to March 17, 2005 from that reflected in the Preliminary Official Statement dated February 23, 2005 (the "Preliminary Official Statement"). This Official Statement also contains additional information regarding investment and application of amounts on deposit in the Capitalized Interest Accounts (defined below) which was not available for inclusion in the Preliminary Official Statement. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES-Investment of Amounts in Capitalized Interest Accounts" herein. This Official Statement also contains revised special mandatory redemption provisions for the Series 2005C Notes from that reflected in the Preliminary Official Statement. See "THE NOTES-Redemption- Special Mandatory Redemption" herein. The Notes The Notes will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Notes. Individual purchases will be made in book-entry form in denominations of $5,000 or any integral multiple of $5,000 in excess thereof. Purchasers of the Notes will not receive physical delivery of certificates representing their ownership interest in the Notes. Principal of and interest on the Notes will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of interests in the Notes. See Appendix B-"BOOK ENTRY ONLY SYSTEM" attached hereto. The Notes will bear interest at the rates per annum set forth on the cover page hereof and mature, subject to prior special mandatory redemption of the Series 2005C Notes, on November 15, 2006. Interest on the Notes is payable on May IS and November 15, commencing on May 15, 2005. The Series 2005A Notes and the Series 2005B Notes are not subject to redemption prior to their maturity as described herein. The Series 2005C Notes are subject to special mandatory redemption prior to their maturity as described herein. See "THE NOTES" herein. FSA Insurance The scheduled payment of principal of and interest on the Series 2005A-I Notes and the Series 2005B-I Notes (the "FSA Notes") when due will be guaranteed under an insurance policy (the "FSA Insurance Policy") to be issued concurrently with the delivery of the FSA Notes by FINANCIAL SECURITY ASSURANCE INC ("FSA"). See "FSA INSURANCE" and Appendix E-"SPEClMEN FSA MUNICIPAL BOND INSURANCE POLICY" attached hereto. XLCA Insurance The scheduled payment of principal of and interest on the Series 2005 A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes (the "XLCA Notes") when due will be guaranteed under an insurance policy (the "XLCA Insurance Policy" and together with the FSA Insurance Policy, the "Insurance Policies") to be issued concurrently with the delivery of the XLCA Notes by XL Capital Assurance Inc. ("XLCA" and together with FSA, the "Insurers"). See "XLCA INSURANCE" and Appendix F-"SPECIMEN XLCA INSURANCE POLICY" herein. Security and Sources of Payment for the Notes The Notes are secured by a pledge under the Indenture of all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of 2 , the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without limitation, application of amounts on deposit in the 2005A- I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-I Notes through their maturity, application of amounts on deposit in the 2005B-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-I Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. The Revenues that secure the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. Section 10754.11 of the California Revenue and Taxation Code (the "VLF Law") provides that on or before August 15, 2006 (the "Gap Repayment Date") the Controller (the "Controller") of the State shall transfer from the General Fund of the State (the "State General Fund") to the Gap Repayment Fund created in the State Treasury (the "Gap Repayment Fund") an amount equal to the total offsets that were applied to new vehicle registrations before October I, 2003 and that were applied to vehicle license fees with a due date before October I, 2003 that were not transferred into the Motor Vehicle License Fee Account in the Transportation Tax Fund and the Local Revenue Fund (collectively, the "Gap Amount"), which amount will be allocated to each Participant as its respective VLF Receivable and each other county and city in the State (collectively, the "Local Agencies"). The Controller has determined the amount of the VLF receivable for each local agency in the State and based on such determination, the aggregate amount of the VLF Receivables of the Participants is $454,586,805.88. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES" herein. Payment ofthe VLF Receivables by the State depends upon various factors and no assurance can be made by the Authority that the State will transfer all or a portion of the amounts required under the VLF Law to pay the VLF Receivables or that the provisions of the VLF Law are enforceable against the State. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES," "STATE OF CALIFORNIA FINANCIAL INFORMATION" and "RISK FACTORS-Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition IA" herein. The obligation of the Insurers to pay under the Insurance Policies does not depend on the enforceability of the provisions of the VLF Law or the actual payment by the State of the VLF Receivables. See "FSA INSURANCE" and "XLCA INSURANCE" herein. Limited Obligation The Notes are special obligations of the Authority and principal thereof and interest thereon are payable by the Authority solely from all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without limitation, application of amounts on deposit in the 2005A-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-l Notes through their maturity, application of amounts on deposit in the 2oo5B-1 Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-I Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. The Revenues that secure the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. THE NOTES SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL 3 OF THE NOTES, OR THE REDEMPTION PRICE OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PURCHASE AGREEMENTS AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY OR ANY PARTICIPANT, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES. THE ISSUANCE OF THE NOTES SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. THE PARTICIPANTS HAVE NO LIABILITY FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES ISSUED BY THE AUTHORITY. The Authority The Authority is a public entity organized pursuant to a Joint Powers Agreement among a number of California counties, cities and special districts entered into pursuant to the provisions relating to the joint exercise of powers contained in the Act. Pursuant to Section 6588.5(a) of the Act, the Authority is authorized to purchase, with the proceeds of its bonds or its revenue, VLF receivables from one or more local agencies and pledge, assign, resell or otherwise transfer or hypothecate any VLF receivables for the purpose of securing bonds issued to finance the purchase price of the VLF receivables. The State of California Financial Information The Revenues securing the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES" herein. Payment of the VLF Receivables by the State depends upon various factors and no assurance can be made by the Authority that the State will transfer all or a portion of the amounts required under the VLF Law to pay the VLF Receivables or that the provisions of the VLF Law are enforceable against the State. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES," "STATE OF CALIFORNIA FINANCIAL INFORMATION" and "RISK FACTORS-Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition IA" herein. The State has experienced severe budget shortfalls in recent fiscal years and reportedly anticipates that such budget shortfalls will continue through fiscal years 2005-06 and 2006-07. The official statement of the State dated February 16, 2005 relating to its $150,000,000 Various Purpose General Obligation Bonds and its $794,105,000 General Obligation Refunding Bonds (the "State Disclosure Document") is available from the Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs"); the information in such official statement is not incorporated herein by reference. The State Disclosure Document referenced in this paragraph was prepared by the State and not by the Authority. The Authority and the Underwriters identified on the cover page hereof take no responsibility for the accuracy of the information relating to the State or any other information set forth in such State Disclosure Document. See "STATE OF CALIFORNIA FINANCIAL INFORMATION" herein. Continuing Disclosure Pursuant to a Continuing Disclosure Agreement dated as of March I, 2005 (the "Continuing Disclosure Agreement"), the Authority has covenanted to provide, or cause to be provided, not later than February I in each year, commencing on February I, 2006, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a 4 state repository (each, a "Repository") reference to (but not an incorporation by reference of) the most recent information relating to the State General Fund that has been filed with a Repository or U.S. Securities and Exchange Commission (the "SEC"), which may be an official statement or annual report filed by the State with any Repository or the SEC as provided under Rule l5c2-12(b)(5) (the "Rule") promulgated by the SEC, and notice of certain material events. See "CONTINUING DISCLOSURE" herein and Appendix C-"FORM OF CONTINUING DISCLOSURE AGREEMENT" attached hereto. 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," "budget" or other similar words. Tbe 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. No assurance can be made that actual results will meet any forecasts in any way. Except as set forth in the Continuing Disclosure Agreement, the Authority does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur or do not occur. ESTIMATED APPLICATION OF FUNDS Tbe proceeds of the Notes are expected to be applied approximately as set forth below: Series 2005A Series 2005B Series 2005C Notes Notes Notes Total Sources: Principal Amount $297,870,000.00 $137,465,000.00 $19,245,000.00 $454,580,000.00 Net Premium 88,930.70 3,093,224.75 263,464.05 3,445,619.50 Total Sources $297,958,930.70 $140,558,224.75 $19,508,464.05 $458,025,619.50 Uses: Purchase ofVLF Receivables $271,431,255.66 $131,993,295.19 $19,266,983.43 $422,691,534.28 Deposit to Note Fund(1) 22,352,775.64 6,681,453.25 29,034,228.89 Costs of Issuance(2) 4,174,899.40 1,883,476.31 241,480.62 6,299,856.33 Total Uses $297,958,930.70 $140,558,224.75 $19,508,464.05 $458,025,619.50 Includes capitalized interest on the Notes for the period from their dated date through their maturity. Includes legal fees, trustee fees payable under the Indenture, rating agency fees, financial guaranty insurance premiums, printing costs, underwriters' discount and other costs of issuance. (II (2) A portion of the proceeds of the Series 2005A-1 Notes will be deposited in 2005A-l Capitalized Interest Account in the Note Fund to pay capitalized interest on the Series 2005A-l Notes through their maturity. A portion of the proceeds of the Series 2005B-l Notes will be deposited in 2005B-I Capitalized Interest Account in the Note Fund to pay capitalized interest on the Series 2005B-l Notes through their maturity. A portion of the proceeds of the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes will be deposited in 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. The 2005A-l Capitalized Interest Account, the 2005B-l Capitalized Interest Account and the 2005A-2/B-2/C Capitalized Interest Account are collectively referred to herein as the "Capitalized Interest Accounts." See "SECURITY AND SOURCES OF 5 PAYMENT FOR THE NOTES-Investment of Amounts in Capitalized Interest Accounts" herein for a discussion of the investment of amounts on deposit in the Capitalized Interest Accounts. THE NOTES General The Notes will be issued in fully registered form in denominations of $5,000 or any integral multiple of $5,000 in excess thereof. The Notes shall bear interest from their dated date through their maturity. Interest on the Notes is payable on May 15 and November IS, commencing on May 15,2005 at the rates per annum set forth on the cover page hereof. Interest on the Notes shall be calculated on the basis of a 360-day year of twelve 30-day months. The Notes mature, subject to prior special mandatory redemption of the Series 2005C Notes, on November 15,2006. Book-Entry The Notes will be delivered in book-entry form only and when issued and authenticated, will be registered in the name of Cede & Co., as nominee of DTC, which will act as securities depository for the Notes. Individual purchases of the Notes will be made in book-entry form only. Purchasers ofthe Notes will not receive physical delivery of certificates representing their ownership interests in the Notes purchased. Principal of and interest on the Notes will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of interests in the Notes. See Appendix B-"BOOK ENTRY ONLY SYSTEM" attached hereto. Redemption The Series 2005A Notes and the Series 2005B Notes are not subject to redemption prior to their maturity. Special Mandatory Redemption. The Series 2005C Notes are subject to mandatory redemption prior to their maturity date, at a redemption price of par plus accrued interest to October 13, 2006 (the "Special Redemption Date") as a whole or in part by lot, on the Special Redemption Date, in an amount (the "Special Redemption Amount") equal to (x) the principal amount of the Series 2005C Notes Outstanding, multiplied by (y) the Special Redemption Percentage, without premium. The redemption price shall be paid, (i) as to principal, from Revenues received by the Trustee and held in the Tax-Exempt Debt Service Account as of September 29, 2006, the date on which notice of special mandatory redemption must be mailed pursuant to the Indenture (the "Special Redemption Notice Date"), and (ii) as to accrued interest, from amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account. "Special Redemption Percentage" means a fraction, the numerator of which shall be the dollar amount of Revenues deposited with the Trustee in the Note Fund (exclusive of earnings thereon and amounts on deposit in the Capitalized Interest Accounts therein) as of the Special Redemption Notice Date, and the denominator of which shall be the aggregate amount of the VLF Receivables of the Participants ($454,586,805.88). Selection of Series 2005e Notes for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Series 2005C Notes, the Trustee shall select the Series 2005C Notes to be redeemed by lot from the Outstanding Series 2005C Notes not previously called for redemption. Notice of Redemption. Notice of redemption shall be given by the Trustee to the respective Holders of any Series 2005C Notes designated for redemption at their addresses appearing on the Note 6 registration books of the Trustee. Each notice of redemption shall state the date of such notice (which shall be the Special Redemption Notice Date), the redemption date (which shall be the Special Redemption Date), the place or places of redemption (including the name and appropriate address or addresses of the Trustee), the CUSIP number (if any), and, if less than all the Series 200SC Notes are to be redeemed, the series and distinctive certificate numbers of the Series 200SC Notes to be redeemed and, in the case of Series 200SC Notes to be redeemed in part only, the respective portion 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 said Series 200SC Notes the specified portion of the principal amount thereof in the case of a Series 200SC Note to be redeemed in part only, and that from and after such redemption date interest thereon shall cease to accrue and shall require that such Series 200SC Notes be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Any notice of redemption shall be mailed by first class mail, postage prepaid, to Noteholders on the Special Redemption Notice Date. Failure of the Trustee to give any such redemption notice to any Noteholder as described above, or the insufficiency of any such notice, shall not affect the sufficiency of the proceedings for redemption of any 200SC Note for which notice was properly given. Partial Redemption of Series 2005e Notes. Upon surrender of any Series 200SC Note redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Authority, a new Series 200SC Note or Series 200SC Notes of Authorized Denominations, of the same series, tenor and maturity date and equal in aggregate principal amount to the unredeemed portion of the Series 200SC Note surrendered. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price of the Series 200SC Notes (or portions thereof) so called for redemption, together with interest accrued to the date fixed for redemption, being held by the Trustee on the redemption date designated in such notice, the Series 200SC Notes (or portions thereof) so called for redemption shall become due and payable at the redemption price specified in such notice, interest on the Series 200SC Notes so called for redemption shall cease to accrue from and after the redemption date, said Series 200SC Notes (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Holders of said Series 200SC Notes shall have no rights in respect thereof except to receive payment of said redemption price and interest accrued to the date fixed for redemption from such moneys held by the Trustee for such purpose, and such money shall be pledged to such payment. FSAINSURANCE The following information has been supplied by FSA for inclusion in this Official Statement. No representation is made by the Authority or the Underwriters as to the accuracy or completeness of the information. FSA Insurance Policy Concurrently with the issuance of the Series 200SA-1 Notes and the Series 200SB-1 (the "FSA Notes"), Financial Security Assurance Inc. ("FSA") will issue its Municipal Bond Insurance Policy for the FSA Notes (the "FSA Insurance Policy"). The FSA Insurance Policy guarantees the scheduled payment of principal of and interest on the FSA Notes when due as set forth in the form of the FSA Insurance Policy included as Appendix E-"SPECIMEN FSA MUNICIPAL BOND INSURANCE POLICY" attached hereto. 7 The FSA Insurance Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Financial Security Assurance Inc. FSA is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of De xi a, S.A., a publicly held Belgian corporation, and of Dexia Credit Local, a direct wholly- owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or FSA is liable for the obligations ofFSA. At September 30, 2004 FSA's total policyholders' surplus and contingency reserves were approximately $2,255,933,000 and its total unearned premium reserve was approximately $1,561,771,000 in accordance with statutory accounting practices. At September 30, 2004, FSA's total shareholder's equity was approximately $2,612,989,000 and its total net unearned premium reserve was approximately $1,286,985,000 in accordance with generally accepted accounting principles. The financial statements included as exhibits to the annual and quarterly reports filed by Holdings with the Securities and Exchange Commission are hereby incorporated herein by reference. Also incorporated herein by reference are any such financial statements so filed from the date of this Official Statement until the termination of the offering of the FSA Notes. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 350 Park Avenue, New York, New York 10022, Attention: Communications Department (telephone (212)826-0100). The FSA Insurance Policy does not protect investors against changes in market value of the FSA Notes, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. FSA makes no representation regarding the FSA Notes or the advisability of investing in the FSA Notes. FSA makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that FSA has provided to the Authority the information presented under this caption for inclusion in the Official Statement. XLCAINSURANCE The following information has been supplied by XLCA for inclusion in this Official Statement. No representation is made by the Authority or the Underwriters as to the accuracy or completeness of the information. XLCA accepts no responsibility for the accuracy or completeness of this Official Statement or any other information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding XLCA and its affiliates set forth under this heading. In addition, XLCA makes no representation regarding the XLCA Notes or the advisability of investing in the XLCA Notes. XLCA Insurance Policy Concurrently with the issuance of the Series 2005 A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes (the "XLCA Notes"), XL Capital Assurance Inc. ("XLCA") will issue its financial guaranty insurance policy for the XLCA Notes (the "XLCA Insurance Policy"). The XLCA Insurance Policy guarantees the scheduled payment of principal of and interest on the XLCA Notes when due as set 8 forth in the form of the XLCA Insurance Policy included as Appendix F-"SPECIMEN XLCA INSURANCE POLICY" attached hereto. General XLCA is a monoline financial guaranty insurance company incorporated under the laws of the State of New York. XLCA is currently licensed to do insurance business in, and is subject to the insurance regulation and supervision by, the State of New York, forty-eight other states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Singapore. XLCA has a license application pending with the State of Wyoming, the only state in which it is not currently licensed. XLCA is an indirect wholly owned subsidiary of XL Capital Ltd, a Cayman Islands corporation ("XL Capital Ltd"). Through its subsidiaries, XL Capital Ltd is a leading provider of insurance and reinsurance coverages and financial products to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. The common stock of XL Capital Ltd is publicly traded in the United States and listed on the New York Stock Exchange (NYSE: XL). XL Capital Ltd is not obligated to pay the debts of or claims against XLCA. XLCA was formerly known as The London Assurance of America Inc. ("London"), which was incorporated on July 25, 1991 under the laws of the State of New York. On February 22, 2001, XL Reinsurance America Inc. ("XL Re") acquired 100% of the stock of London. XL Re merged its former financial guaranty subsidiary, known as XL Capital Assurance Inc. (formed September 13, 1999) with and into London, with London as the surviving entity. London immediately changed its name to XL Capital Assurance Inc. All previous business of London was 100% reinsured to Royal Indemnity Company, the previous owner at the time of acquisition. Reinsurance XLCA has entered into a facultative quota share reinsurance agreement with XL Financial Assurance Ltd ("XLF A"), an insurance company organized under the laws of Bermuda, and an affiliate of XLCA. Pursuant to this reinsurance agreement, XLCA expects to cede up to 90% of its business to XLF A. XLCA may also cede reinsurance to third parties on a transaction-specific basis, which cessions may be any or a combination of quota share, first loss or excess of loss. Such reinsurance is used by XLCA as a risk management device and to comply with statutory and rating agency requirements and does not alter or limit XLCA's obligations under any financial guaranty insurance policy. With respect to any transaction insured by XLCA, the percentage of risk ceded to XLF A may be less than 90% depending on certain factors including, without limitation, whether XLCA has obtained third party reinsurance covering the risk. As a result, there can be no assurance as to the percentage reinsured by XLF A of any given financial guaranty insurance policy issued by XLCA, including the Policy. Based on the audited financials of XLFA, as of December 31, 2003, XLFA had total assets, liabilities, redeemable preferred shares and shareholders' equity of $831,762,000, $401,123,000, $39,000,000 and $391,639,000, respectively, determined in accordance with generally accepted accounting principles in the United States. XLFA's insurance financial strength is rated "Aaa" by Moody's and "AAA" by S&P and Fitch Inc. In addition, XLFA has obtained a financial enhancement rating of"AAA" from S&P. The obligations of XLF A to XLCA under the reinsurance agreement described above are unconditionally guaranteed by XL Insurance (Bermuda) Ltd ("XLI"), a Bermuda company and one of the world's leading excess commercial insurers. XLI is a wholly owned indirect subsidiary of XL Capital Ltd. In addition to A.M. Best's rating of "A +" (Negative Outlook), XLI's insurance financial strength 9 rating is "Aa2" (Outlook Negative) by Moody's, "AA-" by S&P and "AA" (Ratings Watch Negative) by Fitch. The ratings of XLF A and XLI are not recommendations to buy, sell or hold securities, including the XLCA Notes and are subject to revision or withdrawal at any time by Moody's, S&P or Fitch. Notwithstanding the capital support provided to XLCA described in this section, the XLCA Noteholders will have direct recourse against XLCA only, and neither XLFA nor XLI will be directly liable to the XLCA Noteholders. Financial Strength and Financia] Enhancement Ratings of XLCA XLCA's insurance financial strength is rated "Aaa" by Moody's and "AAA" by S&P and Fitch, Inc. ("Fitch"). In addition, XLCA has obtained a financial enhancement rating of "AAA" from S&P. These ratings reflect Moody's, S&P and Fitch's current assessment of XLCA's creditworthiness and claims-paying ability as well as the reinsurance arrangement with XLF A described under "Reinsurance" above. The above ratings are not recommendations to buy, sell or hold securItIes, including the XLCA Notes and are subject to revision or withdrawal at any time by Moody's, S&P or Fitch. Any downward revision or withdrawal of these ratings may have an adverse effect on the market price of the XLCA Notes. XLCA does not guaranty the market price ofthe XLCA Notes nor does it guaranty that the ratings on the XLCA Notes will not be revised or withdrawn. Capitalization of XLCA Based on the audited statutory financial statements for XLCA as of December 31, 2002 filed with the State of New York Insurance Department, XLCA has total admitted assets of $]80,993,189, total liabilities of $58,685,217 and total capital and surplus of $122,307,972 determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities ("SAP"). Based on the audited statutory financial statements for XLCA as of December 31, 2003 filed with the State of New York Insurance Department, XLCA has total admitted assets of $329,701,823, total liabilities of $121,635,535 and total capital and surplus of $208,066,288 determined in accordance with SAP. For further information concerning XLCA and XLFA, see the financial statements ofXLCA and XLF A, and the notes thereto, incorporated by reference in this Official Statement. The financial statements of XLCA and XLF A are included as exhibits to the periodic reports filed with the Securities and Exchange Commission (the "Commission") by XL Capital Ltd and may be reviewed at the EDGAR website maintained by the Commission. All financial statements of XLCA and XLF A included in, or as exhibits to, documents filed by XL Capital Ltd pursuant to Section ]3(a), B(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or prior to the date of this Official Statement, or after the date of this Official Statement but prior to termination of the offering of the XLCA Notes, shall be deemed incorporated by reference in this Official Statement. Except for the financial statements of XLCA and XLF A, no other information contained in XL Capital Ltd's reports filed with the Commission is incorporated by reference. Copies of the statutory quarterly and annual statements filed with the State of New York Insurance Department by XLCA are available upon request to the State of New York Insurance Department. Regulation ofXLCA XLCA is regulated by the Superintendent of Insurance of the State of New York. In addition, XLCA is subject to regulation by the insurance laws and regulations of the other jurisdictions in which it is licensed. As a financial guaranty insurance company licensed in the State of New York, XLCA is 10 subject to Article 69 of the New York Insurance Law, which, among other things, limits the business of each insurer to financial guaranty insurance and related lines, prescribes minimum standards of solvency, including minimum capital requirements, establishes contingency, loss and unearned premium reserve requirements, requires the maintenance of minimum surplus to policyholders and limits the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. XLCA is also required to file detailed annual financial statements with the New York Insurance Department and similar supervisory agencies in each of the other jurisdictions in which it is licensed. The extent of state insurance regulation and supervision varies by jurisdiction, but New York and most other jurisdictions have laws and regulations prescribing pennitted investments and governing the payment of dividends, transactions with affiliates, mergers, consolidations, acquisitions or sales of assets and incurrence of liabilities for borrowings. THE FINANCIAL GUARANTY INSURANCE POLICIES ISSUED BY XLCA, INCLUDING THE INSURANCE POLICY, ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. The principal executive offices ofXLCA are located at 1221 Avenue of the Americas, New York, New York 10020 and its telephone number at this address is (212) 478-3400. SECURITY AND SOURCES OF PAYMENT FOR THE NOTES Pledge of Revenues The Notes are secured by a pledge under the Indenture of all of the Revenues and any other amounts (including proceeds ofthe sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without limitation, application of amounts on deposit in the 2005A-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-I Notes through their maturity, application of amounts on deposit in the 2005B-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-I Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. "Revenues" means all payments received by the Authority or the Trustee with respect to the VLF Receivables of the Participants, amounts received under the Insurance Policies to pay principal of and interest on the Notes, and all income derived from the investment of any money in any fund or account established pursuant to the Indenture. Pursuant to the Indenture, the Authority has transferred in trust, granted as a security interest in and assigned to the Trustee, for the benefit of the Holders from time to time of the Notes, all of the Revenues and other amounts pledged pursuant to the Indenture as described above and all of the right, title and interest of the Authority in the Purchase Agreements with the Participants (except for the right to receive any indemnification and the right to receive any notices and reports). The Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and shall (subject to the provisions of the Indenture) take all steps, actions and proceedings following any Event of Default under the Indenture reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority assigned to the Trustee. All Revenues shall be held in trust for the benefit of the Holders from time to time of the Notes but shall 11 nevertheless be disbursed, allocated and applied solely for the uses and purposes set forth In the Indenture. Investment of Amounts in Capitalized Interest Accounts General. A portion of the proceeds of the Series 2005A-I Notes will be deposited in 2005A-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-I Notes through their maturity. Amounts on deposit in the 2005A-I Capitalized Interest Account may be invested in Eligible Securities pursuant to the Indenture and will be initially invested in U.S. Treasury obligations. See Appendix A-"SUMMARY OF CERTAIN PRINCIPAL DOCUMENTS" attached hereto. A portion of the proceeds of the Series 2005B-I Notes will be deposited in 2005B- I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-I Notes through their maturity. Amounts on deposit in the 2005B- I Capitalized Interest Account may be invested in Eligible Securities pursuant to the Indenture and will be initially invested in U.S. Treasury obligations. See Appendix A-"SUMMARY OF CERTAIN PRINCIPAL DOCUMENTS" attached hereto. A portion of the proceeds of the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes will be deposited in 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. Amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account may be invested in Eligible Securities pursuant to the Indenture, including investment agreements meeting certain specified requirements. See Appendix A-"SUMMARY OF CERTAIN PRINCIPAL DOCUMENTS" attached hereto and "-Investment Agreement" below. Investment Agreement. Amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account will be invested through the maturity of the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes in an investment agreement (the "Investment Agreement") to be entered into on the date of issuance of the Notes by and between XL Asset Funding Company I LLC (the "Investment Agreement Provider"), the Authority and the Trustee. Capitalized interest on the FSA Notes will not be payable from amounts invested in the Investment Agreement. On the date of issuance of the Notes, the Trustee will invest $14,983,959.15 of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account with the Investment Agreement Provider pursuant to the Investment Agreement. The Investment Agreement will terminate on November 15, 2006, or if such day is not a Business Day, the next succeeding Business Day, or such earlier date upon which the Investment Agreement is terminated by its terms or all monies are withdrawn thereunder pursuant to the terms thereof (the "Investment Agreement Termination Date"). Interest at 3.562% per annum, calculated on the basis of a 360-day year composed of twelve 30-day months on the outstanding principal balance of the amount invested thereunder will accrue daily as of the close of business each day from and including the date of receipt thereof by the Investment Agreement Provider to, but excluding the earlier of the Investment Agreement Termination Date and the date remitted to the Trustee as provided in the Investment Agreement, at the interest rate described above (the "Investment Agreement Interest Rate") with respect thereto; provided that no interest will accrue on or after such Investment Agreement Termination Date. The Trustee may make withdrawals under the Investment Agreement for any purpose for which amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account may be withdrawn pursuant to the Indenture. If not earlier repaid in full pursuant to the provisions of the Investment Agreement, the outstanding principal balance of the amounts invested thereunder, together with all unpaid eamings thereon, will be repaid in full by the Investment Agreement Provider to the Trustee on the 12 Investment Agreement Termination Date upon written notice from the Trustee to the Investment Agreement Provider. The Investment Agreement Provider is a Delaware limited liability company that is engaged in the business of issuing financial instruments to municipalities and entering into investment agreements. The Investment Agreement Provider is an affiliate of XLCA. Concurrently with the execution and delivery of the Investment Agreement, XLCA will issue its financial guaranty insurance policy for the Investment Agreement (the "XLCA Investment Agreement Insurance Policy"). The XLCA Investment Agreement Insurance Policy guarantees the scheduled payments of the Investment Agreement Provider under the Investment Agreement when due as set forth in the form of the XLCA Investment Agreement Insurance Policy included as Appendix G- "SPECIMEN XLCA INVESTMENT AGREEMENT INSURANCE POLICY" attached hereto. For information on XLCA, see "XLCA INSURANCE" herein. In the event XLCA's insurance financial strength rating or equivalent falls below AA- by S&P or below Aa3 by Moody's, respectively, or is suspended or withdrawn, XLCA as the Insurer for the XLCA Notes, the Trustee and the Authority shall be notified in writing within five Business Days of such event, and the Investment Agreement Provider will have the right (but not the obligation), within 30 Business Days of the publication of such rating downgrade, to (i) transfer the Investment Agreement and its rights and obligations thereunder to an entity approved by XLCA as the Insurer for the XLCA Notes, which approval shall not be unreasonably withheld, conditioned or delayed whose long-term, senior unsecured debt obligations are rated or whose insurance financial strength rating or equivalent is at least "AA-" by S&P and at least "Aa3" by Moody's, respectively, (ii) deliver a replacement investment agreement insurance policy of a replacement insurer whose insurance financial strength rating or equivalent is at least "AA-" by S&P and at least "Aa3" by Moody's, respectively, and if such replacement insurer is not an affiliate of XLCA, which is approved by XLCA as the Insurer for the XLCA Notes, which approval shall not be unreasonably withheld, conditioned or delayed or (iii) deliver and grant to the Trustee as custodian, a first priority perfected security interest in and to the collateral free and clear of all liens and claims of any third parties in an amount which shall be at least equal to the Collateral Requirement (defined below) for the entire balance of the investment then on deposit. If within five Business Days of the notice of a ratings downgrade delivered by the Investment Agreement Provider as described above, the Investment Agreement Provider receives written notice from the Trustee that, if the Investment Agreement Provider does not satisfy the requirements of clause (i), (ii), or (iii) above within such 30 Business Day period, then the Trustee, at the written direction of XLCA as the Insurer for the XLCA Notes, intends to withdraw the entire balance of the investment then on deposit under the Investment Agreement, together with all the unpaid earnings thereon, plus or minus any Breakage Amount (defined below) due, the Investment Agreement Provider will, if the requirements of clause (i), (ii), or (iii) have not been timely satisfied, pay such balance, plus or minus any Breakage Amount due, to the Trustee at the end of such 30 Business Day period. Upon any such withdrawal, the Investment Agreement shall terminate. If any insurance financial strength rating or equivalent rating of the Investment Agreement Insurer or any replacement insurer as the case may be, is suspended, withdrawn or falls below "A-" from S&P or "A3" from Moody's, respectively, the Investment Agreement Provider shall give written notice of the same to the Trustee, XLCA as the Insurer for the XLCA Notes and the Authority promptly (but in any event within two Business Days of publication of such rating downgrade), and the Investment Agreement Provider will pay the balance of the investment thereunder to the Trustee, plus or minus any Breakage Amount due, within 10 Business Days of such publication date together with any accrued earnings thereon. Upon any such withdrawal and payment of the Breakage Amount due, if any, the Investment Agreement shall terminate. 13 "Breakage Amount" under the Investment Agreement means an amount calculated as follows: the Authority shall solicit quotations from at least three nationally recognized providers of guaranteed investment contracts reasonably acceptable to the Investment Agreement Provider and qualified and willing to enter into such a contract with the Trustee with respect to moneys invested under the Investment Agreement, with each such quotation to disclose the rate of earnings (the "Investment Agreement Replacement Rate") such provider would pay on the investment thereunder from the actual Investment Agreement Termination Date on the same terms and conditions as provided in the Investment Agreement. If more than three quotations are obtained, the Investment Agreement Replacement Rate shall be the arithmetic mean of such quotations, without regard to the quotations having the highest and lowest rates. If exactly three quotations are received, the Investment Agreement Replacement Rate shall be the rate remaining after disregarding the quotations having the highest and lowest rates. Alternatively, the Investment Agreement Provider and the Authority can agree to the Investment Agreement Replacement Rate. A Breakage Amount shall be payable under the Investment Agreement by the Investment Agreement Provider to the Authority only when the Investment Agreement Replacement Rate is lower than the Investment Agreement Interest Rate provided in the Investment Agreement and shall be payable by the Authority (by netting it from the investment amount thereunder repaid to the Trustee) to the Investment Agreement Provider only when the Investment Agreement Replacement Rate is higher than the Investment Agreement Interest Rate provided in the Investment Agreement. In any such event, the Breakage Amount shall be the absolute difference between the Investment Agreement Interest Rate as provided in the Investment Agreement and the Investment Agreement Replacement Rate as applied to the investment thereunder for the period beginning on the actual Investment Agreement Termination Date and ending on the first Business Day immediately preceding the Investment Agreement Expiration Date, discounted to present value at the Investment Agreement Replacement Rate. The Breakage Amount may also include the reasonable costs and expenses of the Investment Agreement Provider or the Authority in certain circumstances. A Breakage Amount shall be payable under the Investment Agreement by the Authority or the Trustee solely from the Revenues, the investment under the Investment Agreement or amounts held under the Indenture not required to make payment on the Notes. "Collateral Requirement" under the Investment Agreement means (i) 103% for direct obligations of, or obligations the timely payment of principal and interest on which is fully and unconditionally guaranteed by the United States of America and GNMA Securities (including participation certificates issued by GNMA); and (ii) 105% for FNMA Securities (including participation certificates issued by FNMA) and Obligations of the Federal Home Loan Mortgage Corporation, in each case, marked to market weekly with 48 hours to replenish collateral deficiencies. The following events shall constitute events of default under the Investment Agreement (each, an "Investment Agreement Event of Default"): (a) A failure by the Investment Agreement Provider to make any payment of the investment thereunder or earnings thereon when due pursuant to the provisions of the Investment Agreement, together with a failure of the Investment Agreement Insurer to perform its obligations with respect thereto under the XLCA Investment Agreement Insurance Policy. (b) A failure by the Investment Agreement Provider to perform or observe any of its material obligations under the Investment Agreement (other than those described in clause (a) above) and the continuation of such failure for 10 days or more after written notice thereof is given by the Trustee to the Investment Agreement Provider and the Investment Agreement Insurer. (c) The Investment Agreement Provider or the Investment Agreement Insurer commences a case in bankruptcy or an insolvency proceeding relating to it, is adjudicated insolvent or bankrupt, petitions or applies for the appointment of any receiver or trustee for itself or any substantial part of its 14 property or initiates any proceeding relating to it seeking a court order for reorganization, arrangement, conservation, liquidation, or dissolution under applicable bankruptcy or similar applicable laws; or any such proceeding is initiated against the Investment Agreement Provider or the Investment Agreement Insurer; and the Investment Agreement Provider or the Investment Agreement Insurer, as the case may be, indicates in writing its consent thereto or such proceeding is not dismissed within 60 days or such an order is entered against the Investment Agreement Provider or Investment Agreement Insurer and becomes final and non-appealable. (d) Any representation or warranty made (or deemed made) by the Investment Agreement Provider under the Investment Agreement shall prove to have been inaccurate in any material respect when made (or deemed made). (e) Except as permitted by the terms of the Investment Agreement or the terms of the Investment Agreement Insurance Policy, the expiration or termination of the Investment Agreement Insurance Policy in respect of the Investment Agreement, the repudiation of the Investment Agreement Insurance Policy by the Investment Agreement Insurer, any other event which causes the Investment Agreement Insurance Policy to cease to be in full force and effect in respect of the Investment Agreement, or any other action shall be taken by the Investment Agreement Insurer which challenges the validity or enforceability of the Investment Agreement Insurance Policy. Upon the occurrence of any Investment Agreement Event of Default described in clause (c) above, the Investment Agreement shall terminate in respect of the investment thereunder and the entire balance of the investment thereunder, plus or minus any Breakage Amount due, and all unpaid earnings thereon shall be and become immediately due and payable without requirement of notice or demand of any kind. Upon the occurrence of any Investment Agreement Event of Default other than any Investment Agreement Event of Default described in clause (c) above, the Investment Agreement Provider is required under the Investment Agreement to notifY the Trustee, the Authority and XLCA as Insurer for the XLCA Notes immediately (or in any event within two Business Days) and the Trustee, with the consent of XLCA as Insurer for the XLCA Notes, shall have the right to declare the entire balance of the investment thereunder and all accrued and unpaid earnings thereon to be due and payable immediately and to withdraw, plus or minus a Breakage Amount, such entire balance and unpaid earnings thereon. If, as a result of the occurrence of an Investment Agreement Event of Default, the entire balance of the investment thereunder, plus or minus any Breakage Amount due, and all unpaid earnings thereon are so withdrawn by the Trustee, the Investment Agreement shall be terminated on the date of such withdrawal. VLF Receivables Each VLF Receivable is determined by the Controller based on the portion of vehicle license fee (the "VLF") offsets not allocated to the respective Participant due to the operation of the State Budget Act of 2003 (the "State Budget Act of 2003"). The VLF is a tax levied annually on owners of vehicles registered in the State, approximately one-quarter of which has historically funded health and social services programs administered by counties and three-quarters of which has historically been transferred to Local Agencies, including the Participants, as general-purpose moneys. Prior to 1998, the VLF levied upon owners of registered vehicles in the State was two percent (2%) of the value of such vehicles. In 1998, the State Legislature began to reduce the portion of the VLF paid by owners of registered vehicles and offset the resulting loss of revenues to Local Agencies by transferring to each Local Agency an amount equal to the difference between the amount such Local Agency would have received under the two percent (2%) rate and the amount such Local Agency would receive under the then-effective lower VLF rate paid by owners of registered vehicles. In 2003, the State Legislature suspended the payment of the offsetting amount to Local Agencies for the period beginning on June 20, 2003 and ending prior to 15 October I, 2003 (the "Gap Period"). In September 2004, the State Legislature amended the VLF Law to provide for the payment to Local Agencies ofthe Gap Amount on or before August 15,2006. The VLF Law provides that on August 15, 2006 (unless an earlier date is established by an act of the State Legislature), the Controller shall transfer from the State General Fund to the Gap Repayment Fund an amount equal to the total amount of offsets that were applied to new vehicle registrations before October I, 2003 and that were applied to vehicle license fees with a due date before October I, 2003 that were not transferred into the Motor Vehicle License Fee Account in the Transportation Tax Fund and the Local Revenue Fund due to the operation of the State Budget Act of 2003, which replaced the appropriations for the same purpose then existing in the California Revenue and Taxation Code. The VLF Law also provides that moneys in the Gap Repayment Fund are appropriated to the Controller for allocation by the Controller to each Local Agency, including the Participants, in an amount equal to the portion of the Gap Amount that was not allocated to such Local Agency due to the operation of the State Budget Act of 2003, less any amount previously advanced to such Local Agency. The Controller has determined the amount of the VLF receivable for each local agency in the State and based on such determination, the aggregate amount of the VLF Receivables of the Participants is $454,586,805.88. In accordance with the Act, each Participant will sell to the Authority pursuant to its respective Purchase Agreement the entire amount of its respective VLF Receivable. On or before the effective date of the sale of each VLF Receivable by each respective Participant to the Authority, such Participant shall, pursuant to Section 6588.5( c) of the Act, notify the Controller that its respective VLF Receivable will be sold to the Authority and irrevocably instruct the Controller that payments of such VLF Receivable are to be made directly to the Trustee. Section 6588.5(b) ofthe Act provides that the sale and transfer of each VLF Receivable by each respective Participant to the Authority pursuant to its respective Purchase Agreement is an absolute sale and transfer of such VLF Receivable to the Authority by such Participant rather than a pledge or grant of a security interest by such Participant. Section 6588.5(c) of the Act provides that no portion of such VLF Receivable sold by such Participant shall be subject to garnishment, levy, execution, attachment, or other process or writ, including, but not limited to, a writ of mandate or remedy in connection with the assertion or enforcement of any debt, claim, settlement or judgment against such Participant. However, if a Participant were to become a debtor in a bankruptcy case, and a party in interest (including the Participant itself) were to take the position that the transfer of its VLF Receivable to Authority should be recharacterized as a pledge or grant of a security interest in its VLF Receivable to secure a borrowing of such Participant and therefore remained such Participant's property, and such position was adopted by the applicable bankruptcy court, delays or reductions in collection by the Authority of such Participant's VLF Receivable could result. The obligation of the Insurers to pay under the Insurance Policies is the same whether or not a Participant is in bankruptcy. See "FSA INSURANCE" and "XLCA INSURANCE" herein. In fiscal year 2004-05, the State passed the VLF Law, which requires the Controller to transfer the Gap Amount from the State General Fund to the Gap Repayment Fund and allocate a portion of such amount to each Participant in fiscal year 2006-07. The State did not include in its budget for fiscal year 2004-05 any funds that are to be transferred to the Gap Repayment Fund in fiscal year 2006-07 pursuant to the VLF Law. As a procedural matter, provision for such funds, if any, and the transfer thereof would be accomplished by the inclusion of the Gap Amount in cash-flow schedules attached to and made a part of supporting materials to be presented by the Governor to the State Legislature in conjunction with the Governor's proposed budget for fiscal year 2006-07 (the "Governor's 2006 Proposed Budget"). The Governor's 2006 Proposed Budget will not contain a line item for or specific reference to the Gap Amount or transfer thereof to the Gap Repayment Fund and the State Legislature will not be able to elect to forego the transfer of the Gap Amount by removing any particular line item or reference in the Governor's 2006 Proposed Budget. The Chief Counsel to the Controller's Office has advised the Insurers in a letter dated January 27, 2005 (the "Controller's Letter") that under the VLF Law 16 the Controller is required to transfer the Gap Amount to the Gap Repayment Fund on August 15, 2006 as a ministerial action irrespective of timely approval by the State Legislature of a budget for fiscal year 2006-07. However, Special Counsel has not provided any opinion with respect to such matters and no assurance can be made that the positions taken in the Controller's Letter are enforceable against the State. See "RISK FACTORS-Payment of the VLF Receivable; State Covenant Not to Impair; Compliance with Proposition lA" herein. Payment of the VLF Receivables by the State depends upon various factors. There may not be sufficient moneys in the State General Fund to transfer all or a portion of the Gap Amount from the State General Fund on the Gap Repayment Date, or the State may determine to use moneys in the State General Fund for purposes other than payment of the Gap Amount. If the State Legislature on or before the Gap Repayment Date takes action to repeal or amend the VLF Law, and the Govemor approves such legislation, it is possible that the Controller could be prevented from transferring the Gap Amount to the Gap Repayment Fund on August 15, 2006. In addition, if the State makes only a portion of the required transfer, the amount ultimately allocated to each Participant could be less than the amount payable under its respective VLF Receivable. The obligation of the Insurers to pay under the Insurance Policies does not depend on the enforceability of the provisions of the VLF Law or the actual payment by the State of the VLF Receivables. See "FSA INSURANCE" and "XLCA INSURANCE" herein. State Covenant Not to Impair; Compliance with Proposition lA Under Section 6588.5( d) of the Act, the State has covenanted for the benefit of the holders of any bonds (as defined in the Act), including the Notes, issued by an authority pursuant to the Act secured by the VLF Receivables or the corresponding receivable of another Local Agency that the State will not take any action that would materially adversely affect the interest of such holders or otherwise impair the security of the bonds, so long as any of the bonds remain outstanding. Also, under Section 6596 of the Act, the State has covenanted to not limit or alter the rights vested in an authority to fulfill the terms of any loan agreement or other contract, or in any way impair the rights or remedies of the bonds. However, any protection that these covenants afford the Holders may be limited in nature. No assurance can be made by the Authority that the obligation of the State to pay the VLF Receivables is enforceable against the State, that any particular State action would constitute a violation of the covenants contained in Sections 6588.5(d) or 6596 or that, if a violation did occur, the Holders would be entitled to an adequate remedy under either the United States Constitution or State law. Further, as described in the Controller's Letter, the Controller's Office has taken the further position that by reason of the addition of Section 25.5 to Article XIII of the State Constitution by Proposition I A, the revenue allocation requirements of the VLF Law cannot be suspended by the Governor or amended or repealed by the State Legislature. Proposition lA, entitled "Protection of Local Government Revenues" ("Proposition IA") was approved by the voters of the State in November 2004 and amends the State Constitution to, among other things, protect local agency vehicle license fee revenue (or a comparable amount of backfill payments from the State). However, Special Counsel has not provided any opinion with respect to such matters and no assurance can be made that the positions taken in the Controller's Letter are enforceable against the State. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES-VLF Receivables" and "RISK FACTORS-Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition IA" herein. Limited Obligation The Notes are special obligations of the Authority and principal thereof and interest thereon are payable by the Authority solely from all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without 17 limitation, application of amounts on deposit in the 2005A-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-I Notes through their maturity, application of amounts on deposit in the 2005B-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-I Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. The Revenues that secure the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. THE NOTES SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF THE NOTES, OR THE REDEMPTION PRICE OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PURCHASE AGREEMENTS AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY OR ANY PARTICIPANT, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES. THE ISSUANCE OF THE NOTES SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. THE PARTICIPANTS HAVE NO LIABILITY FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES ISSUED BY THE AUTHORITY. STATE OF CALIFORNIA FINANCIAL INFORMATION The Revenues securing the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. The State Disclosure Document is available from the NRMSIRs; the information in such official statement is not incorporated herein by reference. The NRMSIRs currently approved by the SEC are listed in the SEC website at htto://www.sec.gov/info/municipal/nrmsir.htm. In addition, information about the State budget (the "State Budget") and finances is regularly available at various State-maintained websites. The text of the State Budget may be found at the website of the State Department of Finance (the "Department of Finance"), www.dof.ca.gov. under the heading "California Budget." An analysis of the State Budget by the Office of the Legislative Analyst is available at www.1ao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State Budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to in this paragraph is prepared by the State or the State agency referenced therein and not by the Authority. The Authority and the Underwriters take no responsibility for the accuracy of information relating to the State or any other information set forth in the State Disclosure Document or in any other State document referred to herein or the continued accuracy of the internet addresses referenced in this paragraph or for the accuracy or timeliness of information posted on such websites, and such information is not incorporated herein by reference. The State has experienced severe budget shortfalls in recent fiscal years. Payment of the VLF Receivables by the State depends upon various factors and no assurance can be made by the Authority that the State will transfer all or a portion of the amounts required under the VLF Law to pay the VLF Receivables or that the provisions of the VLF Law are enforceable against the State. See "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES," "STATE OF CALIFORNIA FINANCIAL INFORMATION" and "RISK FACTORS-Payment of the VLF Receivables; State Covenant Not to 18 Impair; Compliance with Proposition IA" herein. The obligation of the Insurers to pay under the Insurance Policies does not depend on the enforceability of the provisions of the VLF Law or the actual payment by the State of the VLF Receivables. See "FSA INSURANCE" and "XLCA INSURANCE" herein. THE AUTHORITY The Authority is a public entity organized pursuant to a Joint Powers Agreement among a number of California counties, cities and special districts entered into pursuant to the provisions relating to the joint exercise of powers contained in the Act. Pursuant to Section 6588.5(a) of the Act, the Authority is authorized to purchase, with the proceeds of its bonds or its revenue, VLF receivables from one or more local agencies and pledge, assign, resell or otherwise transfer or hypothecate any VLF receivables for the purpose of securing bonds issued to finance the purchase price of the VLF receivables. The Authority is authorized pursuant to the Act to issue obligations for the purpose of purchasing the VLF Receivables. The Authority has sold and delivered obligations other than the Notes, which other obligations are and will be secured by instruments separate and apart from the Indenture and the Notes. The holders of such obligations of the Authority have no claim on the security of the Notes, and the owners of the Notes will have no claim on the security of such other obligations issued by the Authority. RISK FACTORS The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Notes. Payment of the VLF Receivables; State Covenant Not to Impair; Compliance with Proposition lA The Notes are special obligations of the Authority and principal thereof and interest thereon are payable by the Authority solely from all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without limitation, application of amounts on deposit in the 2005A-I Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-1 Notes through their maturity, application of amounts on deposit in the 2005B-1 Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-1 Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. The Revenues that secure the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. Each VLF Receivable is each respective Participant's portion of the Gap Amount to be transferred, on or before the Gap Repayment Date, from the State General Fund to the Gap Repayment Fund for allocation by the Controller to each Local Agency pursuant to the VLF Law. The Controller has determined the amount of the VLF receivable for each local agency in the State and based on such determination, the aggregate amount of the VLF Receivables of the Participants is $454,586,805.88. Payment of the VLF Receivables by the State depends upon various factors. There may not be sufficient moneys in the State General Fund to transfer all or a portion of the Gap Amount from the State General Fund on the Gap Repayment Date, or the State may determine to use moneys in the State General Fund for purposes other than payment of the Gap Amount. If the State Legislature on or before the Gap Repayment Date takes action to repeal or amend the VLF Law, and the Governor approves such legislation, it is possible that the Controller could be prevented from transferring the Gap Amount to the Gap Repayment Fund on August 15,2006. In addition, if the State makes only a portion of the required transfer, the amount ultimately allocated to each Participant could be less than the amount payable under 19 its respective VLF Receivable. The obligation of the Insurers to pay under the Insurance Policies does not depend on the enforceability of the provisions of the VLF Law or the actual payment by the State of the VLF Receivables. See "FSA INSURANCE" and "XLCA INSURANCE" herein. Payment of the Gap Amount could be affected by the State's financial condition in 2006. The State has experienced severe budget shortfalls in recent fiscal years. In November 2004, the Office of the Legislative Analyst projected that State expenditures will exceed revenues by approximately $10 billion in fiscal year 2006-07, when the State is scheduled to pay the VLF Receivables to the Participants. There may be insufficient amounts in the State General Fund in fiscal year 2006-07 to make the transfer required under the VLF Law. Alternatively, the State may determine to use moneys in the State General Fund for purposes other than payment of the Gap Amount. No assurance can be made by the Authority that the State will transfer all or a portion of the amounts required under the VLF Law to pay the VLF Receivables or that the provisions of the VLF Law are enforceable against the State. Under Section 6588.5( d) of the Act, the State has covenanted for the benefit of the holders of any bonds (as defined in the Act), including the Notes, issued by an authority pursuant to the Act secured by the VLF Receivables or the corresponding receivable of another Local Agency that the State will not take any action that would materially adversely affect the interest of such holders or otherwise impair the security of the bonds, so long as any of the bonds remain outstanding. Also, under Section 6596 of the Act, the State has covenanted to not limit or alter the rights vested in an authority to fulfill the terms of any loan agreement or other contract, or in any way impair the rights or remedies of the bonds. However, any protection afforded by these covenants may be limited. Among other things, the covenant may only protect against affirmative actions and may not provide any protection against any failures to act. In addition, if the transfer set forth in the VLF Law is determined to be an unenforceable obligation of the State, the Holders may be unable to recover under either covenant because the Holders would not otherwise be entitled to payment on the Notes. Also, if the State were to violate either covenant and the Holders were to bring an action against the State under the United States Constitution as an impairment of the State's contractual obligations, the Holders may not be entitled to relief thereunder unless that violation constituted a substantial impairment of the State's contractual obligations and such violation is determined not to be a reasonable and necessary exercise of the State's power in furtherance of an important public purpose. Further, any remedy afforded the Holders may be limited by equitable defenses, the discretion of the court, State laws relating to the sovereignty of the State Legislature, and other similar laws. Accordingly, no assurances can be made that any particular State action would constitute a violation of the covenants contained in Section 6588.5(d) or Section 6596 or that, if a violation did occur, the Holders would be entitled to an adequate remedy under either the United States Constitution or State law. Further, as described in the Controller's Letter, the Controller's Office has taken the further position that by reason of the addition of Section 25.5 to Article XIII of the State Constitution by Proposition lA, the revenue allocation requirements of the VLF Law cannot be suspended by the Governor or amended or repealed by the State Legislature. Subparagraph (a)(I)(A) of Section 25.5 generally prohibits the State Legislature from reducing ad valorem property tax revenues allocated among local agencies. Subparagraph (c)(iii) of Section 25.5 further provides that "[s]ubparagraph (A) shall not be suspended during any fiscal year if the amount that was required to be paid to cities, counties, and cities and counties under Section 10754.11 of the Revenue and Taxation Code, as that section read on November 3, 2004, has not been paid in full prior to the effective date of the statute providing for that suspension as described in clause (ii) of subparagraph (B)." Accordingly, the Controller's Office has concluded that any action by the State Legislature to amend or repeal the VLF Law would be unconstitutional under Section 25.5 to Article XIII of the State Constitution. However, Special Counsel has not provided any opinion with respect to such matters and no assurance can be made that the positions taken in the Controller's Letter are enforceable against the State. 20 Limited Obligations of the Authority The Notes are special obligations of the Authority and principal thereof and interest thereon are payable by the Authority solely from all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without limitation, application of amounts on deposit in the 2005A-l Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-l Notes through their maturity, application of amounts on deposit in the 2005B-l Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-l Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. The Revenues that secure the Notes are comprised primarily of amounts received by the Authority or the Trustee with respect to the VLF Receivables of the Participants. Holders of the Notes have no recourse to other assets of the Authority, including, but not limited to, any assets pledged to secure payment of any other debt obligations of the Authority. THE NOTES SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF THE NOTES, OR THE REDEMPTION PRICE OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PURCHASE AGREEMENTS AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY OR ANY PARTICIPANT, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES. THE ISSUANCE OF THE NOTES SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. THE PARTICIPANTS HAVE NO LIABILITY FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES ISSUED BY THE AUTHORITY. State of California Financial Information The State Disclosure Document referred to herein was prepared by the State and not by the Authority. The Authority and the Underwriters take no responsibility for the accuracy of the information relating to the State or any other information set forth in such State Disclosure Document. See "STATE OF CALIFORNIA FINANCIAL INFORMATION" herein. Effect of Bankruptcy of the Participants or the Authority Section 6588.5(b) ofthe Act provides that the sale and transfer of each VLF Receivable by each respective Participant to the Authority pursuant to its respective Purchase Agreement under Section 6588.5(b) of the Act is an absolute sale and transfer of its respective VLF Receivable to the Authority by such Participant rather than a pledge or grant of a security interest by such Participant. However, if a Participant were to become a debtor in a bankruptcy case, and a party in interest (including the Participant itself) were to take the position that the transfer of its VLF Receivable to Authority should be recharacterized as a pledge or grant of a security interest in its VLF Receivable to secure a borrowing of such Participant and therefore remained such Participant's property, and such position was adopted by the applicable bankruptcy court, delays or reductions in collection by the Authority of such Participant's VLF Receivable could result. 21 The Authority has pledged under the Indenture to the Trustee, for the benefit of the Holders from time to time of the Notes, all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, including, without limitation, application of amounts on deposit in the 2005A-l Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-I Notes through their maturity, application of amounts on deposit in the 2005B-l Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005B-I Notes through their maturity and application of amounts on deposit in the 2005A-2/B-2/C Capitalized Interest Account in the Note Fund to pay capitalized interest solely on the Series 2005A-2 Notes, the Series 2005B-2 Notes and the Series 2005C Notes through their maturity. Should the Authority become a debtor in a bankruptcy case, there may be delays or reductions in the payments on the Notes. Actions could be taken in a bankruptcy of the Authority or a Participant that would adversely affect the exclusion of interest on the Tax-Exempt Notes from gross income for federal income tax purposes. There may be delays or reductions in the payments on the Notes if the circumstances described in the previous sentence were to occur. However, no prediction can be made as to how a court of competent jurisdiction would ultimately adjudicate such matters. Further, there may be other possible effects of a bankruptcy of the Authority or a Participant that could result in delays or reductions in payments to the holders of the Notes. Regardless of any specific adverse determinations in an Authority or a Participant bankruptcy proceeding, a bankruptcy proceeding involving the Authority or a Participant could have an adverse effect on the liquidity and value of the Notes. The obligation of the Insurers to pay under the Insurance Policies is the same whether or not the Authority or a Participant is in bankruptcy. See "FSA INSURANCE" and "XLCA INSURANCE" herein. Limited Remedies There are no events of default nor remedies (including acceleration) provided for in any of the Purchase Agreements. However, upon discovery by a Participant or the Authority that a Participant has breached any of its covenants under its respective Purchase Agreement or that any of the representations or warranties of such Participant or the Authority in such Purchase Agreement are materially false or misleading, in a manner that materially and adversely affects the value ofthe respective VLF Receivable, the discovering party shall give prompt written notice thereof to the other party, the Trustee and the rating agencies. There is no remedy of acceleration of the Notes upon the occurrence and continuance of an Event of Default under the Indenture. Loss of Tax-Exemption The Code imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Tax-Exempt Notes, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of note proceeds, limitations on the investment earnings of note proceeds prior to expenditure, a requirement that certain investment earnings on note proceeds be paid periodically to the United States, and a requirement that the issuers file an information report with the IRS. Each Participant receiving proceeds of the Tax-Exempt Notes has covenanted in its respective Purchase Agreement to at all times do and perform all acts and things permitted by law and such Purchase Agreement which are necessary or desirable in order to assure that interest paid on the Tax-Exempt Notes (or any of them) will be excluded from gross income for federal income tax purposes and shall take no action that would result in such interest not being excluded from 22 gross income for federal income tax purposes. Each Participant receiving proceeds of the Tax-Exempt Notes has further agreed to comply with the provisions of its respective tax certificate and has agreed to deposit its respective share of the net proceeds of the Tax-Exempt Notes (representing the net purchase price of such Participant's VLF Receivable) in its respective custody account to be held by Wells Fargo Bank, National Association, as custodian, for investment and disbursement in compliance with such Participant's respective tax certificate. Failure by any Participant to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of the interest on all of the Tax-Exempt Notes as taxable, possibly retroactive to the date of issuance. However, no assurance can be made that such tax compliance covenants could be enforced against such Participants. See "- Limited Remedies" above and also "T AX MATTERS." In December 1999, as a part of a larger reorganization of 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 TEIGE 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 is expected to increase significantly under the new TEIGE Division. The Authority has not sought to obtain a private letter ruling from the IRS with respect to the Tax-Exempt Notes, and the opinion of Special Counsel is not binding on the IRS. There is no assurance that an IRS examination of the Tax-Exempt Notes will not adversely affect the market value of the Tax-Exempt Notes. See "TAX MATTERS." TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Special 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 Tax-Exempt Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, interest on the Tax-Exempt Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Special Counsel observes, however that interest on the Tax-Exempt Notes is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Special Counsel is of the further opinion that interest on the Taxable Notes is exempt from State of California personal income taxes. HOWEVER, NO ATTEMPT HAS BEEN MADE OR WILL BE MADE TO COMPLY WITH CERTAIN REQUIREMENTS RELATING TO THE EXCLUSION FROM GROSS INCOME FOR FEDERAL TAX PURPOSES OF INTEREST ON THE TAXABLE NOTES, AND INTEREST ON THE TAXABLE NOTES THEREFORE WILL NOT BE EXCLUDED FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. Special Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Notes. A complete copy of the opinion of Special Counsel is set forth in Appendix D hereto. Notes 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 Notes") will be treated as having amortizable note premium. No deduction is allowable for the amortizable note premium in the case of Tax-Exempt Notes that are Premium Notes, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a owner's basis in Tax-Exempt Notes that are Premium Notes, will be reduced by the amount of amortizable note premium properly allocable to such owner. Owners of Tax-Exempt Notes that are 23 Premium Notes should consult their own tax advisors with respect to the proper treatment of amortizable note 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 Tax-Exempt Notes. The Authority and the Participants have made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Tax-Exempt Notes 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 Tax-Exempt Notes being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Tax-Exempt Notes. The opinion of Special Counsel assumes the accuracy of these representations and compliance with these covenants. Special 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 Special Counsel's attention after the date of issuance of the Tax-Exempt Notes may adversely affect the value of, or the tax status of interest on, the Tax-Exempt Notes. 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 Notes) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Special Counsel expresses no opinion as to any Notes or the interest thereon if any such change has occurred or occurs or any action has been or is taken or omitted upon the advice or approval of special counsel other than Orrick, Herrington & Sutcliffe LLP. Although Special Counsel is of the opinion that interest on the Tax-Exempt Notes 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 Tax-Exempt Notes may otherwise affect a 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 owner or the owner's other items of income or deduction. Special 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 Tax-Exempt Notes to be subject, directly or indirectly, to federal income taxation, or otherwise prevent owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislation or clarification of the Code may also affect the market price for, or marketability of, the Tax-Exempt Notes. Prospective purchasers of the Tax-Exempt Notes should consult their own tax advisers regarding any federal tax legislation enacted after the date of Special Counsel's opinion or any pending or proposed federal tax legislation, as to which Special Counsel expresses no opinion. Special Counsel's opinion is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Special Counsel's judgment as to the proper treatment of the Notes for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Special Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority and the Participants, or about the effect of changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority and the Participants have covenanted, however, to comply with the requirements of the Code. Special Counsel's engagement with respect to the Notes ends with the issuance of the Notes, and, unless separately engaged, Special Counsel is not obligated to defend the Authority, the Participants or the owners regarding the tax-exempt status of the Tax-Exempt Notes in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority and their appointed counsel, including the owners, would have little, if any, right to participate in the audit examination process. 24 Moreover, because achieving judicial review in connection with an audit examination of tax-exempt obligations is difficult, obtaining an independent review of IRS positions with which the Authority or the Participants legitimately disagree, may not be practicable. Any action of the IRS, including but not limited to selection of the Tax-Exempt Notes for audit, or the course or result of such audit, or an audit of obligations presenting similar tax issues may affect the market price for, or the marketability of, the Tax-Exempt Notes, and may cause the Authority or the Participants or the owners to incur significant expense. CERTAIN LEGAL MATTERS Legal matters related to the authorization, issuance, sale and delivery of the Notes are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel. The proposed form of the opinion of Special Counsel is set forth in Appendix D attached hereto. Certain legal matters will be passed upon for the Authority by its disclosure counsel, Sidley Austin Brown & Wood LLP and for the Underwriters by their counsel, Nixon Peabody LLP. NO LITIGATION To the best knowledge of the Authority, there is no litigation pending or threatened concerning the validity of the Notes or challenging any action taken by the Authority in connection with the authorization of any document relating to the Notes to which the Authority is or is to become a party or the performance by the Authority of any of its obligations under any of the foregoing. RATINGS Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P") have assigned the FSA Notes ratings of "Aaa" and "AAA", respectively and the XLCA Notes ratings of "Aaa" and "AAA." These ratings are based on the issuance of the FSA Insurance Policy by FSA and the issuance of the XLCA Insurance Policy by XLCA. Such ratings reflect only the views of Moody's and S&P, and do not constitute a recommendation to buy, sell or hold the Notes. Explanation of the significance of such ratings may be obtained only from the respective organizations at: Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007-2796 and Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041. There is no assurance that any such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the respective rating agencies, if in the judgment of any such rating agency circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Notes. UNDERWRITING The Notes are being purchased by Citigroup Global Markets Inc. and E. J. De La Rosa & Co., Inc. as co-managers (the "Underwriters"). The Underwriters have agreed, subject to certain conditions, to purchase the Notes from the Authority pursuant to a note purchase agreement (the "Note Purchase Agreement") at an aggregate price of $456,445,047.50 (which represents the aggregate principal amount of the Notes, plus excess net premium of $3,445,619.50 and less an underwriters' discount of $1,580,572.00), consisting of a price for the Series 2005A-I Notes of $150,294,843.37 (which represents the aggregate principal amount of the Series 2005A-I Notes, plus excess net premium of $88,930.70 and less an underwriters' discount of $524,087.33), a price for the Series 2005A-2 Notes of $146,632,335.85 (which represents the aggregate principal amount of the Series 2005A-2 Notes, less an underwriters' discount of $507,664.15), a price for the Series 2005B-I Notes of $69,172,962.54 (which represents the aggregate principal amount of the Series 2005B-I Notes, plus excess net premium of $1,543,928.75 and 25 less an underwriters' discount of $235,966.21), a price for the Series 2005B-2 Notes of $70,907,297.21 (which represents the aggregate principal amount of the Series 2005B-2 Notes, plus excess net premium of $1,549,296.00 and less an underwriters' discount of $241,998.79) and a price for the Series 2005C Notes of $19,437,608.53 (which represents the aggregate principal amount of the Series 2005C Notes, plus excess net premium of $263,464.05 and less an underwriters' discount of $70,855.52). The Note Purchase Agreement provides that the Underwriters will purchase all of the Notes if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Note Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell the Notes to certain dealers and others at prices lower than the offering price. The offering prices may be changed from time to time by the Underwriters. CONTINUING DISCLOSURE Pursuant to the Continuing Disclosure Agreement, the Authority has covenanted to provide, or cause to be provided, not later than February 1 in each year, commencing in February 1, 2006, to each Repository reference to (but not an incorporation by reference of) the most recent information relating to the State General Fund that has been filed with a Repository or the SEC, which may be an official statement or annual report filed by the State with any Repository or the SEC as provided under the Rule, and to provide, or cause to be provided, to each Repository in a timely manner notice of the following "Listed Events" with respect to the Notes if determined by the Authority to be material: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on the debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the security; (7) modifications to rights of security holders; (8) optional, contingent or unscheduled bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities; and (11) rating changes. These covenants have been made in order to assist the Underwriters in complying with the Rule. The Authority has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. The Authority has determined that no financial or operating data concerning the Authority or the Participants is material to any decision to purchase, hold or sell the Notes and neither the Authority nor any of the Participants will provide any such information. The Authority and the Underwriters take no responsibility for the accuracy of information relating to the State in the State Disclosure Document referenced herein or in any other document referenced in any annual report filed by the State and such information will not be incorporated in any other information that may be provided by the Authority under the Continuing Disclosure Agreement. ADDITIONAL INFORMATION Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Indenture, the Investment Agreement and a form of the Purchase Agreements may be obtained upon request from the Trustee at: Wells Fargo Bank, National Association, 707 Wilshire Boulevard, 17th Floor, Los Angeles, California 90017, Attention: Corporate Trust. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement among the Authority and the purchasers or Holders of any of the Notes. 26 The delivery of this Official Statement has been duly authorized by the Authority. CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY By: /s/ Norma Lammers Member 27 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A SUMMARY OF CERTAIN PRINCIPAL DOCUMENTS The following summary discussion of selected provisions of the Indenture and the Purchase Agreement are made subject to all of the provisions of such documents. The summary discussion of the Purchase Agreement includes selected provisions of the form of Purchase Agreement which will be executed and delivered by each Participant. This summary discussion does not purport to be a complete statement of said provisions and prospective purchasers of the Notes are referred to the complete texts of such documents, copies of which are available upon request sent to the Trustee. Definitions "Act" means the Joint Exercise of Powers Act (consisting of Chapter 5 (commencing with Section 6500) of Division 7 of Title I of the Government Code of the State, as now in effect and as it may from time to time hereafter be amended or supplemented. "Authority" means the California Statewide Communities Development Authority, or its successors and assigns. "Authorized Denomination" means $5,000 or any integral multiple of $5,000 in excess thereof. "Authorized Representative" means with respect to (a) the Authority, any Member of the Commission of the Authority or any person who at the time and from time to time is specifically authorized by resolution of the Authority furnished to the Trustee and the Insurer, as a person authorized to act on behalf of the Authority, and (b) a Participant, each person designated as an "Authorized Officer" in the Resolution of the governing body of such Participant approving the sale of its VLF Receivable. "Beneficial Owner" means, with respect to any Book-Entry Note, the beneficial owner of such Note as determined in accordance with the applicable rules of DTC. "Business Day" means any day, other than a Saturday or a Sunday, on which the Insurer or banks located in New York City or in the city in which the Principal Corporate Trust Office of the Trustee is located are not required or authorized to be closed and on which the New York Stock Exchange is not closed. "Capitalized Interest Accounts" means, collectively, the Series 2005A-I Capitalized Interest Account, the 2005B-I Capitalized Interest Account, and the Series 2oo5A-2/B-2/C Capitalized Interest Account. "Closing Date" means the date the Notes are issued. "Code" means the Intemal Revenue Code of 1986, or any successor code or law, and any regulations in effect or promulgated thereunder. "Continuing Disclosure Agreement" means that certain Continuing Disclosure Agreement between the Authority and the Trustee, as dissemination agent, dated the date of issuance and delivery of the Notes, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Controller" means the Controller of the State. A-I "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the Authority and related to the authorization, issuance, sale and delivery of the Notes, including but not limited to costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees, expenses and charges of the Trustee and the Authority, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, note insurance premium, fees and charges for preparation, execution and safekeeping of the Notes and any other cost, charge or fee in connection with the original issuance of the Notes which constitutes a "cost of issuance" within the meaning of Section I 47(g) ofthe Code. "Costs of Issuance Fund" means the fund by that name established pursuant to the Indenture. "Credit Enhancer" means any municipal bond insurance company, bank or other financial institution or organization which is performing in all material respects its obligations under any Credit Support Instrument for some or all of the Notes. "Credit Support Instrument" means a policy of insurance, a letter of credit, a stand-by purchase agreement, revolving credit agreement or other credit arrangement pursuant to which a Credit Enhancer provides credit or liquidity support with respect to the payment of interest, principal or the purchase price of the Notes. "Custodian" means Wells Fargo Bank, National Association, acting in the role of custodian under the Custody Agreement. "Custody Agreement" means that certain Custody Agreement by and between the Authority and the Custodian, dated as of March I, 2005, pursuant to which the Custodian holds the Participant Custody Accounts on behalf of the Tax-Exempt Participants. "Depository" means The Depository Trust Company and its successors and assigns, or any other depository selected as set forth in the Indenture which agrees to follow the procedures required to be followed by such depository in connection with the Notes. "Eligible Securities" means any of the following obligations as and to the extent that such obligations are at the time legal investments under the Act for moneys held under the Indenture and then proposed to be invested therein: A. Direct obligations of the United States of Americ a (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Notes, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): I. U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of Beneficial Ownership A-2 3. Federal Financ ing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation Certificates 6. Government National Mortgage Association (GNMA or Ginnie Mae) GNMA - guaranteed mortgage-backed Notes GNMA - guaranteed pass-through obligations 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (lillD) Project Notes Local Authority Notes New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Notes - U.S. government guaranteed public housing notes and Notes C. Notes, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies which are not backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or Fannie Mae) Mortgage-backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or Sallie Mae) Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide Notes and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA-m; or AA-m and if rated by Moody's rated Aaa, Aal or Aa2. E. Investment Agreements, including guaranteed investment contracts and forward purchase agreements, acceptable to each Insurer. A-3 F. Commercial paper rated, at the time of purchase, "Prime -I" by Moody's and "A I" or better by S&P. G. Bond or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such rating agencies. H. Any other investment approved in writing by the Authority and each Insurer. "Event of Default" means any of the events specified in the Indenture as such. "FSA" means Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof. "FSA Insurance Policy" means the insurance policy issued by FSA guaranteeing the scheduled payment of principal and of interest on the FSA Notes when due. "FSA Notes" means the Series 2005A-I Notes and the Series 2oo5B-1 Notes, together. "GeneraUy Accepted Accounting Principles" means the uniform accounting and reporting procedures set forth in publications of the Financial Accounting Standards Board or its successor, or by any other generally accepted authority on such procedures, and nc1udes, as applicable, the standards set forth by the Govemmental Accounting Standards Board or its successor. "Indenture" means the Indenture, dated as of March 1,2005, by and between the Authority and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture entered into pursuant to the provisions of the Indenture. "Insurance Policy" means the FSA Insurance Policy and the XLCA Insurance Policy, individually and collectively, as the context requires. "Insurer" means FSA and XLCA, individually and collectively, as the context requires. "Interest Payment Date" means May 15, 2005, November 15, 2005, May 15, 2006 and the Maturity Date. "Issuance Date" means, with respect to the Notes, the date on which the Notes are first delivered to the purchasers thereof. "Maturity Date"means November 15,2006. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the limctions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority. "Note Fund" means the limd by that name established pursuant to the Indenture. "Noteholder" or "Holder" means, with respect to any Note, the person in whose name such Note is registered. "Note Registrar" or "Registrar" means the entity or entities performing the duties of the Note Registrar pursuant to the Indenture. A-4 "Notes" means the Series 2oo5A Notes, the Series 2005B Notes and the Series 2OO5C Notes, collectively. "Opinion of Special Counsel" means an Opinion of Counsel by a nationally recognized bond counsel firm experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest payable on obligations of state and political subdivisions which is addressed to the Authority, the Trustee and each Insurer, among others. "Opinion of Counsel" means a written opinion of counsel (which may be counsel for the Authority) selected by the Authority and reasonably acceptable to each Insurer. "Outstanding," when used as of any particular time with reference to Notes, means (subject to the provisions of the Indenture) all Notes theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (a) Notes theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Notes with respect to which ltl liability of the Authority shall have been discharged in accordance with the Indenture; and (c) Notes for the transfer or exchange of which, or in lieu of or in substitution for which, other Notes shall have been authenticated and delivered by the Trustee pursuant to the Indenture. "Participant" means each Taxable Participant and each Tax-Exempt Participant. "Participant Custody Account" means each account established for each Tax-Exempt Participant and held by the Custodian pursuant to the Custody Agreement. "Participant Tax Certificate" means the Tax Certificate, dated the date of the Purchase and Sale Agreement, executed by each Tax-Exempt Participant. "Pricing Date" means the date the Notes are sold. "Principal Payment Date" means with respect to any Note, the date on which the principal amount thereof becomes due and payable under the Indenture, whether at maturity or upon redemption. "Principal Corporate Trust Office" means the corporate trust office of the Trustee, which at the date of execution of the Indenture is that specified in the Indenture, provided, however for transfer, registration, exchange, payment and surrender of Notes such term means care ofthe corporate trust office of Wells Fargo Bank, National Association in Los Angeles, California or such other office designated by the Trustee from time to time. "Purchase Agreement" means each Purchase Agreement between the Authority and a Participant relating to VLF Receivables. "Rating Agency" means Fitch, Moody's or S&P's to the extent they then are providing or maintaining a rating on the Notes at the request of the Authority, or in the event that Fitch, Moody's or S&P no longer maintains a rating on the Notes, any other nationally recognized rating agency then providing or maintaining a rating on the Notes at the request of the Authority. "Rating Agency Confirmation" means written confirmation from each Rating Agency that any proposed action will not, in and of itself, cause the Rating Agency to lower, suspend or withdraw the rating then assigned by such Rating Agency to any Outstanding Notes. "Rebate Fund" means the fund by that name established pursuant to the Indenture. A-5 "Rebate Requirement" has the meaning assigned to such term in the Tax Certificate. "Record Date" means, with respect to any mterest Payment Date for the Notes, the first day of the calendar month of such Interest Payment Date, whether or not such day is a Business Day. "Resolution" means the resolution adopted by the Board of Supervisors, City Councilor Town Council approving the sale of the VLF Receivable. "Responsible Officer" of the Trustee means and includes the chairman of the board of directors, the president, every vice president, every assistant vice president, every trust officer, and every officer and assistant officer of the Trustee other than those specifically above mentioned, to whom any corporate trust matter is referred because of his or her knowledge of, and familiarity with, a particular subject. "Revenues" means all payments received by the Authority or the Trustee with respect to the VLF Receivables of the Participants, amounts received under the Insurance Policy to pay principal of and interest on the Notes, and all income derived from the investment of any money in any fund or account established pursuant to the Indenture. "S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns and, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, S&P shall be deemed to refer to any other nationally recognized securities rating agency (other than Moody's or Fitch) designated by the Authority with notice to the Trustee. "Special Counsel" means any attorney at law or firm of attorneys, of nationally recognized standing in matters pertaining to the validity of, and exclusion from gross income for federal tax purposes of interest on, bonds issued by states and political subdivisions and duly admitted to practice law before the highest court of any state of the United States and acceptable to the Authority. "Special Record Date" means the date established by the Trustee pursuant to the Indenture as a record date for the payment of defaulted interest on Notes. "Special Redemption Date" means October 13, 2006. "Special Redemption Notice Date" means September 29, 2006, the date on which notice of special mandatory redemption must be mailed pursuant to the Indenture. "Special Redemption Percentage" means a fraction, the numerator of which shall be the dollar amount of Revenues deposited with the Trustee in the Note Fund (exclusive of earnings thereon and amounts on deposit in the Capitalized Interest Accounts therein) as of the Special Redemption Notice Date, and the denominator of which shall be the aggregate amount of the VLF Receivables of the Participants ($454,586,805.88). "Special Redemption Amount" has the meaning given to that term in the Indenture. "State" means the State of California. "Supplemental Indenture" means any indenture amending or supplementing the Indenture duly authorized and entered into between the Authority and the Trustee in accordance with the provisions of the Indenture. A-6 "Tax Certificate" means the Tax Certificate of the Authority dated the Issuance Date of the Notes, as the same may be amended or supplemented in accordance with its terms. "Taxable Costs of Issuance Account" means the account by that name established in the Costs ofIssuance Fund pursuant to the Indenture. "Taxable Debt Service Account" means the account by that name established in the Note Fund pursuant to the Indenture. "Taxable Notes" means the Series 2005A Notes and any other Notes at any time that are not Tax-Exempt Notes. "Taxable Participant" means each city, county, or city and county whose VLF Receivable is purchased with proceeds of the Taxable Notes. "Tax-Exempt Costs of Issuance Account" means the account by that name established in the Costs ofIssuance Fund pursuant to the Indenture. "Tax-Exempt Debt Service Account" means the account by that name established in the Note Fund pursuant to the Indenture. "Tax-Exempt Notes" means the Series 2oo5B Notes and the Series 2005C Notes, together, the interest on which is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal individual and corporate altemative minimum taxes. "Tax-Exempt Participant" means each city, county, or city and county whose VLF Receivabe is purchased with proceeds of Tax-Exempt Notes. "Transaction Counsel" means Orrick, Herrington & Sutcliffe LLP. "Transaction Documents" mean the Purchase Agreement, the Bill of Sale, the Indenture, the Notes, and, in the case of Tax-Exempt Participants only, the Participant Tax Certificate. "Trustee" means Wells Fargo Bank, National Association, a national banking associatIon organized and existing under the laws of the United States, or its successor as Trustee under the Indenture as provided in the Indenture. "Series 2005A Notes" means the Series 2oo5A -I Notes and the Series 2oo5A -2 Notes, together. "Series 2005A-I Capitalized Interest Account" means the account by that name established in the Note Fund pursuant to the Indenture. "Series 2005A-I Notes" means the California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2oo5A-1 (Taxable) issued under the Indenture and authenticated by the Trustee and any Notes issued in exchange or replacement thereof in accordance with the Indenture. "Series 2005A-2 Notes" means the California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005A-2 (Taxable) issued under the Indenture and authenticated 1:y the Trustee and any Notes issued in exchange or replacement thereof in accordance with the Indenture. A-7 "Series 2005A-2/B-2/C Capitalized Interest Account" means the account by that name established in the Note Fund pursuant to the Indenture. "Series 20058 Notes" means the Series 2005B-I Notes and the Series 2005B-2 Notes, together. "Series 20058-1 Capitalized Interest Account" means the account by that name established in the Note Fund pursuant to the Indenture. "Series 20058-1 Notes" means the California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005B-I (Tax-Exempt) issued under the Indenture and authenticated by the Trustee and any Notes issued in exchange or replacement thereof in accordance with the Indenture. "Series 20058-2 Notes" means the California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005B-2 (Tax-Exempt) issued under the Indenture and authenticated by the Trustee and any Notes issued in exchange or replacement thereof in accordance with the Indenture. "Series 2005C Notes" means the California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005C (Tax-Exempt) issued under the Indenture and authenticated by the Trustee and any Notes issued in exchange or replacement thereof in accordance with the Indenture. "VLF Act" means Section 10754.11 of the California Revenue and Taxation Code. "VLF Receivable" means an right, title and interest of a Participant in and to its "VLF Receivable" as defined in Section 6585(i) of the California Govemment Code, namely, the right to payment of moneys due or to become due to such Participant out of funds payable in connection with vehicle license fees to a local agency pursuant to Section 10754.11 of the California Revenue and Taxation Code. "Written Certificate," "Written Consent," "Written Order," "Written Request," "Written Requisition," or "Written Statement" mean, respectively, a written certificate, consent, order, request, requisition or statement of Authority signed by or on behalf of the Authority by an Authorized Representative. "XLCA Insurance Policy" means the insurance policy issued by XLCA guaranteeing the scheduled payment of principal and of interest on the XLCA Notes when due. "XLCA" means XL Capital Assurance Inc., New York, New York. "XLCA Notes" means the Series 2005A-2 Notes, Series 2005B-2 Notes, and Series 2005C Notes, together. INDENTURE Pledge and Assignment; Establishment of Note Fund and Rebate Fund Pledge and Assignment. (A) Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture and, subject to the rights of the Holders of the Notes, there are pledged to secure the payment of the principal amount A-8 of and interest on the Notes in accordance with their terms and the provisions of the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of Notes) held in the Note Fund. Said pledge shall constitute a fIrst and exclusive lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery of the Notes, without any physic al delivery thereof or further act. (B) The Authority transfers in trust, grants as a security interest in and assigns to the Trustee, for the benefIt of the Holders from time to time of the Notes, all of the Revenues and other amounts pledged in paragraph (A) above and all of the right, title and interest of the Authority in the Purchase Agreements with the Participants listed on Exhibit C (except for the right to receive any indemnifIcation and the right to receive any notices and reports). The Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and shall (subject to the provisions of the Indenture) take all steps, actions and proceedings following any Event of Default reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority assigned to the Trustee. (C) All Revenues shall be held in trust for the benefIt of the Holders from time to time of the Notes but shall nevertheless be disbursed, allocated and applied solely for the uses and purposes set forth in the Indenture. (D) If the Trustee has not received any payment of the VLF Receivables required to be made by the State under the Act to pay the principal amount of, and interest on, the Notes m or prior to the Maturity Date, the Trustee shall promptly notifY each Insurer and the Authority of such insufficiency by telephone, telecopy or telegram and confIrm such notifIcation by written notice. Failure by the Trustee to give notice pursuant to this paragraph, or the insufficiency of any such notice, shall not affect the payment obligations under the Indenture, including without limitation the timing thereof. (E) The Notes shall not constitute a debt or liability, or a pledge of the faith and credit, of the State or of any political subdivision thereof, other than the Authority, which shall be obligated to pay the Notes solely from the Revenues and funds provided therefor in the Indenture. The issuance of the Notes shall not directly or indirectly or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment. Note Fund. The Trustee shall establish and maintain a separate fund designated as the Note Fund. Within such Note Fund, the Trustee shall establish and maintain the Taxable Debt Service Account, the Tax-Exempt Debt Service Account, the 2005A -I Capitalized Interest Account, the 2005B-I Capitalized Interest Account, and the 2oo5A-2/B-2/C Capitalized Interest Account. Amounts on deposit in the 2005A-I Capitalized Interest Account shall be used only for payment of interest on the 2oo5A-1 Notes. Amounts on deposit in the 2oo5B-1 Capitalized Interest Account shall be used only for pyment of interest on the 2005B-I Notes. Amounts on deposit in the 2oo5A-2/B-2/C Capitalized Interest Account shall be used only for payment of interest on the 2005A-2 Notes, 2oo5B-2 Notes and 2005C Notes. Except for the deposits made from the proceeds ff the Notes, upon receipt of any Revenues, the Trustee shall deposit all Revenues pro rata into the Taxable Debt Service Account and the Tax-Exempt Debt Service Account of the Note Fund. The Trustee shall disburse and apply amounts in the Note Fund only as hereinafter authorized as follows: (I) On each Interest Payment Date, the Trustee shall apply moneys in (i) the 2005A- I Capitalized Interest Account to pay interest on the 2005A-I Notes, (ii) the 2oo5B-1 Capitalized A-9 Interest Account to pay interest on the 2005B-l Notes, and (iii) the 2005A-2/B-2/C Capitalized Interest Account to pay interest on the 2005A-2 Notes, 2005B-2 Notes and 2005C Notes. (2) The Trustee shall apply moneys in the Taxable Debt Service Account to pay the principal amount of the Taxable Notes as such becomes due and payable on the Maturity Date, and moneys in the Tax-Exempt Debt Service Account to pay the principal amount of the Tax- Exempt Notes as such becomes due and payable on the Maturity Date. Rebate Fund. (A) The Trustee shall establish and maintain a fund separate from any other fund established and maintained under the Indenture designated as the Rebate Fund. Within the Rebate Fund, the Trustee shall maintain the accounts required by the Tax Certificate if so directed in writing by the Authority. Subject to the transfer provisions provided in paragraph (E) below, all money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfY the Rebate Requirement (as defined in the Tax Certificate), for payment to the United States of America. Neither the Authority nor the Holder of any Notes shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by the provisions of the Indenture described under this caption "Rebate Fund" and by the Tax Certificate. The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Authority and shall have no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate. (B) Upon receipt of and pursuant to a Written Request of the Authority, an amount shall be deposited to the Rebate Fund by the Trustee from deposits by the Tax-Exempt Participants or from available investment earnings on amounts held in the Note Fund if and to the extent required, so that the balance of the Rebate Fund after such deposit shall equal the Rebate Requirement (as that term is defined in the Tax Certific ate). Computations of the Rebate Requirement shall be furnished by or on behalf of the Authority in accordance with the Tax Certificate. (C) The Trustee shall have no obligation to rebate any amounts required to be rebated pursuant to the Indenture, other than from moneys held in the Rebate Fund or from other moneys provided to it by the Authority. (D) The Trustee shall invest all amounts held in the Rebate Fund in Eligible Securities pursuant to the Written Request of the Authority. Moneys shall not be transferred from the Rebate Fund except as provided in paragraph (E) below. (E) Upon receipt of a Written Request of the Authority, the Trustee shall remit part or all of the balances in the Rebate Fund to the United States of America, as so directed. In addition, if the Authority so directs, the Trustee will deposit moneys into or transfer moneys out of the Rebate Fund from or into such accounts or funds as directed in a Written Request of the Authority. Any funds remaining in the Rebate Fund after redemption and payment of all of the Tax-Exempt Notes and payment and satisfaction of any Rebate Requirement, or provision made therefor, and payment of all fees and expenses of the Trustee shall be withdrawn and remitted to the Authority. (F) Notwithstanding any other provision of the Indenture, the obligation to remit the Rebate Requirement to the United States and to comply with all other requirements of the provisions of the Indenture described under this caption "Rebate Fund" and the Tax Certificate shall survive the defeasance or payment in full of the Tax-Exempt Notes. (G) Without limiting the generality of the foregoing, the Authority agrees that there shall be paid from time to time all amounts required to be rebated to the United States of America pursuant to A-lO Section l48(f) of the Code and any temporary, proposed or final Treasury Regulations as may be applicable to the Tax-Exempt Notes from time to time. This covenant shall survive payment in full or defeasance of the Tax-Exempt Notes. The Authority specifically covenants to pay, or cause to be paid, the Rebate Requirement to the United States of America at the times and in the amounts determined above, as described in the Tax Certificate. The Trustee agrees to comply with all written instructions of the Authority which such party states in writing are given in accordance with the Tax Certificate. Notwithstanding any provision under this caption "Rebate Fund," if the Authority shall provide to the Trustee an Opinion of Special Counsel to the effect that any action required under this caption "Rebate Fund" or the Tax Certificate is no longer required, or to the effect that some further action is required, to maintain the exclusion from gross income of the interest on the Tax-Exempt Notes pursuant to Section 103 of the Code, the Authority and the Trustee may rely conclusively on such opinion in complying with the provisions of the Indenture, and the covenants under the Indenture shall be deemed to be modified to that extent. Investment of Monevs in Funds. Except as otherwise provided in the provisions of the Indenture described below under the caption "DEFEASANCE-Deposit of Money or Securities with Trustee," all moneys in any of the funds and accounts established pursuant to the Indenture shall be invested by the Trustee solely in such Eligible Securities as are specified in a Written Request of the Authority; provided, however, that, if the Authority does not file such a Written Request with the Trustee, the Trustee shall invest such moneys, to the extent p1lcticable, in investments described in clause (7) of the definition of the term "Eligible Securities" in the Indenture. Except as otherwise provided in written instructions of the Authority which the Authority states in writing are given in accordance with the Tax Certificate, all interest, profits and other income received from the investment of moneys shall be deposited in the Note Fund. Subject to the provisions of the Indenture described below under the caption "DEFEASANCE- Deposit of Money or Securities with Trustee," investments in any and all funds and accounts established pursuant to the Indenture (other than the Rebate Fund) may be commingled for purposes of making, holding and disposing of investments, notwithstanding provisions in the Indenture for transfer to or holding in a particular fund amounts received or held by the Trustee under the Indenture; provided, however, that the Trustee shall at all times account for such investments strictly in accordance with the particular funds to which they are credited and otherwise as provided in the Indenture. The Trustee or an affiliate of the Trustee may act as principal or agent in the making or disposing of any investment and shall be entitled to its customary fee therefor. The Trustee may sell or present for redemption, any securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such securities are credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive from the Trustee brokerage confirmations of security transactions as they occur, the Authority specifically waives receipt of such confirmations to the extent permitted by law. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. Amounts Remaining in Funds and Accounts. Any amounts remaining in the Note Fund or any other fund or account established under the Indenture after payment in full of the Notes (or after provision for payment thereof as provided in the Indenture), the fees, charges and expenses of the Trustee and the A-II Authority and the Rebate Requirement (as defined in the Tax Certificate) shall be transferred pro-rata to the Participants. With respect to this paragraph, the Participants are explicitly recognized as being third party beneficiaries of the Indenture. Certain Provisions With Respect to the FSA Insurance Policv. (A) Amounts paid by FSA under the FSA Insurance Policy shall not be deemed paid for purposes of the Indenture and shall remain Outstanding and continue to be due and owing until paid by the Authority in accordance with the Indenture. The Indenture shall not be discharged unless all amounts due or to become due to FSA have been paid in full or duly provided for. (B) Each of the Authority and the Trustee covenant and agree to take such action (including, as applicable, filing of DCC financing statements and continuations thereof) as is necessary from time to time to perfect or otherwise preserve the priority of the pledge of Revenues under applicable law. (C) FSA shall, to the extent it makes any payment of principal of (or, in the case of Capital Appreciation Notes, accreted value) or interest on the Notes, become subrogated to the rights of the recipients of such payments in accordance with the terms of the FSA Insurance Policy. (D) FSA shall be entitled to pay principal (or, in the case of Capital Appreciation Notes, accreted value) or interest on the Notes that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Authority (as such terms are defmed in the FSA Insurance Policy), whether or not FSA has received a Notice of Nonpayment (as such terms are defined in the FSA Insurance Policy) or a claim upon the FSA Insurance Policy. (E) The Authority shall payor reimburse, but only from Revenues, any and all charges, fees, costs and expenses which FSA may reasonably payor incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in the Indenture or related documents; (ii) the pursuit of any remedies under the Indenture or any related document or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Indenture or any related document whether or not executed or completed, (iv) the violation by the Authority of any law, rule or regulation, or any judgment, order or decree applicable to it or (v) any litigation or other dispute in connection with the Indenture or any related document or the transactions contemplated thereby, other than amounts resulting from the failure of FSA to honor its obligations under the FSA Insurance Policy. FSA reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Indenture or any related document. The payment obligations created by this paragraph are subordinate to the obligation to make payments under the provisions of the Indenture described above under the captions "Note Fund" and "Rebate Fund." Certain Provisions With Respect to the XLCA Insurance Policv. If principal and/or interest due on the Notes shall be paid by XLCA, the Notes shall remain Outstanding under the Indenture for all purposes, and shall not be deemed defeased or otherwise satisfied, or paid by the Authority, and the assignment and pledge of the Revenues and all covenants, agreements and other obligations of the Authority to the Noteholders shall continue to exist and shall run to the benefit of XLCA, and XLCA shall be subrogated to the rights of such Noteholders. Notes a Limited Obligation of Authoritv. The Notes shall not be deemed to constitute a debt or liability of the state or of any political subdivision thereof, other than the Authority, but shall be payable solely from the funds provided therefor. The Authority shall not be obligated to pay the principal of the Notes, or the interest thereon, except from the funds provided under the Indenture and the Purchase A-12 Agreements and neither the faith and credit nor the taxmg power of the state or of any political subdivision thereof, including the Authority or any participant, is pledged to the payment of the principal of or interest on the Notes. The issuance of the Notes shall not directly or indirectly or contingently obligate the state or any political subdivision thereof to levy or to pledge any form of taxation or to make any appropriation for their payment. The Authority has no taxing power. Covenants Punctual Pavment. The Authority shall punctually pay, but only out of the Revenues and the other funds pledged under the Indenture, the principal amount of and interest to become due in respect of every Note issued under the Indenture at the times and places and in the manner provided in the Indenture and in the Notes, according to the true intent and meaning thereof. All such payments shall be made by the Trustee as provided in the Indenture. When and as paid in full other than if paid with proceeds from the Insurance Policy, all Notes, if any, shall be delivered to the Trustee and shall forthwith be cancelled by the Trustee, who shall deliver a certificate evidencing such cancellation to the Authority. The Trustee shall destroy such cancelled Notes in accordance with its customary procedures. Extension of Pavment of Notes. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Notes or the time of payment of any of the claims for interest on the Notes by the purchase or fundng of such Notes or claims for interest or by any other arrangement except with the written consent of the Noteholders and the Insurer of such series or sub.series of Notes and, if the maturity of any of the Notes or the time of payment of any such claims for interest shall be extended without the written consent of the Noteholders and the Insurer of such series or sub-series of Notes, such Notes or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal amount of all of the Notes then Outstanding and all amounts which may be owed to the Insurer and of all claims for interest on the Notes which shall not have been so extended. Nothing in this paragraph shall be deemed to limit the right of the Authority to issue bonds or Notes for the purpose of refunding any Outstanding Notes, and such issuance shall not be deemed to constitute an extension of maturity of Notes. Encumbrance Upon Revenues. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Notes are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes. Power to Issue Notes and Make Pledge and Assigmnent. The Authority is duly authorized pursuant to law to issue the Notes and to enter into the Indenture and to pledge and assign the Revenues and other assets purported to re pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Notes and the provisions of the Indenture are and will be the legal, valid and binding limited obligations of the Authority enforceable in accordance with their terms, and the Authority and Trustee shall at all times, to the extent permitted by law and subject to the provisions of the Indenture, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Noteholders under the Indenture against all claims and demands of all persons whomsoever. Accounting Records and Financial Statements. (A) The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with the Trustee's accounting practices for books of record and account relating to similar trust accounts and in accordance with the customary standards of the industry for such books of record and account, in which complete and accurate A-13 entries shall be made of all transactions made by it relating to the proceeds of Notes, the Revenues, the Purchase Agreements and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Authority, any Participant, each Insurer and any Noteholder, or his agent or representative duIy authorized in writing, at reasonable hours, upon reasonable notice and under reasonable circumstances. (B) The Trustee shall furnish to the Authority and each Insurer, at intervals acceptable to such parties but in any event at least quarterly, a complete financial statement (which may be in the form of its regular statements) covering receipts, disbursements, allocation and application of Revenues and the proceeds of the Notes made by the Trustee. Tax Covenants. (A) The Authority covenants that it shall not take any action, or fail to take any action, if such action or failure to take such action would result in the interest on the Tax-Exempt Notes not being excluded from gross income for federal income tax purposes under Section 103 of the Code. Without limiting the generality of the foregoing, the Authority covenants that it will comply with the requirements of the Tax Certificate, which is incorporated in the Indenture as if fully set forth in the Indenture. This covenant shall survive the payment in full or the defeasance of the Tax-Exempt Notes. (B) In the event that at any time the Authority is of the opinion that for purposes of the provisions of the Indenture described under the caption ''--Tax Covenants" it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee under the Indenture, the Authority shall so instruct the Trustee in a Request cf the Authority accompanied by a supporting Opinion of Special Counsel, and the Trustee shall take such action as may be directed in accordance with such instructions. (C) Notwithstanding any provisions of the Indenture described under the caption '"'-Tax Covenants," if the Authority shall provide to the Trustee an Opinion of Special Counsel to the effect that any specified action required under such provisions is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Tax-Exempt Notes, the Trustee may conclusively rely on such opinion in complying with the requirements of such provisions and the Tax Certificate, and the covenants under the Indenture shall be deemed to be modified in that extent. Other Covenants. Subject to the provisions of the Indenture, the Trustee shall promptly collect all amounts due from the State pursuant to the Act and enforce and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority under the Act and assigned to it pursuant to the Indenture. Amendment of Purchase Agreements. The Authority shall not amend, modifY or terminate any of the terms of any Purchase Agreement, or consent to any such amendment, modification or termination, without the prior written consent of the Trustee and each Insurer. The Trustee shall give such written consent only in conjunction with a Rating Agency Confirmation. Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension of law now or at any time hereafter in force that may affect the covenants and agreements contained in the Indenture or in the Notes, and all benefit or advantage of any such law or laws is expressly waived by the Authority to the extent permitted by law. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the A-14 intention or to facilitate the performance of the Indenture andfor the better assuring and confirming unto the Holders of the Notes of the rights and benefits provided in the Indenture. Continuing Disclosure. The Authority has undertaken all responsibility for compliance with continuing disclosure requirements pursuant to Securities and Exchange Commission Rule 15c2-12(b)( 5). The Trustee covenants and agrees that, subject to the provisions of the Indenture, it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement applicable to it. Notwithstanding any other provision of the Indenture, failure of the Authority or the Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee at the written request of the underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Notes, shall (but only to the extent the Trustee has been tendered funds in an amount satisfactory to it or it has been otherwise indemnified from and against any loss, liability, cost or expense, including without limitation, fees and expense of its counsel and agents and additional fees and charges of the Trustee) cr any Noteholder 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 Authority to comply with its obligations under the Continuing Disclosure Agreement or, as to any Noteholder or Beneficial Owner, to cause the Trustee to comply with its obligations under this paragraph. For purposes of this paragraph, "Beneficial Owner" means any person which (1) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Notes (including persons holding Notes through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Notes for federal income tax proposes. Preservation of Rights: Performance of Obligations. (A) The Authority will not take any action and will, upon (i) direction from the Trustee or a Bond Insurer and (ii) receipt by the Authority of reasonable security or indemnity against any costs, expenses and liabilities which may be incurred thereby, use its commercially reasonable efforts not to permit any action to be taken by others that would release any person from any of such person's material covenants or obligations under the Purchase Agreement or with respect to the VLF Receivable, or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of the Purchase Agreement or the VLF Receivable. (B) Upon (i) direction from the Trustee or a Bond Insurer and (ii) receipt by the Authority of reasonable security or indemnity against any costs, expenses and liabilities which may be incurred thereby, the Authority will diligently pursue any and all actions to enforce all of its rights under the Purchase Agreement, all of the obligations of any Participant under the applicable Purchase Agreement, and the obligation of the State with respect to the VLF Receivable, and will cooperate with the Trustee and the Insurers in enforcing any rights they have with respect to the VLF Receivable or the Purchase Agreements. Events of Default; Remedies on Default Events of Default: Waiver of Default. Each of the following shall constitute an "Event of Default" under the Indenture: (A) if default shall be made in the due and punctual payment of the principal amount of any Note as the same shall become due and payable (whether at maturity, by proceedings for redemption, or otherwise); (B) if default shall be made in the due and punctual payment of any instalhnent of interest on any Note when and as such interest instalhnent shall become due and payable; or A-15 (C) if default shall be made by the Authority in the performance or observance of any of the covenants, agreements or conditions on its part in the Indenture or in the Notes contained, other than as referred to in paragraphs (A) and (B) above, and such default shall have continued for a period of thirty (30) days after written notice thereof, specifYing such default and requiring the same to be remedied, shall have been given b the Authority by the Trustee, or to the Authority and the Trustee by the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then Outstanding. Institution of Legal Proceedings by Trustee. If one or more Events cfDefault shall happen and be continuing, the Trustee in its discretion may, with the consent of each Insurer, and upon the written request of either (i) the Holders of not less than a majority in aggregate principal amount of the Notes then Outstanding, mth the consent of each Insurer, or (ii) each Insurer, shall (in either case being indemnified to its reasonable satisfaction therefor), proceed to protect or enforce its rights or the rights of the Holders of Notes under the Act or under the Purchase Agreements or the Indenture by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained therein, or in aid of the execution of any power in the Indenture or therein granted, or by mandamus or other appropria te proceeding for the enforcement of any other legal or equitable remedy as the Trustee, with the consent of each Insurer, shall deem most effectual in support of any of its rights or duties under the Indenture. If, at any time after the institution of any legal proceeding under the preceding paragraph, the Event of Default giving rise to such legal proceeding and all other defaults known to the Trustee shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, either (i) the Holders of not less than a majority in aggregate principal amount of the Notes then Outstanding, with the consent of each Insurer, or (ii) each Insurer, by written mtice to the Authority and to the Trustee, may, on behalf of the Holders of all of the Notes, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annuhnent shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Application of Moneys Collected by Trustee. Any moneys collected by the Trustee pursuant to the provisions of the Indenture described above under the caption "-Institution of Legal Proceedings by Trustee" shall be applied in the following order, at the date or dates fixed by the Trustee and, in the case of distribution of such moneys on account of principal amount (or premium, if any), upon presentation of the Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: First: To the payment of costs and expenses of collection and reasonable compensation to the Trustee for its own services and for the services of counsel, agents and employees by it properly engaged and employed, and all other expenses and liabilities incurred, and for advances, together with interest on such advances at a rate per annum equal to the Note yield plus two percent (2%), made pursuant to the provisions of the Indenture. Second: In the case where no principal amount has become due and remains unpaid, to the payment of interest on Notes in the order of the due dates thereof, in every instance such payment to be made to the persons entitled thereto without discrimination or preference. Third: In case the principal amount of any of the Notes shall have become due by declaration or otherwise and remains unpaid, to the payment of interest on Notes in default and to the payment of the principal amount of all Notes then due and unpaid and the premium thereon, if any; in every instance such payment to be made ratably to the persons entitled thereto without A-16 discrimination or preference over claims for interest over principal amount or of any Note over any other Note. Whenever moneys are to be applied pursuant to the provision of the provisions of the Indenture described under the caption '~Application of Moneys Collected by Trustee," such moneys shall be applied at such times, and from time to time, as the Trustee shan determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Interest Payment Date unless the Trustee shall deem another date more suitable) upon which such application is to be made and upon providing for the payment of the principal amount of the Notes and the interest on the Notes in accordance with he Indenture on such date, interest on the Notes shall cease to accrue. Subject to the Indenture, whenever all principal amount of, and interest on all Notes has been paid under the foregoing provisions and all fees, expenses and charges of the Trustee (including without limitation those of its attorneys) have been paid, any balance remaining in the funds and accounts under the Indenture shall be paid in accordance with the Indenture. Effect of Delav or Omission to Pursue Remedv. No delay or omission of the Trustee or of any Holder of Notes to exercise any right or power arising from any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein, and every power and remedy given by the Indenture to the Trustee, the Insurer or to the Holders of Notes may be exercised from time to time, and as often as shall be deemed expedient. In case the Trustee shall have proceeded to enforce any right under the Indenture, and such proceedings shall have reen discontinued or abandoned because of waiver or for any other reason, or shall have been determined adversely to the Trustee, then and in every such case the Authority and the Trustee, each Insurer, and the Holders of the Notes, severally and respective Iy, shall be restored to their former positions and rights under the Indenture in respect to the trust estate; and all remedies, rights and powers of the Authority, the Trustee and the Holders of the Notes shall continue as though no such proceedings had been taken. Remedies Cumulative. No remedy conferred in the Indenture upon or reserved to the Trustee or to any Holder of the Notes is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or now or hereafter existing at law or in equity. Covenant to Pav Notes in Event of Default. The Authority covenants that, upon the happening of any Event of Default, the Authority will pay to the Trustee, but only out of Revenues and other funds pledged under the Indenture, upon demand, all sums which may be due under the Indenture or secured by the Indenture, including reasonable compensation to the Trustee and its agents and counsel and any expenses or liabilities incurred by the Trustee under the Indenture and, its agents and counsel. In case the Authority shall fail to pay the same forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled to institute proceedings at law or in equity in any court of competent jurisdiction to recover judgment for the amount due and unpaid, together with costs and reasonable attorneys' fees, subject, however, to the condition that such judgment, if any, shall be limited to, and payable solely out of Revenues and other funds pledged under the Indenture, as provided in the Indenture and not otherwise. The Trustee shall be entitled to recover such judgment as aforesaid, either before or after or during the pendency of any proceedings for the enforcement of the Indenture, and the right of the Trustee to recover such judgment shall not be affected by the exercise of any other right, power or remedy for the enforcement of the provisions of the Indenture A-I? Trustee AppOinted Agent for Noteholders. The Trustee is appointed the agent and attorney-in- fact of the Holders of all Notes Outstanding under the Indenture for the purpose of filing any claims relating to the Notes. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken some action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Holders of Notes or the Insurers as provided in the Indenture, it shall have full power, in the exercise of its discretion for the best interests of the Holders of the Notes, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, without the prior written consent of each Insurer, unless there no longer continues an Event of Default under the Indenture, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Holders of not less than a majority in aggregate principal amount of the Notes then Outstanding opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Limitation on Noteholders' Right to Sue. Norwithstanding any other provision of the Indenture, no Holder of any Note issued under the Indenture shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Indenture; (b) the Holders of not less than a majority in aggregate principal amount of all the Notes then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such action, suit or proceeding in its own name; (c) said Holders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indenmity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any Holder of Notes of any remedy under the Indenture; it being understood and intended that no one or more Holders of Notes shall have any right in any manner whatever by his or their action to enforce any right under the Indenture, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Holders of the Outstanding Notes. The right of any Holder of any Note to receive payment of the principal amount of, premium, if any, and interest on such Note out of Revenues and the funds pledged in the Indenture, as provided in the Indenture, on and after the respective due dates expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder, notwithstanding any provision of the Indenture. Insurer's Right to Direct Remedies. Notwithstanding anything to the contrary in the Indenture contained, so long as the Insurer is not in default of its obligations under the Insurance Policy, each Insurer, acting alone: (i) shall have the right to direct all remedies upon the occurrence of an Event of Default and there shall be no acceleration of the Notes without the consent of the Insurer; (ii) shall be deemed the sole Holder of the Notes secured by its Insurance Policy for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the Holders of such Notes are entitled to take pursuant to the Indenture; and (iii) shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a Noteholder in accordance with A-18 applicable provisions of the Indenture; provided, however, that nothing in this paragraph shall be deemed to restrict the rights of the Insurer as the subrogee of Noteholder rights pursuant to the Indenture. The Trustee Duties, Immunities and Liabilities of Trustee. (A) The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Indenture. The Trustee shall, during the existence of any Event of Default which has not been cured or waived, exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (B) The Authority may remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and the Authority shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Holders of not less than a majority in aggregate principal amount of the Notes then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (E) below, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, and thereupon shall ~point a successor Trustee by an instrument in writing. (C) The Trustee may at any time resign by giving written notice of such resignation to the Authority and each Insurer, and by giving the Noteholders notice of such resignation by mail at the addresses shown on the Note registration books maintained by the Trustee. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing. (D) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Noteholder (on behalf of himself and all other Noteholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signifY its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as f originally named Trustee in the Indenture; but, nevertheless at the Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and conferring upon such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the Authority shall mail a notice of the succession of such Trustee to the trusts under the Indenture to the Noteholders at the addresses shown on the note registration books maintained by the Trustee. If the Authority fails to mail A-19 such notice within thirty (30) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority. (E) Any Trustee appointed under the provisions of the Indenture shall be a trust or banking institution having trust powers, doing business and having a principal corporate trust office in California or, if it shall not have a principal corporate trust office in California, having the power under California law to perform all the duties of the Trustee under the Indenture as evidenced by an opinion of its counsel, having a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000 and subject to supervision or examination by State or federal authorities. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (E), the Trustee shall resign immediately in the manner and with the effect specified in the Indenture. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the Indenture, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding. Rights of Trustee. (A) The recitals off acts contained in the Indenture and in the Notes shall be taken as statements of the Authority, and the Trustee does not assume any responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture, the Purchase Agreements or the Notes, or incur any responsibility in respect thereof, other than in connection with the duties or obligations assigned to or imposed upon it in the Indenture or in the Notes. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Notes. The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or default. (8) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (C) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of the Notes then Outstanding as provided in the Indenture relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty. (D) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Noteholders pursuant to the provisions of the Indenture unless such Noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (E) The Trustee shall not be deemed to have knowledge of any Event of Default unless and until it shall have actual knowledge thereof, or shall have received written notice thereof, at its Principal Corporate Trust Office. Except as otherwise expressly provided in the Indenture, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements in the Indenture or of any of the documents executed in connection with the Notes or as to the existence of an Event of Default under the Indenture. A-20 (F) No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Indenture, or in the exercise of its rights or powers. The Trustee has no obligation or liability to the Noteholders for the payment of the principal amount of, premium, if any, and interest on the Notes except from the funds available therefor under or pursuant to the Indenture. (G) The Trustee shall not be bound to ascertain or inquire as to the validity or genuineness of any collateral given to or held by it. The Trustee shall not be responsible for the recording or filing of any document relating to the Indenture or of financing statements (or continuation statements in connection therewith) or of any supplemental instruments or documents of further assurance as may be required by law in order to perfect the security interests in any collateral given to or held by it. (H) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions of the Indenture. (I) The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for the use contemplated by the Authority or any Participant of any facility or equipment. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Purchase Agreements or the Indenture for the existence, furnishing or use of any facility or equipment. (J) The Trustee shall have no responsibility with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Notes. (K) The Trustee may perform any of its duties under the Indenture through attorneys, agents or receIvers. Right of Trustee to Rely on Documents. The Trustee shall be protected in acting upon any notice, requisition, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith. Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof be specifically prescribed in the Indenture) may be deemed to be conclusively proved and established by a Written Certificate of the Authority, and such Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture shall be retained in its possession and shall be subject at all reasonable times to the inspection of the Authority and any Noteholder, and their agents and representatives duly authorized in writing, at reasonable hours, upon reasonable notice and under reasonable conditions. A-21 Compensation and Indemnification of Trustee. The Authority shaH pay to the Trustee (solely from amounts on deposit in the Costs of Issuance Fund) from time to time reasonable compensation for aH services rendered under the Indenture and aH reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees incurred in and about the performance of its powers and duties under the Indenture. The Authority further covenants and agrees to indemnify the Trustee (solely from the payments by the Participants provided for in the Purchase Agreements) against any loss, expense and liability (other than those which are due to the Trustee's negligence or default) which it may incur arising out of or in the exercise and performance of its powers and duties under the Indenture, including the costs and expenses of defending against any claim of liability. The obligations of the Authority under this paragraph shaH survive resignation or removal of the Trustee under the Indenture and payment of the Notes and discharge of the Indenture. Modification of Indenture Modification Without Consent of Noteholders. Subject to the conditions and restrictions in the Indenture contained, the Authority and the Trustee, from time to time and at any time, may enter into an indenture or indentures supplemental to the Indenture, which indenture or indentures thereafter shall form a part of the Indenture, including, without limitation, for one or more of the foHowing purposes, provided that the Authority and the Trustee shaH have received an Opinion of Special Counsel to the effect that such amendment or modification wiH not cause interest on the Tax-Exempt Notes to be included in the gross income of the Holders thereof for federal income tax purposes and the Trustee shall have received a written representation from the Authority to the effect that such amendment or modification wiH not materiaHy and adversely affect the interests of the Holders of the Notes of the Indenture; provided that, if an Event of Default has occurred and is continuing, the Trustee rather than the Authority shaH make a determination that such amendment or modification will not materially and adversely affect the interests of the Holders of the Notes (provided that, in making such detennination, the Trustee may conclusively rely on written representations of financial consultants or advisors or the opinion or advice of counsel): (A) to add to the covenants and agreements of the Authority in the Indenture contained, other covenants and agreements thereafter to be observed, or to assign or pledge additional security for the Notes, or to surrender any right or power reserved to or conferred upon the Authority in the Indenture; (B) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing, correcting or supplementing any defective provision, contained in the Indenture, or in regard to such matters or questions arising under the Indenture as the Authority may deem necessary or desirable; (C) to modifY, amend or supplement the Indenture or any Supplemental Indenture in such manner as to permit the qualification of the Indenture or thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and, if they so determine, to add to the Indenture or any Supplemental Indenture such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939, as amended, or similar federal statute; or (D) in connection with an amendment of a Purchase Agreement permitted by the Indenture for the purpose of conforming the terms, conditions and covenants of the Indenture to the corresponding or related provisions of such amended Purchase Agreement. Any Supplemental Indenture authorized by the provisions of the Indenture may be executed by the Authority and the Trustee without the consent of the Holders of any of the Notes, notwithstanding any of the provisions of the Indenture described below under the caption "-Modification with Consent of A-22 Insurer or Noteholders," but the Trustee shall not be obligated to enter into any such Supplemental Indenture which affects the Trustee's own rights, duties or immunities under the Indenture or otherwise. The Trustee shall mail an executed copy of any Supplemental Indenture to each Insurer and each Rating Agency promptly after execution by the Authority and the Trustee. Any failure of the Trustee to give such notice, or any defect therein, shall not in any way impair or affect he validity of any such Supplemental Indenture. Modification with Consent of Insurer or Noteholders. With the written consent of the Insurer of each series or sub-series of Notes (or, in the event that an Insurer is in default of its obligations under the related Insurance Policy, the Holders of not less than a majority in aggregate principal amount of the Notes of such series or sub-series then Outstanding), the Authority and the Trustee may from time to time and at any time, with an Opinion of Special Counsel to the effect that such amendment or modification will not cause interest on the Notes to be included in the gross income of the Holders thereof for federal income tax purposes, enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any Supplemental Indenture; provided, however, that no such Supplemental Indenture shall (I) extend the fixed maturity of any Notes or reduce the rate of interest thereon, or change the method of computing the rate of interest thereon or extend the time of payment of interest, or reduce the principal amount thereof, or reduce any premium payable on the redemption thereof or (2) reduce the aforesaid percentage of Holders of Notes whose consent is required for the execution of such Supplemental Indentures or extend the time of payment or permit the creation of any lien on the Revenues or the funds pledged in the Indenture prior to or on a parity with the lien of the Indenture or deprive the Holders of the Notes of the lien created by the Indenture upon the Revenues or the funds pledged in the Indenture, without the consent of the Holders of all the Notes then Outstanding. Upon receipt ~ the Trustee of a Written Certificate of the Authority authorizing the execution of any such Supplemental Indenture, and upon the filing with the Trustee of evidence of the consent of the Insurer and the Noteholders, to the extent required by the Indenture, the Trustee shall join with the Authority in the execution of such Supplemental Indenture unless such Supplemental Indenture affects the Trustee's own rights, duties or innnunities under the Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such Supplemental Indenture. It shall not be necessary for the consent of the Noteholders to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency, each Insurer and the Noteholders at the addresses shown on the Note registration books maintained by the Trustee. Any failure of the Trustee to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such Supplemental Indenture. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the provisions of the Indenture shall be and shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Authority, the Trustee and all Holders of Outstanding Notes shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Indenture shall be part of the terms and conditions of the Indenture for any and all purposes. A-23 Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee may (at the cost of the Authority) first mail to the Holders of Notes which have not yet been paid, at the addresses shown on the registration books maintained by the Trustee, a notice, in such form as may be deemed appropriate by the Trustee, with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. MisceUaneous Liability of Authority Limited to Revenues. Notwithstanding anything in the Indenture or in the Notes contained, the Authority shall not be required to advance any moneys derived from any source other than the Revenues and other assets pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal amount or redemption price of or interest on the Notes or for any other purpose of the Indenture. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes of the Indenture any funds of the Authority which may be made available to it for such purposes. Limitation of Rights to Parties and Noteholders. Nothing in the Indenture or in the Notes expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, each Participant, each Insurer and the Holders of the Notes any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, each Participant, each Insurer and the Holders of the Notes. Evidence of Rights of Noteholders. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by Noteholders may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Noteholders in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, shan be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in the Indenture. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifYing that the person signing such request, consent or other instrument acknowledged the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Notes shall be proved by the Note registration books held by the Trustee. Any request, consent, <r other instrument or writing of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued in exchange therefor orin lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon. Disqualified Notes. In det:rmining whether the Holders of the requisite aggregate principal amount of Notes have concurred m any demand, request, direction, consent or waiver under the In~enture, Notes which are owned or held by or for the account of the Authority or by any person directly or mdrrectIy controllmg or controlled by, or under direct or indirect common control with the A th 'ty shall be disregarded and deemed not to be Outstanding for the purpose of any such detemrinati u;~ so owned which have been pledged in good faith may be regarded as Outstanding for the purpo~:~ Of~: A-26 paragraph if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Notes and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Funds and Accounts. Any fund required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds shall at all times be maintained in accordance with customary standards of the industry, to the extent practicable, and with due regard for the requirements of the Indenture (and the Tax Certificate) and for the protection of the security of the Notes and the rights of every Holder thereof. Concerning the Insurers. Whenever provision is made in the Indenture for notice to be given to any Insurer or that any action under the Indenture requires the consent of any Insurer, each and every such provision shall require such notice or consent to be in writing and shall cease and terminate and be of no further force or effect if such Insurer has defaulted in the payment of any amount due under the Insurance Policy after proper demand therefor has been made by the Trustee. In determining whether any amendment, consent or other action to be taken, or any failure to act, under the Indenture would adversely affect the security for the Notes or the rights of the Noteholders, the Trustee shall consider the effect of any such amendment, consent, action or inaction as if there were no Insurance Policy. In the event that the Authority, any Insurer or any underwriter of the Notes shall, directly or indirectly, enter into or otherwise consent to any amendment, supplement or other modification of any agreement or instrument related to the Notes granting additional rights or benefits to such party or containing or representations covenants that are more restrictive as to the Authority than those contained in the Indenture, the Authority shall give prompt written notice thereof to each Insurer and shall enter into an agreement or instrument with each Insurer to incorporate such remedies and covenants. Consent of Insurer. Any provision of the Indenture expressly recognizing or granting rights in or to any Insurer may not re amended in any manner which affects the rights of such Insurer under the Indenture without the prior written consent of such Insurer. In addition, each Insurer's consent shall be required for the following purposes: (a) execution and delivery of any Supplemental Indenture or any amendment, supplement or change to or modification of a Purchase Agreement, (b) removal of the Trustee and selection and appointment of any successor trustee, and (c) initiation or approval of any action not described in (a) or ~) above which requires Noteholder consent. Any reorganization or liquidation plan with respect to the Authority must be acceptable to each Insurer. In the event of any reorganization or liquidation, each Insurer shall have the right to vote on behalf of all Noteholders who hold the Notes secured by the related Insurance Policy absent a default by such Insurer under the related Insurance Policy. Copies of any amendment, supplement or change to or modification of a Purchase and Sale shall be delivered by the Trustee to Moody's and Fitch. The rights granted to the Insurer under the Indenture or the Purchase Agreements to request, consent to or direct any action are rights granted to each Insurer in consideration of its issuance of the related Insurance Policy. Any exercise by any Insurer of such rights is merely an exercise of such Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit or on behalf of the Noteholders nor does any such action evidence any position of such Insurer, positive or negative, as to whether Noteholder consent is required in addition to consent of such Insurer. A-27 Governing Law; Venue. The Indenture shall be construed in accordance with and governed by the Constitution and the laws of the State applicable to contracts made and performed in the State. The Indenture shall be enforceable in the State, and any action arising out of the Indenture shall be filed and maintained in Sacramento County Superior Court, Sacramento County, California unless the Authority waives this requirement. PURCHASE AGREEMENT Agreement to Sell and Purchase; Conditions Precedent (a) The Participant agrees to sell, and the Authority agrees to purchase, on the Closing Date, for cash paid by the Authority in an amount equal to the amount determined pursuant to the provisions of the Purchase Agreement described below under the caption "--Conveyance of VLF Receivable and Payment of Final Purchase Price" (the "Final Purchase Price"), which shall be not less than an amount set forth in each Purchase Agreement (the "Minimum Purchase Price"), all right, title and interest of the Participant in and to the VLF Receivable, namely, the right to payment of moneys due or to become due to the Participant out of funds payable in connection with vehicle license fees to a local agency pursuant to Section 10754.11 of the California Revenue and Taxation Code. The Authority shall pay the Final Purchase Price by depositing the Final Purchase Price in the Participant's Participant Custody Account held by the Custodian under the Custody Agreement, as defined in and pursuant to the Indenture. (b) The performance by the Authority of its obligations under the Purchase Agreement shall be conditioned upon: (i) Transaction Counsel receiving on or before the date the Notes are sold (the "Pricing Date"), to be held in escrow until the Closing Date and then delivered to the Authority on the Closing Date, the following documents duly executed by the Participant or its counsel, as applicable: (I) an opinion of counsel to the Participant dated the Pricing Date in substantially the form attached to the Purchase Agreement, (2) certificates dated the Pricing Date in substantially the forms attached to the Purchase Agreement, (3) irrevocable instructions to the Controller dated as of the Closing Date in substantially the form attached to the Purchase Agreement, (4) the Purchase Agreement, (5) a certified copy of the resolution of the Participant's Board of Supervisors, City Councilor Town Council approving the Purchase Agreement, the transactions contemplated by the Purchase Agreement and the documents attached to the Purchase Agreement as exhibits, (6) an escrow instruction letter in substantially the form attached to the Purchase Agreement, and (7) with respect to each Tax-Exempt Participant only, the Participant Tax Certificate in substantially the form(s) attached to the Purchase Agreement; (ii) Transaction Counsel receiving on or before the Closing Date, (I) a bringdown opinion of counsel to the Participant dated a; of the Closing Date in substantially the form attached to the Purchase Agreement, and (2) a bill of sale and bringdown certificate of the Participant (the "Bill of Sale") in substantially the form attached to the Purchase Agreement; provided that the Authority may waive in its sole discretion the requirements of clause (1) of this paragraph; and (iii) the Authority issuing notes in an amount which will be sufficient to pay the Final Purchase Price. (c) The performance by the Participant of its obligations under the Purchase Agreement shall be conditioned solely upon the Authority's payment of the Final Purchase Price as set forth in the A-28 Purchase Agreement and no other act or omission on the part of the Authority or any other party shall excuse the Partic~ant from performing its obligations under the Purchase Agreement. (d) The Final Purchase Price shall be an amount that satisfies the conditions of the Resolution referred to in paragraph (b)(i)(5) above. Conveyance of VLF Receivable and Payment of Final Purchase Price Upon pricing of the Notes by the Authority, the Authority will inform the Participant of the Final Purchase Price, which shall be an amount at least equal to the Minimum Purchase Price, and which shall be detennined by the Authority based on the final interest rates, costs of credit enhancement and issuance and terms of the Notes. Upon pricing of the Notes, the Authority shall deliver a certificate to the Participant indicating the Final Purchase Price to be paid to the Participant on the Closing Date. In consideration of the payment and delivery by the Authority to the Participant of the Final Purchase Price, the Participant agrees to (a) transfer, grant, bargain, sell, assign, convey, set over and deliver to the Authority, absolutely and not as collateral security, without recourse except as expressly provided in the Purchase Agreement, and the Authority agrees to purchase, accept and receive, the VLF Receivable, and (b) assign to the Authority, to the extent permitted by law (as to which no representation is made), all present or future rights, if any, of the Participant to enforce or cause the enforcement of payment of the VLF Receivable pursuant to the VLF Act and other applicable law. Representations and Warranties ofthe Authority The Authority represents and warrants to the Participant that, as of the date of the Purchase Agreement, (a) it is duly organized, validly existing and in good standing under the laws of the State of California, (b) it has full power and authority to enter into the Purchase Agreement and to perform its obligations under the Purchase Agreement, (c) neither the execution and delivery by the Authority of the Purchase Agreement, nor the performance by the Authority of its obligations under the Purchase Agreement, shall conflict with or result in a breach or default under any of its organizational documents, any law, rule, regulation, judgment, order or decree to which it is subject or any agreement or instrument to which it is a party, and (d) the Purchase Agreement, and its execution, delivery and performance of the Purchase Agreement have been duly authorized by it, and the Purchase Agreement has been duly executed and delivered by it and constitutes its valid and binding obligation enforceable against it in accordance with the terms of the Purchase Agreement, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity. Representations and Warranties ofthe Participant The Participant represents and warrants to the Authority, as of the date of the Purchase Agreement, as follows: (a) The Participant is a County, City, or Town validly existing under the charter orlaws and Constitution of the State of California, with full power and authority to execute and deliver the Purchase Agreement and to carry out its terms. (b) The Participant has full power, authority and legal right to sell and assign the VLF Receivable to the Authority and has duly authorized such sale and assignment to the Authority by all A-29 necessary action; and the execution, delivery and performance by the Participant of the Purchase Agreement has been duly authorized by the Participant by all necessary action. (c) The Agreement has been, and as of the Closing Date the Bill of Sale will have been, duly executed and delivered by the Participant and, assuming the due authorization, execution and delivery of the Purchase Agreement by the Authority, constitutes a legal, valid and binding obligation of the Participant enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity. (d) All approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would adversely affect, the sale by the Participant of the VLF Receivable or the performance by the Participant of its obligations under the Resolution and the Transaction Documents and any other applicable agreements, have been obtained and are in full force and effect. (e) Insofar as it would materially adversely affect the Participant's ability to enter into, carry out and perform its obligations under any or all of the Transaction Documents to which it is a party, or consummate the transactions contemplated by the same, the Participant is not in breach of or default under any applicable constitutional provision, law or administrative regulation of the State of California or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which it is a party or to which it or any of its property or assets is otherwise subject, and, to the best of the knowledge of the Participant, 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 an event of default under any such instrument, and the adoption of the Resolution and the execution and delivery by the Participant of the Transaction Documents to which it is a party, and compliance by the Participant with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute on the part of the Participant a breach of or default under any agreement or other instrument to which the Participant is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Participant is subject. (t) To the best of the knowledge of the Participant, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, is pending or threatened in any way against the Participant affecting the existence of the Participant or the titles of its Board of Supervisors, City Councilor Town Council members or officers to their respective offices, or seeking to restrain or to eJ:Uoin the sale of the VLF Receivable or to direct the application of the proceeds of the sale thereof, or in any way contesting or affecting the validity or enforceability of any of the Transaction Documents or any other applicable agreements or any action of the Participant contemplated by any of said documents, or in any way contesting the powers of the Participant or its authority with respect to the Resolution or the Transaction Documents to which the Participant is a party or any other applicable agreement, or any action on the part of the Participant contemplated by the Transaction Documents, or in any way seeking to enjoin or restrain the Participant from selling the VLF Receivable or which if determined adversely to the Participant would have an adverse effect upon the Participant's ability to sell the VLF Receivable, nor to the knowledge of the Participant is there any basis therefor. (g) Prior to the sale of the VLF Receivable to the Authority, the Participant was the sole owner of the VLF Receivable, and has such right, title and interest as provided in the VLF Act. From and after the conveyance of the VLF Receivable by the Participant to Authority on the Closing Date, the Participant shall have no interest in the VLF Receivable. Except as provided in the Purchase Agreement, A-30 the Participant has not sold, transferred, assigned, set over or otherwise conveyed any right, title or interest of any kind whatsoever in all or any portion of the VLF Receivable, nor has the Participant created, or to the knowledge of the Participant permitted the creation of, any lien, pledge, security interest or any other encumbrance (a "Lien") thereon. Prior to the sale of the VLF Receivable to the Authority, the Participant held title to the VLF Receivable free and clear of any Liens. As of the Closing Date, the Purchase Agreement, together with the Bill of Sale, constitutes a valid sale to the Buyer of the Participant's right, title and interest in and to the VLF Receivable. (h) (i) Authority . The Participant acts sole ly through its authorized officers or agents. The Participant maintains records and books of account separate from those of the G) The Participant maintains its respective assets separately from the assets of the Authority (including thrrogh the maintenance of separate bank accounts); the Participant's funds and assets, and records relating thereto, have not been and are not commingled with those of the Authority. (k) The Participant has received reasonably equivalent value for the VLF Receivable. (I) The Participant does not act as an agent of the Authority in any capacity, but instead presents itself to the public as an entity separate from the Authority. (m) The Participant has not guaranteed and shall not guarantee the obligations of the Authority, nor shall it hold itself out or permit itself to be held out as having agreed to payor as being liable for the debts of the Authority; and the Participant has not received nor shall the Participant accept any credit or financing from any Person who is relying upon the availability of the assets of the Authority to satisfY the claims of such creditor. (n) All transactions between or among the Participant, on the one hand, and the Authority on the other hand (including, without limitation, tansactions governed by contracts for services and facilities, such as payroll, purchasing, accounting, legal and personnel services and office space), whether existing on the date of the Purchase Agreement or entered into after the date of the Purchase Agreement, shall be on terms and conditions (including, without limitation, terms relating to amounts to be paid thereunder) which are believed by each such party thereto to be both fair and reasonable and comparable to those available on an arms-length basis from Persons who are not affiliates. Covenants of the Participant (a) The Participant shall not take any action or omit to take any action which adversely affects the interests of the Authority in the VLF Receivable and in the proceeds thereof. The Participant shall not take any action or omit to take any action that shall adversely affect the ability of the Authority, and any assignee of the Authority, to receive payments made under the VLF Act. (b) The Participant shall not take any action or omit to take any action that would impair the validity or effectiveness of the VLF Act, nor, without the prior written consent of the Authority or its assignee, amend, modifY, terminate, waive or surrender, or agree to any amendment, modification, termination, waiver or surrender of, the terms of the VLF Act, or waive timely performance or observance under the VLF Act, in each case if the effect thereof would be materially adverse to the Authority or to the Noteholders or any Credit Enhancer as assignees of the Authority. Nothing in the Agreement shall impose a duty on the Participant to seek to enforce the VLF Act or to seek enforcement thereof by others, A-3l or to prevent others from modifYing, terminating, discharging or impairing the validity or effectiveness of the VLF Act. (c) Upon request of the Authority or its assignee, (i) the Participant shall execute and deliver such further instruments and do such further acts (including being named as a plaintiff in an appropriate proceeding) as may be reasonably necessary or proper to carry out more effectively the purposes and intent of the Purchase Agreement, and (ii) the Participant shall take all actions necessary to preserve, maintain and protect the title of the Authority to the VLF Receivable, provided that such acts shall not impose any additional cost on the Participant that is not reimbursed. (d) With respect to Tax-Exempt Participants only, the Participant shall execute the Participant Tax Certificate containing all necessary and appropriate representations, statements of intention, covenants, reasonable expectations, and certifications of fact for Transaction Counsel to render its opinion that interest on the Notes is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Code, including but not limited to matters relating to the use and investment of the proceeds of Notes received by the Participant as the Final Purchase Price and investment earnings thereon and the use of any and all property financed or refinanced with such proceeds and moneys. (e) The Participant shall at all times do and perform all acts and things permitted by law and the Purchase Agreement which are necessary or desirable in order to assure that interest paid on the Notes (or any of them) will be excluded from gross income for federal income tax purposes and shall take no action that would result in such interest not being excluded from gross income for federal income tax purposes. Without limiting the generality of the foregoing, with respect to Tax-Exempt Participants only, the Participant agrees that it will comply with the provisions of the Participant Tax Certificate which are incorporated in the Purchase Agreement. (f) On or before the Closing Date, the Participant shall send (or cause to be sent) an irrevocable instruction to the Controller pursuant to Section 6588.5( c) of California Government Code to cause the Controller to disburse all payments of the VLF Receivable to the Trustee, together with notice of the sale of the VLF Receivable to the Authority and the assignment of all or a portion of such assets by the Authority to the Trustee. The Participant shall not take any action to revoke or which would have the effect of revoking, in whole or in part, such instructions to the Controller. The Participant relinquishes and waives any control over the VLF Receivable, any authority to collect the VLF Receivable, and any power to revoke or amend the instructions to the Controller contemplated by this paragraph. The Participant shall not rescind, amend or modifY the instruction described in the first sentence of this paragraph. The Participant shall cooperate with the Authority or its assignee in giving instructions to the Controller if the Authority or its assignee transfers the VLF Receivable. In the event that the Participant receives any proceeds of the VLF Receivable, the Participant shall hold the same in trust for the benefit of the Authority and the Trustee and each Credit Enhancer, as assignees of the Authority, and shall promptly remit the same to the Trustee. (g) The Participant covenants and agrees that it will not at any time institute against the Authority, or join in instituting against the Authority, any bankruptcy, reorganization, arrangement, insolvency, liquidation, or similar proceeding under any United States or state bankruptcy or similar law. (h) The financial statements and books and records of the Participant prepared after the Closing Date shall reflect the separate existence of the Authority. (i) The Participant shall treat the sale of the VLF Receivable as a sale for regulatory and accounting purposes. A-32 (j) From and after the date of the Purchase Agreement, the Participant shall not sell, transfer, assign, set over or otherwise convey any right, title or interest of any kind whatsoever in all or any portion of the VLF Receivable, nor shall the Participant create, or to the knowledge of the Participant permit the creation of, any Lien thereon. Notices of Breach Upon discovery by the Participant or the Authority that the Participant has breached any of its covenants or that any of the representations or warranties of the Participant or the Authority are materially false or misleading, in a manner that materially and adversely affects the value of the VLF Receivable, the discovering party shall give prompt written notice thereof to the other party and to the Trustee, as assignee of the Authority, who shall, pursuant to the Indenture, promptly thereafter notifY each Credit Enhancer and the Rating Agencies. The Participant shall not be liable to the Authority, the Trustee, the Noteholders, or any Credit Enhancer for any loss, cost or expense resulting solely from the failure of the Trustee, any Credit Enhancer or the Authority to promptly notifY the Participant upon the discovery by an authorized officer of the Trustee, any Credit Enhancer or the Authority of a breach of any covenant or any materially false or misleading representation or warranty contained in the Purchase Agreement. Liability of Participant; Indemnification The Participant shall be liable in accordance with the Purchase Agreement only to the extent of the obligations specifically undertaken by the Participant under the Purchase Agreement. The Participant shall indemnifY, defend and hold harmless the Authority, the Trustee and each Credit Enhancer, as assignees of the Authority, and their respective officers, directors, employees and agents from and against any and all costs, expenses, losses, claims, damages and liabilities to the extent that such cost, expense, loss, claim, damage or liability arose out of, or was imposed upon any such Person by the Participant's breach of any of its covenants contained in the Purchase Agreement or any materially false or misleading representation or warranty of the Participant contaned in the Purchase Agreement. With respect to Tax- Exempt Participants only, the Participant shall indemnifY, defend and hold harmless the Authority and the Trustee, as assignee of the Authority, and their respective officers, directors, employees and agents from and against any and all costs, expenses, losses, claims, damages and liabilities arising out of or incurred in connection with a breach by the Participant of its obligations under the Participant Tax Certificate, including any rebate or other obligation to the United States Department of the Treasury, which result from actions by or omissions of the Participant, including from the investment of the proceeds of the Notes by the Participant and the use by the Participant of any and all property financed or refmanced with the proceeds of such Notes received by the Participant as the Final Purchase Price. Notwithstanding anything to the contrary in the Purchase Agreement, the Participant shall have no liability for the payment of the principal of or interest on the Notes issued by the Authority. Limitation on Liability The Participant and any officer or employee or agent of the Participant may rely in good faith on the advice of counselor on any document of any kind, prima facie properly executed and submitted by any Person respecting any matters arising under the Purchase Agreement. The Participant shall not be under any obligation to appear in, prosecute or defend any legal action regarding the VLF Act that is unrelated to its specific obligations under the Purchase Agreement. No officer or employee of the Participant shall have any liability for the representations, warranties, covenants, agreements or other obligations of the Participant under the Purchase Agreement A-33 or in any of the certificates, notices or agreements delivered pursuant to the Purchase Agreement, as to all of which recourse shall be had solely to the assets of the Participant. The Participant's Acknowledgment The Participant agrees and acknowledges that the Authority intends to assign and grant a security interest in all or a portion of (a) its rights under the Purchase Agreement and (b) the VLF Receivable, to the Trustee and each Credit Enhancer pursuant to the Indenture. The Participant further agrees and acknowledges that the Trustee, the Noteholders, and each Credit Enhancer have relied and shall continue to rely upon each of the foregoing representations, warranties and covenants, and further agrees that such Persons are entitled so to rely thereon. Each of the above representations, warranties and covenants shall survive any assignment and grant of a security interest in all or a portion of the Purchase Agreement or the VLF Receivable to the Trustee and each Credit Enhancer and shall continue in full force and effect, notwithstanding any subsequent termination of the Purchase Agreement and the other transaction documents. The above representations, warranties and covenants shall inure to the benefit of the Trustee and each Credit Enhancer. Amendments The Agreement may be amended by the Participant and the Authority, with (a) the consent of the Trustee, (b) the consent of each Credit Enhancer, and (c) a Rating Agency Confirmation, but without the consent of any of the Noteholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Purchase Agreement. Promptly after the execution of any such amendment, the Authority shall furnish written notification of the substance of such amendment to the Trustee and to the Rating Agencies. Third Party Rights The Trustee and each Credit Enhancer are express and intended third party beneficiaries under the Purchase Agreement. Nothing expressed in or to be implied from the Purchase Agreement is intended to give, or shall be construed to give, any Person, other than the parties to the Purchase Agreement, the Trustee, and each Credit Enhancer, and their permitted successors and assigns under the Purchase Agreement, any benefit or legal or equitable right, remedy or claim under or by vrtue of the Purchase Agreement or under or by virtue of any provision in the Purchase Agreement. A-34 APPENDIX B BOOK-ENTRY ONLY SYSTEM The information in this Appendix B concerning The Depository Trust Company ("DTC"), New York, New York, and DTC's book entry system has been obtained from DTC, and the Authority and the Underwriters take no responsibility for the completeness or accuracy thereof The Authority and the Underwriters cannot and do not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of principal of and interest on the Notes, (b) certificates representing ownership interest in or other corifirmation or ownership interest in the Notes, or (c) notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Notes, or that they will do so on a timely basis, or that DTC, Direct Participants or DTC Indirect Participants will act in the manner described in this Appendix B. 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 Direct Participants are onfile with DTC. DTC will act as securities depository for the Notes. The Notes 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 series of the Notes, each in the aggregate principal amount of such series of Notes, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non- U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post- trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, "NSCC," "GSCC," "MBSCC," and "EMCC," also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has S&P'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. Purchases of the Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes 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 B-1 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 Notes 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 Notes, except in the event that use of the book-entry system for the Notes is discontinued. To facilitate subsequent transfers, all Notes 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 Notes 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 Notes; DTC's records reflect only the identity ofthe Direct Participants to whose accounts such Notes are credited, which mayor 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 Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the Notes may wish to ascertain that the nominee holding the Notes 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Notes 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 Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of and interest evidenced by the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of and interest evidenced by the Notes to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority 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. NONE OF THE AUTHORITY, THE UNDERWRITERS OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, INDIRECTPARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS. B-2 DTC may discontinue providing its services as depository with respect to the Notes at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, note certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply. B-3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement is executed and delivered as of March I, 2005 (this "Disclosure Agreement"), by the California Statewide Communities Development Authority (the "Authority") Wells Fargo Bank, National Association, as dissemination agent (the "Dissemination Agent") and Wells Fargo Bank, National Association, as trustee (the "Trustee") in connection with the $454,580,000 aggregate principal amount of California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program), consisting of $150,730,000 Series 200SA-I (Taxable) (the "Series 200SA-I Notes"), $147,140,000 Series 200SA-2 (Taxable) (the "Series 200SA-2 Notes" and together with the Series 200SA-I Notes, the "Series 200SA Notes"), $67,865,000 Series 200SB-I (Tax-Exempt) (the "Series 200SB-I Notes"), $69,600,000 Series 200SB-2 (Tax-Exempt) (the "Series 200SB-2 Notes" and together with the Series 200SB-I Notes, the "Series 200SB Notes") and $19,245,000 Series 200SC (Tax-Exempt) (the "Series 200SC Notes" and, together with the Series 200SA Notes and the Series 200SB Notes, the "Notes"). The Notes are being issued pursuant to the Joint Exercise of Powers Act contained in Chapter 5 (commencing with Section 6500) of Division 7 of Title I of the Government Code of the State of California (the "Act") and an Indenture, dated as of March I, 2005 (the "Indenture"), by and between the Authority and the Trustee. The Authority, the Dissemination Agent and the Trustee hereby covenant and agree as follows: I. Purpose of this Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Authority, the Dissemination Agent and the Trustee for the benefit of the Holders or Beneficial Holders of the Notes and to assist the Participating Underwriters in complying with the Rule (as defined below). 2. Defmitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms have the following meanings: "Annual Financial Information" means any Annual Financial Information provided by the Authority pursuant to, and as described in, Section 3 of this Disclosure Agreement. "Beneficial Holder" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Notes (including persons holding Notes through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Notes for federal income tax purposes. "Commission" means the U.S. Securities and Exchange Commission. "Disclosure Representative" means a Program Manager of the Authority or his or her designee, or such other officer or employee as the Authority shall designate in writing to the Dissemination Agent from time to time. "Dissemination Agent" means Wells Fargo Bank, National Association, acting in its capacity as Dissemination Agent hereunder, or any other person appointed or engaged by the C-I Authority, from time to time, to assist it in complying with the requirements of the Rule and carrying out its obligations under this Disclosure Agreement. "Holder" means the registered Holder, as indicated in the register, of any Note, including Cede & Co., as nominee of The Depository Trust Company, New York, New York, and its successors and assigns, or any other securities depository selected for the Notes, as the sole registered Holder ofthe Notes on book-entry form. "Listed Events" means any of the events listed in Section 4(a) of this Disclosure Agreement. "National Repository" means, at any time, a then-existing nationally recognized municipal securities information repository, as recognized from time to time by the Commission for the purpose referred to in the Rule. The National Repositories are identified on the Commission website at http://www.sec.gov/info/municipaVnrmsir.htm. "Participating Underwriter" means any of the original purchasers of the Notes required to comply with the Rule in connection with the offering ofthe Notes. "Repository" means each National Repository and each State Repository. "Rule" means paragraph (b)(5) of Rule I5c2-I2 adopted by the Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time, and including any official interpretations thereof issued either before or after the effective date of this Disclosure Agreement which are applicable to this Disclosure Agreement. "State" means the State of California. "State Repository" means any public or private repository or entity designated by the State as a state repository for the purpose of the Rille and recognized as such by the Commission. As of the date of this Disclosure Agreement, there is no State Repository. 3. Annual Financial Information. a. The Authority shall provide, or shall cause the Dissemination Agent to provide, Annual Financial Information with respect to each fiscal year of the Authority, not later than February 1 in each year, commencing in February 1, 2006, to each Repository. The Annual Financial Information may be submitted in one document or multiple documents, and at one time or in part from time to time. The Authority shall provide a written certification with the Annual Financial Information furnished to the Dissemination Agent to the effect that such Annual Financial Information constitutes the Annual Financial Information required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Authority and shall have no duty or obligation to review such Annual Financial Information. b. The Annual Financial Information shall be a reference to, but shall not incorporate by reference, the most recent information relating to the General Fund of the State, filed by the State as provided under the Rule, which have been submitted either to (i) each of the Repositories or (ii) the Commission. If the document referred to is a "[mal official statement" as C-2 defined in paragraph (f)(3) of the Rule, it must be available from the Municipal Securities Rulemaking Board. c. Not later than IS Business Days prior to the date specified in subsection (a) above for providing the Annual Financial Information to Repositories, the Authority shall provide the Annual Financial Information to the Dissemination Agent. If by such date, the Dissemination Agent has not received a copy of the Annual Financial Information, the Dissemination Agent shall contact the Authority to determine if the Authority is in compliance with the first sentence of this subsection (c). If the Dissemination Agent is unable to verify that the Annual Financial Information has been provided to the Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to (i) either the Municipal Securities Rulemaking Board or each National Repository and (ii) each State Repository. d. The Dissemination Agent shall: 1. determine each year prior to the date for providing the Annual Financial Information the name and address of each National Repository and each State Repository; and 2. file a report with the Authority certifYing that the Annual Financial Information has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. The contents, presentation and format of the Annual Financial Information may be modified from time to time as determined in the judgment of the Authority to conform to changes in disclosure principles or practices and legal requirements followed by the Authority; provided that any such modifications shall comply with the requirements of the Rule. 4. Reporting of Significant Events. a. Pursuant to the provisions of this Section 4, the Authority shall provide, or cause to be provided, to each Repository notice of the occurrence of any of the following events with respect to the Notes, if material: I. 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 fmancial difficulties; 5. substitution of credit or liquidity providers, or their failure to perform; 6. adverse tax opinions or events affecting the tax status of the security; C-3 7. modifications to the rights of security holders; 8. bond calls; 9. defeasances; 10. release, substitution, or sale of property, if any, securing repayment of the securities; and II. rating changes. b. The Trustee shall, promptly after obtaining actual knowledge of the occurrence of any of the Listed Events (except events listed in clauses (a)(l), (4) or (5)), contact the Disclosure Representative, inform such person of the event, and request that the Authority promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (I) and promptly direct the Trustee whether or not to report such event to the Bondholders unless otherwise required to be reported by the Trustee to the Bondholders under the Indenture. For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the office of the Trustee with responsibility for matters regarding the Indenture. c. Whenever the Authority obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Authority shall as soon as possible determine if such event would be material under applicable federal securities laws. d. If the Authority determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Authority shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (I). e. If the Authority determines that knowledge of the occurrence of a Listed Event would not be material under applicable federal securities laws, the Authority shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (I). f. If the Dissemination Agent is instructed by the Authority to report the occurrence of a Listed Event, the Dissemination Agent shall file, or cause to be filed, in a timely manner a notice of such event with (i) either the Municipal Securities Rulemaking Board or each National Repository, (ii) each State Repository, and (iii) the Trustee. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice, if any, of the underlying event is given to Holders of affected Notes pursuant to the Indenture. Any notice of Listed Events relating to the defeasance of Notes shall state whether the Notes will be escrowed to maturity or to an earlier redemption date and the timing of such maturity or redemption. g. Each notice of the occurrence of a Listed Event shall be so captioned and prominently state the title, date and CUSIP numbers of the Notes or, with respect to a notice of C-4 the occurrence of a Listed Event relating to all issues of the Authority, the CUSIP number of the Authority. h. The Authority may satisfY its obligations hereunder to file any notice, document or information with each by filing the same with any dissemination agent or conduit, including the Municipal Advisory Council of Texas or any other "central post office" or similar entity, assuming or charged with responsibility for accepting notices, documents or information for transmission to each applicable Repository, to the extent permitted by the Commission or Commission staff or required by the Commission. For this purpose, permission shall be deemed to have been granted by the Commission staff if and to the extent the agent or conduit has received an interpretive letter, which has not been revoked, from the Commission staff to the effect that using the agent or conduit to transmit information to each Repository will be treated for purposes of the Rule as if such information were transmitted directly to each Repository. i. Unless otherwise required by law and, in the Authority's sole determination, subject to technical and economic feasibility, the Authority shall employ such methods of information and notice transmission as shall be requested or recommended by the herein- designated recipients of the Authority information and notices. j. Annual Financial Information shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. 5. Effective Date. This Disclosure Agreement shall be effective upon the issuance of the Notes. 6. Termination of Reporting Obligation. The Authority's, Dissemination Agent's and Trustee's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. If such termination occurs prior to the final maturity of the Notes, the Authority shall give notice of such termination in the name manner as for a Listed Event under Section 4. This Disclosure Agreement, or any provision hereof shall be null and void in the event that the Authority (I) delivers to the Trustee an opinion of a nationally recognized bond counselor counsel expert in federal securities laws, addressed to the Authority and Trustee, to the effect that those portions ofthe Rule which require this Disclosure Agreement, or any of the provisions hereof, do not or no longer apply to the Notes, whether because such portions of the Rule are invalid, have been repealed, or otherwise, as shall be specified in such opinion, and (2) delivers copies of such opinions to each Repository. 7. Dissemination Agent. The Authority may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing (i) sixty (60) days written notice to the Authority and (ii) upon appointment of a new Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Authority pursuant to this Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The initial Dissemination Agent shall be Wells Fargo Bank, National Association. C-5 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Authority, the Dissemination Agent and the Trustee may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: a. If the amendment or waiver relates to the provisions of subsection 3(a) or subsection 4(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 Notes, or the type of business conducted; b. This Disclosure Agreement, as so amended, would, in the opinIOn of nationally recognized bond counsel, have complied with the requirements of the Rule as of the date hereof, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and the Authority shall have delivered copies of such opinion and amendment to each Repository; and c. The amendment or waiver either (i) is approved by the Holders of the Notes in the same manner as provided in the Indenture for amendments to the Indenture with the consent of the Holders of the Notes, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Holders of the Notes. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Authority shall describe such amendment or waiver in the next Annual Financial Information, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and the impact of the change in the type of operating data or financial information being provided. 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Authority from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Authority chooses to include any information in any Annual Financial Information or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Authority shall have no obligation under this Disclosure Agreement to update such additional information or include it in any future Annual Financial Information or notice of occurrence of a Listed Event. 10. No Previous Non-Compliance. The Authority represents that in the previous five years it has not failed to comply in any material respect with any previous undertaking in a written contract or agreement specified in paragraph (b)(5)(i) of the Rule. II. Default. In the event of a failure of the Authority to comply with any provision of this Disclosure Agreement, any Holder or Beneficial Holder of the Notes may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by C-6 court order, to cause the Authority to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture with respect to the Notes, and the sole remedy under this Disclosure Agreement in the event or any failure of the Authority to comply with this Disclosure Agreement shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. 12. Duties Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Authority agrees, to the extent permitted by law, 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 Authority under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes. 13. Beneficiaries; Third-Partv Beneficiaries; Enforcement. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Dissemination Agent, the Trustee, the Participating Underwriters and the Holders, from time to time, of the Notes, except that Beneficial Holders of the Notes shall be third-party beneficiaries of this Disclosure Agreement. 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of California and the federal securities laws. Any suit or action arising out of this Disclosure Agreement shall be instituted in a count of competent jurisdiction in the State. C-7 IN WITNESS WHEREOF, the parties hereto have executed this Continuing Disclosure Agreement as of the date fIrst set forth herein. CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY By: Member WELLS FARGO BANK, NATIONAL ASSOCIATION, as Dissemination Agent By: Authorized Signatory WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: Authorized Signatory C-8 APPENDIX D PROPOSED FORM OF SPECIAL COUNSEL OPINION [Date of Closing] California Statewide Communities Development Authority Sacramento, California Re: California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005A-I (Taxable), Series 2005A-2 (Taxable), Series 2005B-I (Tax-Exempt), 2005B-2 (Tax-Exempt), and Series 2005C (Tax-Exempt) (Final Opinion) Ladies and Gentlemen: We have acted as special counsel in connection with the issuance by the California Statewide Communities Development Authority (the "Issuer") of $454,580,000 aggregate principal amount of California Statewide Communities Development Authority Revenue Anticipation Notes (Vehicle License Fee Program) Series 2005A-I (Taxable), in the principal amount of $150,730,000, Series 2005A-2 (Taxable) in the principal amount of $147,140,000 (collectively, the "Series A Notes"), Series 2005B-I (Tax-Exempt) in the principal amount of $67,865,000 and 2005B-2 (Tax-Exempt) in the principal amount of $69,600,000 (collectively, the "Series B Notes"), and Series 2005C (Tax-Exempt), in the principal amount of $19,245,000 (the "Series C Notes" and together with the Series B Notes, the "Tax-Exempt Notes," and collectively with the Series A Notes and the Series B Notes, the "Notes"), issued pursuant to Article 4 of Chapter 5 of Division 7 of Title I of the Government Code of the State of California and the Indenture, dated as of March I, 2005 (the "Indenture"), between the Issuer and Wells Fargo Bank, National Association, as trustee (the "Trustee"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, each Purchase and Sale Agreement, the Custody Agreement, the Tax Certificate of the Authority dated the date hereof and the Tax Certificate of each tax- exempt Participant (the "Seller Tax Certificates" and collectively, the "Tax Certifications"), opinions of counsel to the Trustee, the Participants and others, certificates of the Issuer, the Trustee, the Participants and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, and procedures contained or referred to in the Indenture, each Purchase and Sale Agreement, the Tax Certifications and other relevant documents may be changed and certain actions (including, without limitation, the defeasance of the Notes) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Note if any such change occurs or action is taken or omitted upon the advice orapproval of counsel other than ourselves. D-I The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Our engagement with respect to the Notes has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, each Purchase and Sale Agreement and the Tax Certifications, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Tax-Exempt Notes to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Notes, the Indenture, each Purchase and Sale Agreement and the Tax Certifications and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against joint powers authorities, counties and cities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, waiver or severability provisions contained in the foregoing documents nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Indenture or each Purchase and Sale Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. We also express no opinion regarding the validity of any law, document or instrument (except the Notes, the Indenture and each Purchase and Sale Agreement, to the extent specifically set out below) that may be related to the issuance, payment or security of the Notes. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Notes and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: I. The Notes constitute the valid and binding limited obligations of the Issuer. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Issuer. The Indenture creates a valid pledge to secure the payment of the principal of and interest on the Notes, of the Revenues and any other amounts (including proceeds of the sale of the Notes) held by the Trustee in any fund or account established pursuant to the Indenture, except the Rebate Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the conditions and terms set forth in the Indenture. The Indenture also creates a valid assignment to the Trustee, for the benefit of the holders from time to time of the Notes, of the right, title and interest of the Issuer in each Purchase and Sale Agreement (to the extent more particularly described in the Indenture). 3. Each Purchase and Sale Agreement has been duly executed and delivered by, and constitutes a valid and binding agreement of, the Issuer. D-2 4. The Notes are not a lien or charge upon the funds or property of the Issuer except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing power of the State of California or of any political subdivision thereof is pledged to the payment of the principal of or interest on the Notes. The Notes are not a debt of the State of California, and said State is not liable for the payment thereof. 5. Interest on the Tax-Exempt Notes is exempt from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, and interest on the Notes is exempt from State of California personal income taxes. Interest on the Tax-Exempt Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Series A Notes is not excluded from gross income for federal income tax purposes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Notes. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per D-3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX E SPECIMEN FSA MUNICIPAL BOND INSURANCE POLICY E-l (THIS PAGE INTENTIONALLY LEFf BLANK) United States Bankruptcy Code by a trustee in bankruptcy in accordance with 01 a court having competent jurisdiction. "Notice" means telephonic or t conlirmed in a signed writing, or written notice by registered or certilied ail, or the Paying Agent to Financial Security which notice shall speci (a the claim, (b) the Policy Number, (c) the claimed amount and (d) the s ch cI lor Payment. "Owner" means, in respect 01 a Bond, the perso r e tity ho, is entitled under the terms 01 such Bond to payment ther 01, exce t t at "0 Issuer or any person or entity whose direct or indirect o' io con it es th Bonds. is al t s 01 i e r n I n c u ci this tice a al S wet by f ra ,W n d se i ac da It, and r otherwise) subrogation, av Ie to Financial press provisions 01 RITY ASSURANCE INC. has caused this Policy to be FINANCIAL SECURITY ASSURANCE INC. By Authorized Officer (212) 826-0100 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX F SPECIMEN XLCA INSURANCE POLICY F-l (THIS PAGE INTENTIONALLY LEFT BLANK) }X4bCAPITAL ASSURANCE 1221 Avenue of the Americas New York, New York 10020 Telephone: (212) 478-3400 MUNICIPAL BOND INSURANCE POLICY ISSUER: Policy No: [ BONDS: Effective Date: [ XL Capital Assurance Inc. (XLCA), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy (which includes each endorsement attached hereto), hereby agrees unconditionally and irrevocably to pay to the trustee (the "Trustee") or the paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the benefit of the Owners of the Bonds or, at the election of XLCA, to each Owner, that portion of the principal and interest on the nds that shall become Due for Payment but shall be unpaid by reason of Nonpayment. XLCA will pay such amounts to or for the benefit of the Owner interest becomes Due for Payment or one (I) Business Day followin e B Notice of Nonpayment (provided that Notice will be deemed receiv a.m. Pacific time on such Business Day; otherwise it will be ee receipt by XLCA, in a form reasonably satisfactory to it, f principal or interest then Due for Payment and (b) evide the Owner's rights with respect to payment of sue XLCA. Upon such disbursement, XLCA shall beco right to receipt of payment of principal and i eres including the Owner's right to receive payme s by XLCA to the Trustee or Paying Age XLCA under this Policy. th day on which such principal and on w 'ch XLCA shall have received ay it is received prior to 10:00 e ext usiness Day), but only upon e 0 the r' right to receive payment of the riate 'nstruments of assignment, that all of is e for Payment shall thereupon vest in o , y appurtenant coupon to the Bond or the fully subrogated to the rights of the Owner, t of any payment by XLCA hereunder. Payment all, to the extent thereof, discharge the obligation of notice hat any payment of principal or interest on a Bond which has ner y or on behalf of the Issuer of the Bonds has been recovered from a ourt competent jurisdiction that such payment constitutes an avoidable applicable bankruptcy law, such Owner will be entitled to payment from nds are not otherwise available. The following meanings specified for all purposes of this Policy, except to the extent such terms are expressly modified by ent to this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which bank! ins tions in the State of California, the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment". when referring to the principal of Bonds, is when the stated maturity date or a mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity, unless XLCA shall elect, in its sole discretion, to pay such principal due upon such acceleration; and, when referring to interest on the Bonds, is when the stated date for payment of interest has been reached. "Nonpayment" means the failure of the Issuer to have provided sufficient funds to the Trustee or Paying Agent for payment in full of all principal and interest on the Bonds which are Due for Payment. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to XLCA which notice shall specifY (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. XLCAP-005 (Muni Spec - Califomia 12-2001) 1 XLCA may, by giving written notice to the Trustee and the Paying Age , Fiscal Agent") for purposes of this Policy. From and after the date of receipt b notice, which shall specify the name and notice address of the Insurer's Fisc delivered to XLCA pursuant to this Policy shall be simultaneously deliv d t shall not be deemed received until received by both and (b) all paym ts r may be made directly by XLCA or by the Insurer's Fiscal Agent 0 0 of XLCA only and the Insurer's Fiscal Agent shall in no event be or any failure of XLCA to deposit or cause to be deposited s lC' a Ii' licy is non-cancelable by XLCA, and lic e not insure against loss of any prepayment c of any Bond, other than at the sole option of o the full undertaking of XLCA and shall not be 109 any modification or amendment thereto. Except to the extent expressly modified by an (b) the Premium on this Policy is not refundable or other acceleration payment which at any tim XLCA, nor against any risk other than No y modified, altered or affected by any othe gree E INSOLVENT, ANY CLAIMS ARISING UNDER IA GUARANTY INSURANCE FUND SPECIFIED IN CE CODE. olicy to be executed on its behalf by its duly authorized officers. SPECIMEN Name: Title: Name: Title: XLCAP-005 (Muni Spec - California 12-2001) 2 APPENDIX G SPECIMEN XLCA INVESTMENT AGREEMENT INSURANCE POLICY G-l (THIS PAGE INTENTIONALLY LEFf BLANK) >I4bCAPITAL ASSURANCE 1221 Avenue of the Americas New York, New York 10020-1001 Telephone: (212) 478-3400 Telecopier: (212) 478-3597 FINANCIAL GUARANTY INSURANCE POLICY Insured Obligation: Obligations of XL Asset Funding Company I LLC to pay Scheduled Payments under the Investment Agreement No. GIC-1120 Policy No: CA01738A Effective Date: March 17,2005 XL Capital Assurance Inc. (XLCA), a New York stock insurance company, in consideration of the payment of the premium, hereby unconditionally and irrevocably guarantees to the Trustee for the benefit of the Owners of the Insured Obligations, the full and complete payment by the Obligor of Scheduled Payments in respect of the Insured Obligation, subject only to the terms of this Policy (which includes the Endorsement attached hereto). XLCA will pay the Insured Amount to the Trustee upon the presentation of a Payment Notice to XLCA, (which Payment Notice shall include an irrevocable assigmnent to XLCA of all rights and claims in respect of the relevant Insured Obligation, as specified in the Payment Notice), on the later of (a) one (I) Business Day following receipt by XLCA of a Payment Notice or (b) the Business Day on which Scheduled Payments are due for payment. XLCA shall be subrogated to the Owners' rights to payment on the Insured Obligations to the extent of any payment by XLCA hereunder. The obligations of XLCA with respect to a Scheduled Payment will be discharged to the extent funds to pay such Scheduled Payment are deposited in the account specified in the Payment Notice, whether such funds are properly applied by the Trustee or claimed by an Owner. In addition, in the event that any Scheduled Payment which has become due for payment and which is made to an Owner by or on behalf of the Trustee is recovered or is recoverable from the Owner pursuant to a final order of a court of competent jurisdiction in an Insolvency Proceeding that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law, XLCA unconditionally and irrevocably guarantees payment of the amount of such recovery (in accordance with the Endorsement attached hereto). This Policy sets forth in full the undertaking of XLCA and shall not be cancelled or revoked by XLCA for any reason, including failure to receive payment of any premium due hereunder or under the Insurance Agreement, and may not be further endorsed or modified without the written consent of XLCA. The premium on this Policy is not refundable for any reason. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Insured Obligation, other than at the sole option of XLCA, nor against any risk other than Nonpayment and Avoided Payment, including any shortfalls, if any, attributable to the liability of the Obligor for taxes or withholding taxes if any, including interest and penalties in respect of such liability. IN THE EVENT XLCA WERE TO BECOME INSOLVENT, ANY CLAIMS ARISING UNDER THIS POLICY ARE NOT COVERED BY THE CALIFORNIA GUARANTY INSURANCE FUND SPECIFIED IN ARTICLE 12119(b) OF THE CALIFORNIA INSURANCE CODE. Any capitalized terms not defined herein shall have the meaning given such terms in the Endorsement attached hereto and forming a part hereof, or in the Insurance Agreement referenced therein. In witness whereof, XLCA has caused this Policy to be executed as of the Effective Date. Name: Title: Name: Title: XLCAP-004v.03/03/05-CA (THIS PAGE INTENTIONALLY LEFT BLANK) Financial Guaranty Insurance Policy Endorsement Effective Date March 17, 2005 Attached to and forming part of Financial Guaranty Insurance Policy No. CA01738A Obligor: XL Asset Funding Company I LLC Insured Obligation: Obligations of the Obligor to pay Scheduled Payments under the Investment Agreement No. GIC-1120 (the "Investment Agreement") Beneficiary: Wells Fargo Bank, National Association (the "Trustee") on behalf of the Issuer (as defined in the Investment Agreement) Capitalized terms used herein and not otherwise defmed herein or in the Policy shall have the meanings assigned to them in the Investment Agreement. As used herein the term "Insolvency Proceeding" means the commencement, after the date hereof, of any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of assets and liabilities or similar proceedings by or against any Person, the commencement, after the date hereof, of any proceedings by or against any Person for the winding up or liquidation of its affairs, or the consent, after the date hereof, to the appointment of a trustee, conservator, receiver or liquidator in any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of assets and liabilities or similar proceedings of or relating to any Person. As used herein the term "Investment Agreement" means that certain Investment Agreement, Contract No. GIC-1l20, dated as of March 17,2005 between the Trustee and the Obligor. As used herein the term "Insured Amount" means that portion of the Scheduled Payments that shall become due for payment but shall be unpaid by reason of Nonpayment. As used herein the term "Nonpayment" means, with respect to any Scheduled Payment that is due for payment, the failure of the Trustee to receive in full, in accordance with the provisions of the Investment Agreement, that Scheduled Payment which is due for payment with respect to such date. As used herein the term "Owner" means the Issuer as the registered owner of any Insured Obligation as indicated in the registration books maintained by or on behalf of the Obligor for such purpose. As used herein, the term "Person" means an individual, a partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization, and a government or any department or agency. As used herein the term "Scheduled Payment" means the scheduled repayment of the Investment and payment of any Earnings thereon in accordance with the original terms of the Investment Agreement, without regard to any amendment or modification of the Investment Policy Form 004 Endorsement Agreement after the Effective Date, unless such amendment or modification is approved by XLCA in writing; provided that "Scheduled Pavments" shall in no event include payments which become due on an accelerated basis prior to the date when such payment was originally scheduled to be due under the Investment Agreement, whether as a result of (i) any default by the Obligor, (ii) early withdrawals unless in accordance with Section 2.3 and Section 4.2 of the Investment Agreement, or (iii) any other cause, unless XLCA, in its sole discretion, elects to make such payments on an accelerated basis and, if XLCA does not so elect to make such payments on an accelerated basis, such payments shall be made in such amounts and at such times as such payments would have been due had there not been any such acceleration, provided. further, that "Scheduled Pavments" shall not include, nor shall coverage be provided under the Policy in respect of, (i) any make whole payment, (ii) any amounts due in respect of the Investment Agreement attributable to any increase in interest rate, penalty or other sum payable by the Obligor by reason of any default or event of default by or in respect of the Obligor under the Investment Agreement, or by reason of any deterioration of the creditworthiness of the Obligor, or (iii) any taxes, withholding or other charge imposed by any governmental authority due in connection with the payment of any Scheduled Payment to any Person under the Investment Agreement. As used herein, the term "Term of this Policv" means the period from and including the Effective Date to and including (i) the period ending on the first date on which all Scheduled Payments have been paid that are required to be paid by the Obligor under the Investment Agreement and (ii) any period during which any Scheduled Payment could have been avoided in whole or in part as a preference payment under applicable bankruptcy, insolvency, receivership or similar law has expired; provided, however, if any proceedings requisite to avoidance as a preference payment have been commenced prior to the occurrence of (i) and (ii) above, a final and nonappealable order in resolution of each such proceeding has been entered provided, further, that if any Owner or the Trustee is required to return any Avoided Payment (as defined below) as a result of such insolvency proceeding, then the Term of the Policy shall terminate on the date on which XLCA has made all payments required to be made under the terms of this Policy in respect of all such A voided Payments. To make a claim under the Policy, the Trustee shall deliver to XLCA a Payment Notice in the form of Exhibit A hereto (a "Pavment Notice"), appropriately completed and executed by the Trustee. A Payment Notice under this Policy may be presented to XLCA by (i) delivery of the original Payment Notice to XLCA at its address set forth below, or (ii) facsimile transmission of the original Payment Notice to XLCA at its facsimile number set forth below. If presentation is made by facsimile transmission, the Trustee shall (x) simultaneously confirm transmission by telephone to XLCA at its telephone number set forth below, and (y) as soon as reasonably practicable, deliver the original Payment Notice to XLCA at its address set forth below. Any Payment Notice received by XLCA after 12:30 p.m., New York City time, on a Business Day, or on any day that is not a Business Day, will be deemed to be received by XLCA at 9:00 a.m., New York City time, on the next succeeding Business Day. XLCA shall make payments due in respect of Insured Amounts no later than 2:00 p.m. New York City time to the Trustee upon the presentation of a Payment Notice to XLCA on the later of (a) one (I) Business Day following receipt by XLCA of a Payment Notice or (b) the Business Day on which Scheduled Payments are due for payment. 2 Subject to the foregoing, if the payment of any amount with respect to the Scheduled Payment is voided (a "Preference Event") as a result of an Insolvency Proceeding and as a result of such Preference Event, the Owner or the Trustee is required to return such voided payment, or any portion of such voided payment, made in respect of the Insured Obligation (an "Avoided Pavrnent"), XLCA will pay an amount equal to such Avoided Payment, as and when such payment would otherwise be due pursuant to the Investment Agreement without regard to acceleration or prepayment; provided, however that XLCA shall be required to make such payment hereunder in respect of an Avoided Payment only, upon (i) such Avoided Payment being refunded by the Owner or the Trustee and (ii) receipt by XLCA from the Trustee on behalf of such Owner of (x) a certified copy of a final order of a court exercising jurisdiction in such Insolvency Proceeding to the effect that the Owner or the Trustee on behalf of the Owner is required to return any such payment or portion thereof because such payment was voided under applicable law, with respect to which order the appeal period has expired without an appeal having been filed (the "Final Order"), (y) an assignment, substantially in the form attached hereto as Exhibit B, properly completed and executed by such Owner irrevocably assigning to XLCA all rights and claims of such Owner relating to or arising under such Avoided Payment, and (z) a Payment Notice in the form of Exhibit A hereto appropriately completed and executed by the Trustee. XLCA shall make payments due in respect of A voided Payments no later than 2:00 p.m. New York City time on the Business Day following XLCA's receipt of the documents required under clauses (x) through (z) of the preceding paragraph. Any such documents received by XLCA after 10:00 a.m., New York City time on any Business Day or on any day that is not a Business Day shall be deemed to have been received by XLCA at 9:00 a.m., New York City time, on the next succeeding Business Day. All payments made by XLCA hereunder on account of any Avoided Payment shall be made to the Trustee for the benefit of the Owner entitled to such payment. XLCA hereby waives and agrees not to assert any and all rights to require the Trustee to make demand on or to proceed against any person, party or security prior to the Trustee demanding payment under this Policy. No defenses, set-offs and counterclaims of any kind available to XLCA so as to deny payment of any amount due in respect of this Policy will be valid and XLCA hereby waives and agrees not to assert any and all such defenses (including, without limitation, defense of fraud in the inducement or fact, or any other circumstances which would have the effect of discharging a surety in law or in equity), set-offs and counterclaims, including, without limitation, any such rights acquired by subrogation, assignment or otherwise. Upon any payment hereunder, in furtherance and not in limitation of XLCA's equitable right of subrogation and XLCA's rights under the Insurance Agreement, XLCA will be subrogated to the rights of the Owner in respect of which such payment was made to receive any and all amounts due in respect of the obligations in respect of which XLCA has made a payment hereunder. Any rights of subrogation acquired by XLCA as a result of any payment made under this Policy shall, in all respects, be subordinate and junior in right of payment to the prior indefeasible payment in full of any amounts due the Owner on account of payments due under the Insured Obligation. 3 This Policy is neither transferable nor assignable, in whole or in part, except to a successor trustee duly appointed and qualified under the Indenture (as defined in the Investment Agreement). All Payment Notices and other notices, presentations, transmissions, deliveries and communications made by the Trustee to XLCA with respect to this Policy shall specifically refer to the number of this Policy and shall be made to XLCA at: XL Capital Assurance Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: Surveillance Telephone: (212) 478-3400 Facsimile: (212) 478-3597 or such other address, telephone number or facsimile number as XLCA may designate to the Trustee in writing from time to time. Each such notice, presentation, transmission, delivery and communication shall be effective only upon actual receipt by XLCA. The obligations ofXLCA under this Policy are irrevocable, primary, absolute and unconditional, subject to satisfaction of the conditions for making a claim under the Policy, and neither the failure of any Person to perform any covenant or obligation in favor of XLCA (or otherwise), nor the failure or omission to make a demand permitted hereunder, nor the failure of any assignment or grant of any security interest, nor the commencement of any Insolvency Proceeding shall in any way affect or limit XLCA's obligations under this Policy. If a successful action or proceeding to enforce this Policy is brought by the Trustee, the Trustee shall be entitled to recover from XLCA costs and expenses reasonably incurred, including, without limitation, reasonable fees and expenses of counsel. This Policy and the obligations of XLCA hereunder shall terminate on the expiration of the Term of the Policy. This Policy shall be returned to XLCA by the Trustee upon the expiration of the Term of the Policy. In the event that XLCA were to become insolvent, the California Insurance Guaranty Association, established pursuant to Article 14.2 of Chapter I of Part 2 of Division I of the California Insurance Code excludes from coverage any claims arising under this Policy. In the event any term or provision of the form of this Policy is inconsistent with the provision of this Endorsement, the provision of this Endorsement shall take precedence and be binding. This Policy shall be returned to XLCA by the Trustee on the Termination Date. [Remainder of Page Intentionally Left Blank] 4 IN WITNESS WHEREOF, XL Capital Assurance Inc. has caused this Endorsement to the Policy to be executed on the Effective Date. Name: Title: Name: Title: 5 (THIS PAGE INTENTIONALLY LEFT BLANK) Exbibit A to Financial Guaranty Policy No. CA01738A XL Capital Assurance Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: Surveillance PAYMENT NOTICE UNDER FINANCIAL GUARANTY POLICY NO. CA01738A Wells Fargo Bank, National Association, as Trustee (the "Trustee"), hereby certifies to XL Capital Assurance Inc. ("XLCA") with reference to that certain Financial Guaranty Policy, No. CAOI738A, dated March 17, 2005 (the "Policy"), issued by XLCA in favor of the Trustee on behalf of the Owner, as follows: I. The Trustee is the trustee under that certain Indenture dated as of , 2005 between the Trustee and California Statewide Communities Development Authority and the beneficiary on behalf of each Owner of the Policy. 2. Trustee is entitled to make a demand under the Policy pursuant to [Describe Relevant Transaction Document Provisions]. 3. This notice relates to the [insert date] [Payment] [Distribution] Date. The amount demanded is to be paid in immediately available funds to the [Specify Account] at [Identify Financial Institution Holding Account] account number[ _]. [For a Payment Notice in respect of Insured Amounts other than Avoided Payment, use paragraph 4.] 4. The Trustee demands payment of $ which is an amount equal to the amount by which the [Describe calculation ofInsured Amount under Policy]. [For a Payment Notice in respect of an Avoided Payment use the following paragraphs [4] or [5].] [4.] or [5.] The Trustee hereby represents and warrants, based upon information available to it, that (i) the amount entitled to be drawn under the Policy on the date hereof in respect of Avoided Payments is the amount paid or to be paid simultaneously with such draw on the Policy, by the Owner on account of a Preference Event [$ 1 (the "Avoided Payment Amount"), (ii) the Owner with respect to which the drawing is being made under the Policy has paid or simultaneously with such draw on the Policy will pay such A voided Payment Amount, and (iii) the documents required by the Policy to be delivered in connection with such Avoided Payment and Avoided Payment Amount have previously been presented to XLCA or are attached hereto. [6.] The Trustee agrees that, following payment of funds by XLCA, it shall use reasonable efforts to procure (a) that such amounts are applied directly to the payment of any A-I Insured Amount which is due for payment; (b) that such funds are not applied for any other purpose; and (c) the maintenance of accurate record of such payments in respect of the Insured Obligation and the corresponding claim on the Policy and the proceeds thereof. [7.] The Trustee, on behalf of itself and the Owners, hereby assigns to XLCA all rights and claims (including rights of actions and claims in respect of securities laws violations or otherwise) of the Trustee and the Owners with respect to the Insured Obligation to the extent of any payments under the Policy. The foregoing assignment is in addition to, and not in limitation of, rights of subrogation otherwise available to XLCA in respect of such payments. The Trustee shall take such action and deliver such instruments as may be reasonably required by XLCA to effectuate the purposes of the provisions of this Clause [7]. [8.] The Trustee, on behalf of itself and the Owners, hereby appoints XLCA as agent and attorney-in-fact for the Trustee and the Owners in any legal proceeding in respect of the Insured Obligation. The Trustee, on behalf of itself and the Owners, thereby (and without limiting the generality of the preceding sentence) agrees that XLCA may at any time during the continuation of any proceeding by or against any debtor with respect to which a Preference Claim (as defmed below) or other claim with respect to the Insured Obligation is asserted under any Insolvency Proceeding, direct all matters relating to such Insolvency Proceeding, including, without limitation, (a) all matters relating to any claim in connection with an Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment made with respect to the obligations (a "Preference Claim"), (b) the direction of any appeal of any order relating to any Preference Claim and (c) the posting of any surety, supersedes or performance bond pending any such appeal. In addition, the Trustee, on behalf of itself and the Owners, hereby agrees that XLCA shall be subrogated to, and the Trustee, on behalf of itself and the Owners, hereby delegates and assigns, to the fullest extent permitted by law, the rights of the Trustee and the Owners in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. Capitalized terms used herein and not otherwise defmed herein shall have the meanings assigned to them in the Policy or the Investment Agreement. A-2 IN WITNESS WHEREOF, this notice has been executed this _ day of ,-" WELLS FARGO BANK, ASSOCIATION, as Trustee NATIONAL By: Authorized Officer Any Person Who Knowingly And With Intent To Defraud Any Insurance Company Or Other Person Files An Application For Insurance Or Statement Of Claim Containing Any Materially False Information, Or Conceals For The Purpose Of Misleading Information Concerning Any Fact Material Thereof, Commits A Fraudulent Insurance Act, Which Is A Crime, And Shall Also Be Subject To A Civil Penalty Not To Exceed Five Thousand Dollars And The Stated Value Of The Claim For Each Such Violation A-3 (THIS PAGE INTENTIONALLY LEFT BLANK) Exhibit B to Financial Guaranty Insurance Policy, No. CA01738A Form of Assignment Reference is made to the Financial Guaranty Insurance Policy No. CA-01738A, dated March 17, 2005 (together with the Endorsement attached thereto, the "Policv") issued by XL Capital Assurance Inc. ("XLCA") relating to the obligations of XL Asset Funding Company I LLC to pay Scheduled Payments under Investment Agreement No. GIC-1120. Unless otherwise defined herein, capitalized terms used in this Assignment shall have the meanings assigned thereto in the Policy as incorporated by reference therein. In connection with the Avoided Payment of [$ ] paid by the undersigned (the "Owner") on [ ] and the payment by XLCA in respect of such Avoided Payment pursuant to the Policy, the Owner hereby irrevocably and unconditionally, without recourse, representation or warranty (except as provided below), sells, assigns, transfers, conveys and delivers all of such Owner's rights, title and interest in and to any rights or claims, whether accrued, contingent or otherwise, which the Owner now has or may hereafter acquire, against any person relating to, arising out of or in connection with such A voided Payment. The Owner represents and warrants that such claims and rights are free and clear of any lien or encumbrance created or incurred by such Owner.! Owner 107207v! In the event that the terms of this form of assignment are reasonably determined to be insufficient solely as a result of a change of law or applicable rules after the date of the Policy to fully vest all of the Owner's right, title and interest in such rights and claims, the Owner and XLCA shall agree on such other form as is reasonably necessary to effect such assignment, which assignment shall be without recourse, representation or warranty except as provided above. B-1 (THIS PAGE INTENTIONALLY LEFT BLANK)